While technology has made great strides in democratizing access to information and transportation, the financial services industry, including mortgages, has been somewhat slow to evolve and reach historically underserved populations, including low-income, underbanked and disabled individuals. According to data from the Federal Deposit Insurance Corporation (FDIC), 27% of U.S. households were unbanked or underbanked in 2015, a fact which is at least partially attributable to lack of access to financial services.
To address the homeownership divide, we’re seeing an increasing number of lenders take steps to boost accessibility. For instance, Bank of America and Citi Mortgage are funding the Wealth Building Home Loan, which will help low- and moderate-income homebuyers secure a new 15-year mortgage with no down payment. Similarly, Luther Burbank Savings is offering three new community lending programs to make home ownership more accessible in California. Along with these lender-led changes, the continued rise of financial technology companies, or fintechs, is helping to further close the gap in financial accessibility, to the benefit of businesses and consumers alike.
Here are three primary ways technology is working to democratize financial services and drive financial inclusion:
1. Meeting borrowers where they are
Prior to the rise of the Web, financial services had high barriers to entry that not everyone fully appreciates: requiring customers to make in-person trips to the bank and appointments with brokers, loan officers, or financial advisors during business hours. For low-income households whose members may be working multiple jobs and juggling schedules to support a family, taking time off work to visit a branch or paying someone for financial advice may be unrealistic. This rift makes it challenging for around one-third of the population (according to the latest census data) to utilize traditional financial resources and, in some cases, make informed decisions around major purchases like home-buying.
Now, as financial services become increasingly digitized, users are able to manage their entire spectrum of financial needs online or from a mobile device – both mediums that offer a more intuitive user experience. Brands like TurboTax, Robinhood and Affirm have made filing taxes, managing a stock portfolio, and raising capital real-time experiences whose automated platforms give users the ultimate advantage. (Full disclosure: Affirm’s founder/CEO is an investor of ours.) This easy accessibility enables consumers to better track and manage their finances on their own time, as well as connect to valuable financial tools and services.
Improved access to financial services has been proven to “make a substantial positive difference in improving poor people’s lives.” Research shows the most effective way to improve access for low-income households is through digital connectivity.
2. Increased transparency through simple, guided workflows
Mortgage lending has long been considered an opaque industry. For years, consumers have been plagued by lagging transaction times, laborious, document-driven processes, unexplained fees, and limited access to account and application statuses. Advancements in technology are helping to change this, transforming traditionally confusing, paper-heavy processes into those that are more intuitive and digitally accessible, all while maintaining robust compliance.
With increasing access to primary-source data thanks to connectivity and automation, financial processes are becoming more transparent. For borrowers and lenders, having the ability to authorize and connect to various data providers — and pull verified information — empowers users and simplifies the application process. It also reduces friction and supports responsible lending.
By streamlining the collection and verification of data, including bank account and credit information, tax forms, pay stubs and other required figures for the obligatory 1003 form, technology has provided unforeseen benefits and increased loan officers’ bandwidth to work with higher-touch borrowers who need to provide more documentation. Rather than solely relying on paper documentation or desktop software, a handful of fintechs are powering a mobile-first experience for borrowers that provides them with unparalleled convenience. This is especially monumental for underserved communities, including low-income and underbanked individuals, who are typically heavier users of mobile, often favoring a phone as their primary computing device over an expensive laptop and monthly internet bills.
In addition to expanding access, this increased efficiency can lead to lower costs-to-serve, which can ultimately be passed along to the borrower in the form of lower rates.
3. Enabling the disabled
Accounting for 19% of the U.S. population, people with disabilities make up the largest minority group in the country, yet they’ve not always had the same opportunities for financial inclusion as others. In fact, many basic financial services, including traditional and alternative banking, online payment services and mobile banking are inaccessible to them. With the advent of accessible technology, including magnifiers, dictation support, hearing aids and more, people with disabilities are gaining access to the financial services they deserve.
By 2018, all private financial services websites will need to be ADA-compliant to ensure access for people with disabilities. But rather than wait to be federally compelled, forward-thinking financial institutions are proactively making changes to increase accessibility by working with ADA-compliant solutions, including ours.
On top of being the right thing to do, becoming more accessible and readable offers opportunities for business growth and increased profitability.
As we continue to make adjustments to better serve consumers, and broader society, we can’t leave anyone behind. Fintechs have an opportunity and obligation to engineer solutions that everyone can use and ensure all people have access to the vital financial services they need to be successful. That said, technology is not a silver bullet. As we continue to build solutions, we can’t lose sight of the human experience, or the critical role human interaction plays in financial access and health. In tandem with technology, we need to scale the human element and ensure financial professionals can form relationships with their clients to advance the goal of making financial services more accessible for people from all walks of life.