A New Focus on Understanding Financial Inclusion

The Federal Reserve Bank of Kansas City has written a paper investigating who is underserved when it comes to digital payments, the starting point for working out how to include them in today’s digital economy ¹.

Traditional definitions of households that are unbanked and those that are underbanked do not account for the ownership of nonbank transaction accounts that can be used to make and receive digital payments.

This paper defines households that are underserved in digital payments by considering four key elements - access, use, safety, and affordability. It considers how these can be quantified to establish the share of households that are underserved in digital payments.

Defining unbanked, underbanked and the financially included While ‘unbanked’ households are easy to define (they do not have a bank account), ‘underbanked’ households are more complicated because they may have a bank account but instead use alternative financial services such as check cashing, nonbank money orders, and payday or title loans to make payments.