Fair launches digital banking services focusing on accessibility
What’s happening? Fair, a multi-lingual digital bank, has launched a service to improve financial accessibility for people without credit, which is available for free, following payment of a $99 membership fee. The company’s founder Khalid Parekh aims for the platform to specifically provide access to US immigrants who are typically blocked from financial services. The World Bank has said about 1.7 billion adults globally have no bank account. (Springwise)
Why does this matter? Unequal access to financial services is an important global issue. Lack of access to banking, microfinance tools and loans creates barriers to effective income and wealth management and growth for the people who arguably need it the most. The World Bank Findex report, for example, highlighted in 2017 that one billion women in the world suffered from financial exclusion.
Fair’s banking model focuses on providing solutions to a demographic with very specific difficulties operating within complex mainstream banking systems. Low-income groups are typically pushed out of such systems due to extra overdraft fees, high minimum balance requirements and a lack of bank branches in their neighbourhoods. They also often face discriminatory high interest rates on loans because they are seen as high-risk – an issue keenly experienced by Black people in the US. Additionally, specific demographic groups, such as immigrants, will have different uses for financial mechanisms than those with more stable – and local – income and responsibilities.
How does it work? Similar to most microfinance initiatives, Fair is predicated on the idea that providing small loans to individuals can kickstart entrepreneurship and support the growth of microbusiness into income sources that can collectively support families and entire communities. In 2015, an assessment of the impact of microfinance in Bangladesh showed it improved food security, nutrition and access to housing, sanitation, education and health care facilities.
In Fair’s case, the target customer is immigrants lacking credit histories and savings. This group may also face language barriers and is often supporting families abroad. To address this, Fair has created a multilingual platform with access to all of its financial services for a one-time fee, including no-fee international money transfers, interest-free microloans, long-term financial savings accounts and free supplemental insurance.
While traditional banking may tend to regard low-income groups as high risk, microfinance initiatives report high repayment rates and many adopt group lending practices to reduce the impact of non-repayment when it does occur. Alongside this, microfinance works best when it encourages a behavioural change and educates customers on how to effectively use finance for long-term goals and growth.
What about other groups? Beyond the work being done at Fair, financial inclusion is taking centre stage for both large and small banks as part of their work towards social equality and diversity and inclusion. Last November, Daylight built a digital banking platform tailored to LGBTQ customers, aiming to make the banking experience more suited to this cohort’s identities and particular needs. JPMorgan Chase and Google also teamed up in February to finance minority-owned banks, with the aim of supporting lenders that could better address the needs of their local communities.
What’s happening on a larger scale? This month, several US banks announced an initiative to reduce barriers to obtain credit cards. No-check credit is a strategy typically accompanied with low credit limits and high interest rates that make them ineffective and even more financially damaging for vulnerable customers who aren’t aware of what they’re getting into. The pilot scheme, being run by JPMorgan Chase, Wells Fargo and Bank of America, among others, looks to use historical deposit account data to reduce risk of non-repayment and keep rates reasonable. Those without any of that supporting data – like immigrants – might continue to meet barriers despite the effort. Other data-based solutions, however, have also been flagged as promising.
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