Digital payments that don’t utilize banks may be better way to reach low-income cash users, US Fed says
By Neil Roland
Digital-payment vehicles that don’t depend on banks could be a more effective US approach to serving low-income cash users than traditional US policy that tries to encourage them to become banked, a Federal Reserve Bank of Atlanta paper says. This conclusion is “startling,” a respected banking analyst said. “It’s unusual for a Federal Reserve Bank to pooh-pooh the benefits of regulated banks instead of deciding how best to add yet more regulation,” Karen Petrou, managing partner of Federal Financial Analytics, wrote last week. “In part because they are so ground-breaking, the Atlanta Fed’s recommendations will make a difference.” The Fed paper, whose lead writer is Atlanta Fed CEO Raphael Bostic, said: “Payments innovations offer convenience, but they also raise concerns about how they may further exclude a population already marginally attached to the economy.” It added, referring in part to low-income families’ lack of access to phones or computers to make digital payments: “A growing technical or digital payments gap can result in a growing economic gap.”