Financial Inclusion and Economic Growth in the US.

Introduction

The financial well-being of a nation's populace is intrinsically linked to its economic vitality and social stability. In the United States, despite a sophisticated financial system, a significant segment of the population remains financially underserved, lacking full access to or utilization of mainstream banking and credit services. This exclusion carries substantial costs, not only for the individuals affected but also for the broader economy. Concurrently, entrepreneurship stands as a powerful engine for economic growth and wealth creation, yet aspiring business owners from underserved communities often face disproportionate barriers to success. This report examines the critical intersection of two transformative forces – entrepreneurship mentorship and payment modernization – as key levers for empowering these financially underserved individuals and communities. It analyzes the current landscape of financial exclusion, the demonstrated impact of mentorship, the evolving role of modern payment systems and financial technology (fintech), and the emerging influence of Artificial Intelligence (AI). Furthermore, it explores policy initiatives, strategic recommendations, market opportunities, and the future outlook for fostering a more inclusive and equitable financial ecosystem.

I. The Landscape of the Financially Underserved in the U.S.

The challenge of financial exclusion in the United States is multifaceted, encompassing individuals and households entirely outside the formal banking system (the unbanked) as well as those who have accounts but still rely on costly alternative financial services (the underbanked). Understanding the scale and characteristics of this population is crucial for designing effective interventions.

A. Defining and Measuring the Unbanked and Underbanked

According to the 2023 Federal Deposit Insurance Corporation (FDIC) National Survey of Unbanked and Underbanked Households, nearly 96% of U.S. households were banked, meaning that 4.2%, or approximately 5.6 million households, were unbanked, lacking an account at a bank or credit union. This represents a record low since the FDIC survey began in 2009, indicating progress in expanding access to the banking system. The unbanked rate has fallen by almost half from its peak of 8.2% in 2011.

However, a larger portion of the population, 14.2% of U.S. households (representing 19.0 million households), were classified as underbanked in 2023. These households have a bank or credit union account but also utilize nonbank financial products and services, such as check cashers or payday lenders, to meet their financial needs. The persistence of such a large underbanked population, despite having access to a bank account, signals that mere access is insufficient. It suggests that the products and services offered by traditional institutions may not adequately meet their needs, or that other factors like cost, trust, or convenience drive them to alternative providers. This highlights a critical nuance: financial inclusion efforts must extend beyond simply opening accounts to ensuring that these accounts provide tangible benefits and address the core financial challenges faced by users.

B. Demographics of the Unbanked and Underbanked

Significant disparities in banking access persist across various demographic groups. The FDIC survey consistently finds that lower-income, less-educated, Black, Hispanic, American Indian or Alaska Native (AI/AN), disabled, and single-parent households are significantly more likely to be unbanked.

Income level is a primary determinant. In 2023, 21.8% of households with income below $15,000 were unbanked , and another source reported 19.8% of this income group as unbanked. This contrasts sharply with higher-income households.

Racial and ethnic disparities remain stark, even though unbanked rates among minority households have declined significantly since 2011. In 2023, unbanked rates were 10.6% for Black households, 9.5% for Hispanic households, and 12.2% for AI/AN households, compared to just 1.9% for White households. Data from Self.inc, which may use slightly different survey methodologies or definitions, reported similar disparities: 11.3% for Black adults and 9.3% for Hispanic adults, versus 2.1% for White adults.

Education level also plays a significant role. Nineteen point two percent of adults with no high school diploma were unbanked in 2023, compared to 6.8% of those with a high school diploma or GED, and only 0.9% of those with a college degree or more. These persistent demographic gaps underscore the systemic nature of financial exclusion and the need for targeted strategies to address the unique barriers faced by different communities.

C. Reasons for Being Unbanked/Underbanked and Use of Alternative Financial Services (AFS)

The reasons individuals remain outside the traditional banking system are varied. According to 2023 data, the most cited main reason for being unbanked was "Don't have enough money to meet minimum balance requirements" (40.1% of unbanked households). This aligns with FDIC findings that 42.3% cited a lack of money as a reason in 2023, although this figure has fallen from 57.4% in 2015. Other prominent reasons include "Avoiding a bank gives more privacy" (34.1%), "Don't trust banks" (33.0%), "Bank account fees are too high" (29.5%), and "Bank account fees are too unpredictable" (27.3%). Some also cite inconvenient bank locations or hours, lack of required identification, or not needing or wanting an account. The concern over high or unpredictable fees rose from 2015 to 2023, especially in higher-income unbanked groups.

