Financial Inclusion: A Case Study of the Covid Stimulus Payments Aaron Klein Fellow, Economic Studies, Brookings Institution @AaronDKlein
Total stimulus payments recieved in weeks following the CARES Act 180,000,000 160,000,000 140,000,000 Number of Households 120,000,000 100,000,000 80,000,000 60,000,000 40,000,000 20,000,000 0 1 2 3 4 5 6 7 8 9 10 Number of weeks since passage of CARES Act Number of households that have received payments Estimated number of households that need payment 2
Solution Requires 3 Steps: 1) Accounts – Everyone needs an account to receive the money. 2) Information -- The federal government needs information to match people and accounts 3) Infrastructure -- The payment system’s infrastructure must be able to immediately send funds from the government to people.
1. Accounts BANKING STATUS OF AMERICAN HOUSEHOLDS Underbanked 20-25% Unbanked, 6.5% Fully banked, 68% Source: 2017 FDIC National Survey of Unbanked and Underbanked Households, Federal Deposit Insurance Corporation 4
1. Accounts Cost, not Access, drives Unbanked: Why Unbanked? 50 45 40 35 30 25 20 15 10 5 0 Cost of Account/Lack of Money Trust/Privacy Branch Location/Hours 5
2. Information The federal government needs information to match people with their accounts.
2. Information Less than half of Americans were able to get ‘direct deposit’ 2 -3 weeks after law passed. 25 million had ‘shell’ bank account information on file from tax preparers. 70 million+ Americans had to wait to have their stimulus payments mailed as paper checks, pre- paid debit cards, or eventually deposited. 9 million Americans still haven’t received their payments 6 months later! 7
3. Infrastructure The payment system infrastructure must be able to rapidly transmit funds from the government to the people.
3. Infrastructure Why Are We Waiting? Real-time Payments simple solution: ◦ ‘Direct deposit’ still takes days. Technology can solve this: Clearinghouse RTP system, Square payroll announcement. ◦ Treasury’s decision to use the Fed’s slow ACH system shows limits to non-government solutions. ◦ FedNow real-time payment system scheduled to come on line in 2024. 9
3. Infrastructure Image sourced from Celent, https://www.celent.com/insights/934259672 10
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