According to ACORN, millions of Canadians are underserved by the mainstream banking sector. These individuals have restricted access to basic banking services like overdraft protection, tax-free accounts, and credit products like credit cards, personal loans, lines of credit, etc. As a result, these individuals rely on predatory financial institutions like payday lenders and cheque cashers to meet their banking needs.
Who Are The Underserved?
Individuals who have limited access to traditional banking services can be organized into two categories:
- The underbanked – are individuals who have a bank account but seek other financial services and access to credit products through fringe financial institutions.
- The unbanked – are individuals who don’t have a chequing or savings account. Many low-income individuals are unable to sustain a regular bank account due to the minimum required balances, ATM fees, and other banking fees.
In Canada, 3% of individuals are unbanked and 15% are underbanked, which adds up to approximately 6 million Canadians. These individuals often come from vulnerable groups such as individuals with low income, individuals with disabilities, individuals who are new to the country, and even young professionals with a thin credit profile.
How The Fintech Industry Impacts The Unserved
Both underbanked and unbanked individuals face certain barriers when dealing with traditional financial institutions. Traditional banks typically have high requirements and fees when it comes to banking, lending, and investing, which makes all these services hard to access. Moreover, the unserved are often seen as risky due to:
- Decline in financial health.
- Low income.
- Thin credit file or no credit file.
Thankfully, as the Fintech industry continues to grow, new financial services, tools, and resources become available to the underserved. Through the Fintech industry, which focuses on developing the way we bank through innovative technology, new financial services like crowdfunding, online lenders, robo-advisors, digital wallets, cryptocurrencies, etc. are helping underserved Canadians regain control of their financial lives.
As the Fintech industry continues to grow and evolve, both alternative lenders and alternative investment platforms are changing the way Canadian consumers interact with their money, with particular emphasis on those who struggle to access products and services from traditional financial institutions.
How Alternative Lenders Help the Underserved
Alternative lenders are a cornerstone for many of the underserved. Their flexible lending requirements have given these individuals the opportunity to gain access to different credit products such as personal loans, lines of credit, mortgages, credit cards, guarantor loans, and more.
More Than a Credit Score
Unlike banks and other traditional financial institutions, alternative lenders don’t simply base a borrower’s eligibility on their credit score but take a more holistic approach to credit approval. Alternative lenders often take into account a wide variety of financial factors including:
- Income level
- Job stability
- Debt-to-income ratio
- Previous months’ bank statements
- Security (an asset or a co-signor)
This means that individuals who are new to Canada or those who have not had enough time or the opportunity to build a credit history can still apply for the financial products they need.
An Alternative to Predatory Lender
Providing underserved Canadians with access to installment loans, lines of credit and even debt relief products protects them from relying on predatory lenders when in a financial pinch. Payday loans (the most widely used form of predatory lender) create a cycle of debt that is almost impossible to break especially for consumers who are already struggling financially because of low income or bad credit.
Build Credit and Improve Financial Future
Moreover, alternative lenders act as a stepping stone for individuals with a thin or bad credit profile, as they’ll be able to improve their credit score through these credit products. This, in turn, will increase their chances of being approved for a mainstream credit product in the future.
How Alternative Investment Platforms Help The Underserved
platforms (aka robo-advisors) like Wealthsimple, CI Direct Investing, and Questrade are changing the way all Canadians, not just the wealthy, invest in their future.
Low Barrier to Entry
Probably the most significant change that robo-advisors have brought to the table is lowering the barrier to entry. With low fees and low commissions, these platforms provide average and low-income individuals with the opportunity to invest and grow their wealth.
Furthermore, most alternative investment platforms offer low account minimums or even offer options that don’t require a minimum amount to get started.
Less Time Invested
These investment platforms are usually fully-automated and require little to no maintenance. Individuals interested simply answer a few questions to create a customized portfolio based on their risk tolerance and investment goals. Furthermore, most robo-advisor platforms offer additional learning resources that consumers can take advantage of. Which will ultimately help improve the decisions they make about investments in the future.
Alternative investment platforms allow anyone to invest regardless of their income level, how much they have to invest, or how much knowledge they have in investing. In fact, many Canadians have already opted for robo-advisors. According to Statista, assets under management in the robo-advisor sector is projected to reach USD 8,837million in 2020.
Innovative technology has opened the financial doors for many unserved individuals in Canada. Many unserved Canadians now have the opportunity to access different credit products and financial services including banking and investing. As the Fintech industry continues to grow and change, traditional banks and financial institutions will be forced to re-examine the way they provide their services.
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