E-Commerce and the Unbanked

A cashless society may seem to be the best thing for e-commerce, but online retailers face hidden impacts in the push to a cashless future. You could be missing out on a growing segment of consumers who lack traditional banking resources (aka the underbanked) and creating friction points in your customer experience without even knowing it.

What is ‘Underbanked’ and How Does it Impact E-Commerce?

Around 9 million households in the United States lack access to traditional banking resources, including bank accounts or plastic cards to swipe. This group of people is often referred to as “underbanked” or “unbanked.” While some choose not to use banking systems, the majority of underbanked people can’t afford the fees and account minimums that most national banks charge. According to the Lifehacker report, there’s no pressure on banks to offer financial products to underbanked customers because they won’t make any money off of them.

This means that cashless retailers — online and brick-and-mortar alike — are unable to sell to the underbanked. They may lack plastic, but they don't lack purchasing power. E-commerce retailers aren’t suited to reach this segment of the population due to the nature of electronic payment systems. However, that doesn’t mean you should shrug your shoulders and leave this group behind.

Considering the lifetime customer value of an unbanked consumer might seem counterintuitive. However, consider the possibility of building a loyal cadre of unbanked customers who feel heard and respected by a retailer that has devised a way to serve their needs. Furthermore, being unbanked isn’t necessarily a permanent condition. Some of those loyal unbanked customers might well become more valuable customers in the future.

Change is in the Wind

Earlier this year, Philadelphia joined the list of U.S. cities that have banned cashless payments. Philadelphia's city council voted to require most local businesses to accept cash as payment.

Other states and cities around the country are joining the movement. New Jersey's legislature passed a law in January that bars retailers from prohibiting cash. Washington, D.C. and New York City have introduced similar bills. San Francisco could follow soon. Massachusetts has banned cashless merchants since 1978.

The recent anti-cashless legislation shift has had almost immediate impacts. Amazon.com recently announced a change in company policy to allow Amazon Go stores to accept cash after initially threatening to steer clear of Philadelphia with its cashless ban.

These are big wins for inclusivity. Any cashless policies are unlikely to impact e-commerce retailers anytime soon (if ever), but if you’re looking for ways to reach more customers, you may have the answer with the underbanked.

Winning Underbanked Customers: Solutions Through Fintech (and Others)

Financial technology may have created the problem of cashless systems that shut out viable customer segments, but it also holds the solution. Previously the best bet for the underbanked were pre-paid debit cards that carried fees for almost everything, including activation and transactions. It became prohibitive to spend your own money with these cards. However, a number of pre-paid cards now come with more reasonable fees. And there are other free and low-cost ways that consumers can turn cash into electronic payment-friendly options.

Now, underbanked people can turn to free and low cost resources to turn their cash into electronic payment-friendly options. Right now, only a handful of retailers are working with these providers, but they include industry heavy hitters like Southwest Airlines and Starbucks. This proves that the payment systems are viable and signals to other retailers that they can reach a wider customer base when they open their payment acceptance to anyone who wants to buy their products and services.

In fact, look no further than the world’s largest retailer for an indication of how valuable the unbanked market is. In December 2018, Walmart introduced its own solution for reaching the unbanked: an app designed to help in-store customers buy items on Walmart.com. The retailer plans to roll out the app in nearly all of its 4,700 U.S. stores. The app allows customers to shop in-store at Walmart for any item shipped and sold by Walmart online, and pay for their purchases at checkout. Customers can choose between shipping items to their home or the store for free pickup. This solution mimics the traditional online shopping experience, with more accessible payment methods.

While technology offers the promise of a wider range of solutions for serving the unbanked online, it’s early days. Merchants still need to be innovative and imaginative to tap the unbanked market. For now, retailers should consider the following:

• Joining the Coinstar Network, which allows consumers to exchange cash for payment vouchers at self-serve machines in supermarkets and other public locations. The vouchers are valid for online purchases.
• Design marketing campaigns that promote the use of gift cards for online payments for those who don’t have credit cards or other banking services.
• Layout the pros and cons of pre-paid debit cards on your site. While they once had the reputation of being predatory, several issuers now offer reasonable fees. You might even offer discounted delivery to offset the fees and consider the expense part of your customer acquisition cost.
• Consider taking a page from Walmart and developing a system that allows customers to pay in-store while ordering online for delivery either in-store or at home.

A Cashless Customer Experience Can Be for Everyone

Commerce thrives on purchasing power. We’re inching toward a future when anyone with the money and desire to buy something can get the thing they want, regardless of how they complete the transaction. This can also be the backbone of your upgraded customer experience.

Think of all the abandoned carts on your website, and how many emails you send to consumers coaxing them to come back to your site and complete a purchase that they ultimately decided against. How many of those are people just browsing, knowing they could never buy from you? How many consumers will never know what you have to offer because they can’t shop with you? You’ll never have that type of knowledge. But now you have the knowledge of how cashless economic systems can hold back commerce and what you can do to innovate and reach more customers.

When you think about which payment systems to feature on your e-commerce website, start thinking about which ones can help you attract a wider customer segment. Be ready for the coming changes in how people pay for goods and services. Your customers will thank you.

Stefan Nandzik is the vice president of corporate communication at Signifyd, a fraud protection company.