Leveraging embedded finance to reach and serve unbanked communities

Credit unions have long been recognized for their commitment to serving their members and communities. However, many Americans, particularly younger consumers and the unbanked, are not engaging with credit unions as much as they could. This presents a significant opportunity for credit unions to help these consumers build financially healthy lives and establish trust and long-term relationships. The challenge lies in reaching these consumers effectively and making their financial services more accessible.

In the United States, at least six million people are unbanked and nearly 1.5 billion individuals worldwide fall into this category. These populations, often low-income, face significant barriers in accessing traditional financial services, leaving them reliant on costly alternatives. This struggle to secure affordable credit-building options makes it difficult to improve credit ratings, obtain essential loans, and achieve financial stability.

Embedded finance is emerging as a crucial strategy for credit unions to address the needs of unbanked and underbanked communities. This approach involves integrating financial services directly into everyday transactions, making financial products accessible precisely when consumers need them most. While it may seem like a new trend, embedded finance has roots in familiar practices like indirect auto lending, where credit unions provide financing at the point of purchase. However, traditional indirect lending often fails to build awareness and relationships, as borrowers may not even realize they are engaging with a credit union.

By leveraging embedded finance, credit unions can embed their competitive financial products directly into consumers’ purchase journey—whether on e-commerce platforms or in other digital environments. This enables credit unions to reach consumers where they already are, offering them diverse and community-focused financial options. This is especially valuable for those in unbanked and underbanked communities who might otherwise struggle to find affordable, reliable financial products.

For low-income communities, embedded finance offers a pathway to deliver essential financial products directly to those who need them most. Credit unions, particularly those designated as Community Development Financial Institutions (CDFIs), can use digital platforms and census data to identify unbanked and underbanked populations. These credit unions can offer tailored financial products—such as low-cost checking accounts or affordable loans—through digital channels, empowering residents in rural, low- and moderate-income areas to build assets and improve their financial standing.

Furthermore, by integrating digital platforms, CDFI credit unions can track and report the impact of their services, demonstrating to regulators their commitment to meeting the needs of underserved communities. This not only strengthens their case for continued CDFI certification but also showcases their vital role in supporting financial inclusion.

Embedded finance has proven to be an effective strategy for credit unions to reach and support all consumers in need of affordable credit. Those that embrace this strategy will not only win lasting relationships within their communities but will also play a vital role in shaping the future of our financial landscape.