2020 • No. 20-1
Raphael Bostic, Shari Bower, Oz Shy, Larry Wall, and Jessica Washington
September 2020

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Abstract: Payments innovations offer convenience, but they also raise concerns about how they may further exclude a population already marginally attached to the economy. Research shows that upward mobility has eroded over several decades. Americans born at the lower end of the income scale are increasingly unlikely to climb that scale. But how do we ensure that our economy includes everyone? Policy has often focused on those consumers who have no relationship with a banking institution, or the unbanked, and on those who have a bank account but use alternative financial services, or the underbanked. We argue that today, instead of focusing on helping these people become banked to increase financial inclusion, a more effective approach could be giving cash users access to digital payment vehicles that don’t depend on traditional bank accounts.

This paper looks specifically at the portion of the population who rely on cash as their primary means of conducting transactions. We lay out financial exclusion issues unique to the United States and suggest where discussions and decisions need to be directed, and we offer policymakers a new approach to financial inclusion that focuses on options available to those whose reliance on cash puts them at even more risk of being excluded from the financial system.

JEL classifications: G5, I3, O33, O35, O38

Key words: financial economics, innovation, innovation policy, social enterprise, social innovation, technology, well-being

https://doi.org/10.29338/psp2020-01Off-site link

The authors thank Dave Altig, executive vice president and director of research; Mary Kepler, senior vice president and chief risk and compliance officer; Cheryl Venable, executive vice president and manager of the Federal Reserve System's Retail Payments Office; Michael Johnson, executive vice president; Shalini Patel, director, Regional Economic Information Network; Patrick Pontius, CED principal adviser; and Sameera Fazili, CED engagement director, all of the Federal Reserve Bank of Atlanta.

The authors are responsible for any errors in the report. The views expressed are those of the authors and do not indicate concurrence by the Federal Reserve Bank of Atlanta, the principals of the Board of Governors, or the Federal Reserve System.