by Phil Seely, VP, Customer Service & Portfolio Development, Envisant
Fourteen percent of U.S. households are underbanked according to the FDIC’s most recent National Survey of Unbanked and Underbanked Households. The FDIC describes the underbanked as those who use transaction and credit services outside their financial institutions. Credit unions seeking to bridge the gap can make use of a well-rounded debit program to help their underserved members build stronger financial health and make the most of account services available to them.
Challenges of the underserved
Being underbanked can result in financial and other daily challenges for members. While 81% of fully banked households pay bills and receive funds only from their bank accounts, a mere 38% of underbanked households do the same (FDIC). This suggests underserved members may be missing out on account benefits such as deposit insurance. Likewise, when underbanked members utilize credit from sources outside their credit union, they often end up dealing with higher interest rates that add to their financial burdens. Only 62% of underbanked households have a credit card which may also hinder them from participating in online transactions (FDIC).
How debit cards help address the financial challenges of the underserved
Debit cards can help the underserved by providing a convenient, low-cost way to manage the funds in their accounts and complete transactions. As Robin Hollis, Community Development Officer at the Illinois Credit Union League says, “Debit cards are a gateway to serving underserved communities, providing people who often lack access to financial services with a direct (in-wallet) connection to their financial institution and allowing them to navigate financial transactions that are customary for mainstream society.”
Indeed, these cards are top-of-wallet when it comes to mitigating the risk that comes with carrying cash while providing the security of insured transactions. The convenience of ATM access and the ability to complete online and point-of-sale transactions can help empower the underserved.
When combined with digital tools and other helpful services, debit cards can also make budgeting and saving money easier for members. Some creative approaches include:
Budgeting/financial wellness apps: Suggesting third-party budgeting or financial wellness apps to members that work with your credit union debit card can help them take better control of their finances. Many of these apps enable members to track funds, set spending limits and bill reminders, establish savings goals, and obtain an analysis of their spending for debt management insights.
Automatic saving: Creating opportunities for automatic saving is another way credit unions can help members bolster their financial wellbeing. Automatic recurring transfers from a debit checking account to a savings account can help members save on a regular basis. Round-up savings is another option where debit card purchases can be rounded up to the nearest dollar and the extra amount is deposited into a member’s savings account. By setting aside small amounts at a time, members can start saving more with little disruption to their normal lifestyle.
Envelope budgeting: Credit unions can make traditional envelope budgeting more convenient by offering sub-accounts, or virtual envelopes, for different expense categories.
A debit card program combined with some helpful related tools can empower underserved members to strengthen their financial well-being while taking better advantage of the benefits of their credit union account. They can also more seamlessly engage in a digital-based economy.
At Envisant, our team of experts is ready to help you develop a debit program that meets the needs of underserved members and assists them in enhancing their financial well-being. To learn more about the Envisant difference and get started, contact us at 1-800-942-7124.
Originally published on CUInsight
