Financial Inclusion for the Unbanked: A Guide for Agencies
July 09, 2024 by Lisa Moore
Welcome to the second part of our two-part series on unbanked consumers. In our previous post, we explored the realities and challenges faced by individuals who are unbanked. Today, we delve into how government agencies can address these challenges and better serve unbanked residents.
Regardless of the reasons a person might be unbanked, the government has a duty to facilitate financial transactions for all residents. This post will highlight the current landscape, the hurdles faced by government agencies, and the promising solutions that can help create a more inclusive financial system.
Unbanked Residents by the Numbers
Unbanked individuals in the U.S. are those without a checking or savings account at a bank or credit union. These individuals primarily use cash for transactions and store their assets in physical, offline formats. According to the most recent FDIC report in 2021, there were 5.9 million unbanked households in the United States. This significant portion of the population faces unique challenges, particularly when it comes to receiving disbursements from government agencies.
Challenges Facing Government Agencies
Government agencies often rely on traditional methods such as paper checks to disburse funds. According to the Association for Finance Professionals’ 2022 Payments Cost Benchmarking Survey, 86% of organizations use checks for their disbursements, with a typical organization processing between 500 to 999 checks each month. This reliance on paper checks presents several challenges.
Administrative Burden and Cost
Issuing paper checks is costly and time-consuming. The initial cost of producing and mailing checks is high, and this cost escalates when checks go uncashed, leading to unclaimed property that must be managed and eventually escheated.
Productivity Loss
Uncashed checks require extensive account reconciliation, diverting employee time and productivity. Unclaimed property and escheatment further drain resources, taking employees away from other critical tasks.
Resident Dissatisfaction
Paper checks can lead to frustration among residents, particularly unbanked individuals who may find it difficult to cash these checks. This dissatisfaction can result in a lack of trust and confidence in government services.
Revolutionizing How Government Serves Unbanked Residents
The rapid advancement of digital disbursements technology over the last decade offers a transformative solution. Digital disbursements make paying out funds faster, more convenient, and more secure. While often associated with bank account holders, this technology also holds immense potential for serving the unbanked population.
Pre-Paid Card Issuance
The primary way government agencies can leverage digital disbursements to serve unbanked residents is through pre-paid card issuance. Pre-paid cards offer several advantages:
- Accessibility: Unbanked recipients do not need a bank account or government-issued ID to access their funds. The pre-paid card can be used anywhere major cards are accepted, including ATMs and online.
- Cost savings: Eliminating check-cashing fees and reducing the administrative burden of managing uncashed checks can save significant resources.
- Security and convenience: Pre-paid cards reduce the risk associated with carrying large amounts of cash and provide a convenient and secure way to access funds.
By adopting pre-paid card disbursements, your agency can better serve a larger percentage of residents, streamline accounting processes, and reduce costs.
Card Issuance in Action
There are numerous examples of how unbanked residents can benefit when government eliminates paper check disbursements. A few prominent examples include inmate release, natural disaster relief, and court-mandated child support payments.
Inmate Release
Upon release, an inmate can be issued a pre-paid debit card containing funds from their trust or commissary account. The card provides immediate access to their money without the need for a bank account or government-issued ID, easing their transition back into the community.
Natural Disaster Relief
In the aftermath of natural disasters, victims need immediate access to funds. Pre-paid cards enable quicker disbursement of relief funds, allowing victims to purchase essential items and focus on recovery without the hassle of cashing checks.
Court-Mandated Child Support Payments
According to data published in 2022 by the U.S. Census Bureau, approximately one-third of the 5.4 million parents receiving child support could not rely on regular payment, or received no support in some months of the year. Pre-paid debit cards can expedite the payment process, ensuring custodial parents receive timely support.
Getting Started
Embarking on the journey to create financial equity for all residents in your community can feel overwhelming. However, with the right guidance and expertise, government agencies can successfully transition from paper checks to digital disbursements.
Tyler’s team of Disbursements and Card Issuance specialists have helped thousands of government agencies in modernizing their disbursement processes. As industry leaders with deep payments expertise, we offer a comprehensive roadmap to guide your agency from its current state to full implementation of digital disbursements.
What Are You Waiting For?
Disbursements via paper checks pose significant challenges for both unbanked individuals and government agencies. For agencies, these challenges include high production and mailing costs, extensive account reconciliation delays, unclaimed funds, escheatment, lost productivity, customer service issues, and resident dissatisfaction.
By eliminating check-based disbursements and adopting a pre-paid card solution, your agency can better serve unbanked residents, and provide families with greater economic mobility.