Consequently, many unbanked and underbanked individuals turn to Alternative Financial Services (AFS). In 2023, 66.2% of unbanked households relied entirely on cash for transactions, while 33.8% used a combination of prepaid cards or nonbank online payment services like PayPal, Venmo, or Cash App. The Federal Reserve's 2024 Report on the Economic Well-Being of U.S. Households (reflecting 2023 data) found that 14% of adults used nonbank check cashing or money orders, and 6% used payday loans, pawn shops, auto title loans, or tax refund anticipation loans in the past year.

Reliance on AFS often comes at a significant cost, creating a "poverty premium" for those least able to afford it. Check cashing services can charge fees ranging from 1% to 12% of the check's value. For example, Walmart charges a maximum of $4 for checks up to $1,000 and $8 for checks over $1,000, while Regions Bank notes fees of 1% to 4% of the check amount, with minimums. Payday loans are notoriously expensive; the average annual percentage rate (APR) on payday loans in Wisconsin during 2024 was a staggering 696.71%. In contrast, the average personal loan APR for consumers with good credit was around 16.61% in early 2025. Even money orders have fees; the U.S. Postal Service charges $2.35 for money orders up to $500 and $3.40 for those between $500.01 and $1,000. These costs accumulate, draining resources from already financially constrained households and hindering their ability to save and build wealth.

D. Access to Credit and Mobile Banking Adoption

Access to affordable credit is a cornerstone of financial health, enabling individuals to manage emergencies, make large purchases, and invest in opportunities like education or entrepreneurship. In 2023, 76.4% of all U.S. households had a credit card. However, a concerning 15.7% of households had no access to mainstream credit, meaning they likely lacked a credit score, making it difficult to obtain credit when needed.

Credit application denial rates, or instances of being approved for less credit than requested, were significantly higher for lower-income adults (53% for those with income below $50,000 versus 16% for those with income above $100,000 in 2023). Black and Hispanic applicants also faced higher denial rates, irrespective of income level.

On a more positive note, the adoption of mobile banking has surged, offering a more convenient and accessible way for many to manage their finances. Nearly half of banked households (48.3%) used mobile banking as their primary method to access their accounts in 2023.

Over the past decade, the use of mobile banking as the primary means of account access increased almost ninefold, while the use of bank tellers fell by more than half. This shift suggests a significant opportunity to leverage mobile technology for financial inclusion. Furthermore, the use of nonbank online payment services like PayPal, Venmo, or Cash App increased between 2021 and 2023, while the use of general-purpose reloadable prepaid cards decreased. Unbanked households are more likely to use these nonbank services as a substitute for, rather than a supplement to, a traditional bank account. While mobile adoption is high, the digital divide remains a challenge, with disparities in access to reliable internet and digital literacy potentially excluding some of the most vulnerable.

II. The Power of Entrepreneurship Mentorship for Underserved Communities

Entrepreneurship is a vital pathway to economic self-sufficiency and wealth creation. However, entrepreneurs from underserved backgrounds often encounter significant hurdles, including limited access to capital, networks, and relevant business knowledge. Entrepreneurship mentorship has emerged as a powerful tool to help bridge these gaps and foster success.

A. Defining Entrepreneurship Mentorship and Its Importance

Entrepreneurship mentorship involves experienced business owners, executives, or subject-matter experts providing guidance, support, and advice to less experienced entrepreneurs. This can encompass strategic planning, financial management, marketing, operational challenges, networking opportunities, and crucial emotional support. For startups, particularly those led by individuals from underserved communities who may lack established business networks or inherited entrepreneurial knowledge, mentorship can be a critical determinant of viability and growth. It provides a trusted sounding board and access to practical wisdom that can help navigate the complexities of launching and scaling a business.

B. Impact of Mentorship on Business Success and Survival Rates

The impact of mentorship on entrepreneurial outcomes is well-documented and significant. Data from SCORE, a prominent mentorship organization, reveals that entrepreneurs who work with a mentor are five times more likely to start a business and three times more likely to remain in business. These mentored businesses also report higher revenues and increased business growth. Further strengthening this case, other research indicates that 70% of mentored small businesses survive for five years or more, a rate double that of non-mentored businesses. A striking comparison shows that one-third of successful entrepreneurs relied on a mentor or support group, whereas only 14% of entrepreneurs with failed businesses did so. A 2025 survey highlighted that 78% of startups with mentors reported an increased likelihood of business success and faster growth.

The benefits extend beyond the immediate success of the mentee. A significant 89% of mentees go on to become mentors themselves. This creates a compounding effect, fostering a virtuous cycle of shared knowledge and support within entrepreneurial ecosystems. As individuals who have benefited from mentorship pay it forward, the overall capacity and resilience of the small business sector, particularly within underserved communities, are strengthened.

