A study carried out by the Federal Reserve Bank of Kansas City sheds some light on the degree to which nonbank transaction accounts improve access to electronic payments for unbanked households. It notes that, while “4.5 percent of U.S. households are unbanked and could be considered excluded from digital payments”, focusing on bank account ownership alone may understate levels of digital participation.
This, the study contends, is because some households use “nonbank transaction accounts” such as prepaid cards or app-based technologies, allowing them to make or receive digital payments “relatively safely and affordably”. It further says that many providers of nonbank transaction accounts offer a similar suite of transaction products and services to those offered by banks. These products and services are often more affordable and safer compared with nonbank paper-based transaction products and services like check-cashing.
The study goes further, identifying a number of characteristics of nonbank transaction accounts that may make them more accessible or appealing than bank accounts for unbanked households. For instance, nonbank transaction accounts typically do not have minimum deposit requirements, which are a barrier to bank account ownership for many unbanked households. To the extent that nonbank transaction accounts provide a more accessible or appealing alternative for unbanked households, the study concludes that they can help increase digital payment inclusion among these households.
Through Direct Express®, the US Treasury is doing its part to close the digital gap by equipping unbanked federal beneficiaries with a network branded, prepaid debit card, functioning as a nonbank transaction account. With the Direct Express® card, beneficiaries can perform transactions such as paying a bill by phone or online and they can benefit from setting up automatic payments for recurring expenses such as insurance or rent. They can also enjoy the convenience of shopping online—an especially valuable feature for those who have limited mobility.
The Federal Reserve Bank study can be accessed in full at the following link:
How Much Do Nonbank Transaction Accounts Improve Access to Digital Payments for Unbanked Households?
SOURCE: Federal Reserve Bank of Kansas City
