TMCnet Feature
March 31, 2021

FinTech Entrepreneur James Gutierrez on Being Underbanked in America



When most people think about financial services, they might assume that all neighborhoods and individuals in the US have relatively similar access to opportunities. Maybe the affluent neighborhoods have more financial advisors and higher credit limits at their disposal, but the general service menu remains the same. Right? Entrepreneur and inclusivity proponent James Gutierrez breaks down the various inequities that exist in the realm of financial opportunity.



According to recent data, 25% of all households either don't have a bank account or need to look outside of their bank to fulfill their financial access needs. The pandemic has only been the latest event to show the cracks in the system. People are doing everything in their power to stay financially solvent, but still coming up short.

This has led to not just a demand for more inclusive banking, but a rising necessity if we hope to combat inequality. We'll look at what it means to consider the people behind the numbers, and how fintech investors like James Gutierrez are making a difference.

Limited Access

Limited access to banking services means different things to different people. Some don't have enough cash coming in to open an account. Others don't know what's available, due to a lack of community resources or education.

Some are simply restricted by circumstances. For instance, immigrants without a social security number can have the best credit history in the world, but this won't mean anything to a bank that requires this puzzle piece to open an account. They know exactly how to open a savings account or keep up with loan payments, but no one will even give them a chance to apply for one.

As a result, the underbanked and their families end up paying a very steep price. Check-cashing operations take a portion of the individual’s hard-earned  check, while payday loans charge excessive interest, and prepaid debit cards charge fees to open.

This is more than just a simple financial issue, but a social one as well. Interest rates remain highest in communities that already face economic inequality. An African-American or Hispanic household is several times more likely to be underbanked or unbanked than a Caucasian household.

Income Levels

There is a certain degree of futility when it comes to saving in America, as you often need to have money in order to earn money. Checking accounts often have maintenance fees, unless the account holder can maintain a minimum balance. They require initial deposits that many people simply don't have. Loans require credit history, something that an immigrant won't have in this country. Thus, unbanked citizens can get used to taking out multiple cash advances on their paychecks.

This is why annual income is the single biggest indicator of whether someone is underbanked. 19% of households making less than $30,000 per year are unbanked or underbanked, compared to 2.4% of households making more than $30,000 per year. This has led just under 49 million adults to seek alternative financial services.

To establish your credit, you first need someone to offer you a chance to do so. Only 7.2% of underbanked households even have access to the most common way of building credit — opening up a credit card account. A prepaid debit card will pay for a variety of transactions, but these aren't free to acquire and won't do anything to help a person's credit score.

How This Inequality Affects The US

We might think of the unbanked and banked as separate populations living in separate worlds. However, the disadvantages stretch across communities and across the nation, often in unpredictable ways. An underbanked household spends about 9.5% of their income on fees for alternative financial services.

They continually face exorbitant interest rates, sometimes as high as 500%, by predatory lenders and credit card offers. The underbanked can quickly start to believe that being in debt is the only option for them.

Ultimately, a lack of savings and credit history will also make people more vulnerable, as it leaves people unable to save for emergencies. A failing vehicle isn't an inconvenience anymore, but a threat of epic proportions. These options perpetuate the cycle of debt and poverty.

A New Banking System

James Gutierrez is a VC Investor and entrepreneur with a long history of opening doors to the underbanked. As CEO of Oportun from 2005 to 2012, he would help more than a half-million Hispanic people get the loans they needed to get ahead. His focus was always on equality, something that so many people in the US are unfortunately never given.

Gutierrez’s work has been so instrumental that he helped pass new laws to make loans more accessible to those who need it the most. As he watches the economic fallout of the pandemic, he's championed the need for Community Development Finance Institutions (CDFIs) and Minority Depository Institutions (MDIs).

Both of these programs have helped minority borrowers and underbanked communities get the financial services they need in the past. They provide much-needed assistance with far more forgiving terms than most lenders. Now, they can become a way of helping people get over the worst hurdles that the pandemic has presented.

While there have been significant investments to CDFIs and MDIs, there needs to be continued education about what they are, who they're for, and how they can help. Leading people away from predatory lending means starting a real conversation with people who have already built up a distrust for all financial services. Committed to providing financial solutions for Latin-X and underbanked communities, James Gutierez is creating a new inclusive mobile-first platform that connects these communities to insurance and banking solutions. This new venture aims to provide reasonable, affordable, and accessible options to make purchases, build credit, and establish financial security.

James Gutierrez has also stressed the importance of funding loans. There have been some efforts made during the pandemic, but additional support plus statute amendments will really help capital begin to flow into the communities where it can really help.

Fintech Solutions

Even before the onset of the pandemic, there were many minority communities that were struggling to keep their heads above water. It's been these communities who are also feeling the strain of COVID-19. If there's no access to capital, there can be no recovery.

The federal and local financial programs available have certainly been helpful for small business owners, but the efforts haven't been enough to combat the severe economic stress left in the wake of the coronavirus.

James Gutierrez has pushed for solutions that draw power away from centralized financial institutions and put the control back in the hands of the people. Fintech, or financial technology, has given people more opportunities to apply for loans, manage their finances, and understand their options.

Whether it's a business owner who had to shut down during the pandemic, or an employee who lost their job, fintech represents a new way of keeping track of your pennies. Lower fees, a variety of loan products, and access to real customer service is just the beginning.



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