C. Benefits for Underserved Entrepreneurs

For entrepreneurs from underserved backgrounds—including minorities, women, individuals from low-income communities, and those with disabilities—mentorship can be particularly transformative. These entrepreneurs often face systemic barriers, such as biases in lending, limited access to influential networks, and a lack of culturally relevant business support. Mentorship can help address these specific challenges by:

Bridging Knowledge Gaps: Providing expertise in areas where the entrepreneur may lack experience.
Expanding Networks: Connecting entrepreneurs to potential funders, partners, customers, and other valuable contacts.
Navigating Systemic Barriers: Offering strategies and insights for overcoming obstacles related to discrimination or lack of access.
Building Confidence: Providing encouragement and validation, which is crucial when facing adversity.
Improving Financial Acumen: Assisting with financial planning, understanding funding options, and managing cash flow.

Statistics on Diversity, Equity, and Inclusion (DEI) underscore the value of mentorship. For instance, while only 24% of women leaders have had a formal mentor compared to 30% of men, 77% of women in tech with mentors are more likely to stay in the industry after three years. This suggests that targeted mentorship can play a vital role in retaining and advancing talent from underrepresented groups in demanding fields. The effectiveness of mentorship is amplified when mentors possess cultural competency—an understanding of the specific systemic, economic, and cultural challenges faced by the entrepreneurs they guide. Such mentors can provide more nuanced, relevant, and actionable advice, fostering a stronger connection and greater trust, which are foundational to a successful mentoring relationship.

D. Existing Mentorship Programs and Initiatives (Examples)

Numerous organizations and initiatives are dedicated to providing mentorship to entrepreneurs, with many focusing on underserved communities:

SCORE: As the nation's largest network of volunteer business mentors, SCORE offers free, confidential, expert advice and training through its 10,000 volunteers. In 2024 alone, SCORE volunteers helped start 59,447 new businesses and create over 143,000 total jobs.
Small Business Administration (SBA): The SBA administers various programs, including Mentor-Protégé Programs designed to help small businesses, particularly those in federal contracting, gain experience and support from established firms.
Minority Business Development Agency (MBDA): An agency of the U.S. Department of Commerce, the MBDA is dedicated to the growth and global competitiveness of minority business enterprises.

Its Capital Readiness Program, a $125 million initiative, served over 6,300 entrepreneurs and helped them raise $263 million in capital in its first year.
In Fiscal Year 2024, the MBDA network helped minority businesses access over $1.5 billion in capital and contracts, creating or retaining approximately 23,000 jobs.
For 2025, the MBDA announced $11 million in new technical assistance funding competitions, including the Women's Entrepreneurship Program (WEP), the Rural Business Center Program, and the Parren J. Mitchell Entrepreneurship Education Program.

Chase Coaching for Impact: This JPMorgan Chase program provides one-on-one consulting, executive coaching, and on-demand education to business owners who have been operating for at least two years and generate minimum annual sales of $100,000. It is open to both Chase customers and non-customers, focusing on operational management, technology optimization, cash flow management, capital access, and growth strategies. The program leverages Chase's professional network to connect entrepreneurs with subject matter experts. While specific aggregate impact numbers for 2024-2025 are not detailed in the provided materials, the program's structure is designed to support underserved entrepreneurs in scaling their businesses.
New York City M/WBE Mentorship Initiatives: New York City has focused on increasing contracting opportunities for Minority and Women-owned Business Enterprises (M/WBEs). The Department of Design and Construction's (DDC) M/WBE Mentoring Program transitioned in 2024 to become part of a larger Citywide Mentoring Program run by the Mayor's Office of M/WBE (O/MWBE), aiming to expand opportunities across City agencies. This citywide program aims to help M/WBEs build capacity for city contracting.

III. Payment Modernization and Its Role in Financial Inclusion

The way individuals and businesses transact is undergoing a rapid transformation, driven by technological advancements. Payment modernization—encompassing digital wallets, real-time payment networks, and other fintech innovations—holds immense potential to enhance financial inclusion by making financial services more accessible, affordable, and convenient, particularly for underserved populations.

A. Current State of Payment Systems and Challenges for the Underserved

Traditional payment systems often pose challenges for the financially underserved. As noted earlier, a significant portion of the unbanked population (66.2%) relies entirely on cash. This reliance can be inefficient, insecure, and can limit participation in the increasingly digital economy. For those who use AFS for transactions, such as check cashing or money orders, the costs can be substantial, eroding their limited financial resources. The inability to easily and affordably make and receive digital payments can be a major barrier to accessing goods, services, and even employment opportunities.

B. Rise of Digital Wallets and Mobile Payments

Digital wallets (e-wallets) and mobile payment solutions have surged in popularity, fundamentally changing how consumers interact with their money. Globally, over 5.2 billion people now use digital wallets, accounting for more than 60% of global e-commerce transactions. The global transaction value for digital wallets is projected to reach $25 trillion by 2027

In the U.S., Apple Pay holds a dominant 92% market share of all mobile wallet transactions, with an estimated 63.9 million users in 2025. Google Pay is another major player. The growth is driven by convenience, the ubiquity of smartphones, and increasing merchant acceptance; for example, 85% of U.S. retailers now accept Apple Pay. Projections suggest that by 2028, digital wallets could facilitate around 60% of all retail transactions.

For financial inclusion, digital wallets offer the potential to bypass the need for traditional bank accounts for some transactions, providing a pathway into the digital economy for the unbanked and underbanked. They can facilitate peer-to-peer transfers, bill payments, and online purchases. However, the "digital divide"—disparities in access to smartphones, affordable data, and digital literacy—remains a significant barrier to realizing this full potential. Furthermore, the dominance of certain platforms, while offering convenience to their users, could inadvertently create new forms of exclusion if they are not universally accessible, interoperable, or if they impose their own cost or usability barriers. Ensuring that these emerging payment ecosystems are inclusive by design is paramount.

C. Real-Time Payments (RTP) Networks (FedNow and The Clearing House RTP)

The advent of Real-Time Payments (RTP) networks in the U.S. marks a significant step in payment modernization. These networks allow for the instantaneous clearing and settlement of payments, 24/7/365.

FedNow Service: Launched by the Federal Reserve, the FedNow Service has seen continued strong growth. In the first quarter of 2025, it settled over 1.3 million transactions, with an average daily value of $540 million. Over 1,300 financial institutions, more than 95% of which are small and midsize community banks and credit unions, were live on the service. Key transaction types include off-cycle payroll, earned wage access, digital wallet defunding, real estate escrow payments, and auto loan disbursements.
The Clearing House (TCH) RTP® Network: As the largest instant payments system in the U.S., the RTP network processed $246 billion in payments in 2024, a 94% increase from the previous year, with transaction volume surging 38% to 343 million. The network now averages over 1 million payments per day, and the number of participating financial institutions grew by 67% in 2024. Notably, 42% of RTP transactions occur overnight, on weekends, or holidays, highlighting the demand for 24/7 availability. The individual transaction limit on the RTP network is set to increase to $10 million in February 2025, supporting larger B2B transactions.

For underserved individuals and entrepreneurs, RTP networks offer profound benefits. Immediate availability of funds can reduce reliance on high-cost AFS like check cashers or payday lenders, especially for those living paycheck to paycheck. For small businesses, particularly those run by underserved entrepreneurs operating with tight margins, faster settlement of payments can significantly improve cash flow, reducing the "float" cost associated with waiting for traditional payments to clear. This enhanced liquidity can be critical for managing operations, purchasing inventory, and meeting payroll.

D. Buy Now, Pay Later (BNPL) and Other Innovations

Buy Now, Pay Later (BNPL) services have rapidly gained traction, allowing consumers to pay for purchases in installments. In 2023, 3.9% of all U.S. households used BNPL services. The global BNPL market is forecast to grow by $450 billion by 2026, with Gen Z accounting for 55% of its penetration. BNPL is expanding beyond retail into areas like travel. While BNPL can increase purchasing power and offer an alternative to traditional credit, concerns exist about potential debt accumulation, especially among younger or financially vulnerable consumers, if not used responsibly.

Cryptocurrencies and Digital Assets have also entered the payments landscape, though their adoption for transactional purposes remains limited in the U.S. In 2023, 4.8% of U.S. households owned or used crypto, but only 4.4% of these households used digital assets as a form of payment, with the vast majority (92.6%) holding them as an investment. Globally, the number of crypto wallets surged to 81 million by 2022, and market revenue is projected to grow. While proponents highlight potential for lower transaction costs and financial autonomy, volatility, regulatory uncertainty, and the need for digital literacy pose significant barriers for widespread adoption by the underserved for everyday payments.

E. The Role of Fintech in Driving Payment Modernization for Inclusion

Financial technology (fintech) companies are at the forefront of payment modernization, often developing innovative solutions that cater specifically to the needs of unbanked and underbanked populations. Fintechs are known for their user-friendly interfaces, lower fees compared to traditional services, and agility in responding to market demands.

Key areas where fintechs are making an impact include:

Digital Banking and Neobanks: Companies like Chime and Revolut are capturing significant market share by offering mobile-centric banking experiences with features tailored to younger, digitally-savvy consumers, often with no or low fees.
AI for Personalization and Risk Management: Fintechs leverage AI to offer personalized financial advice, streamline loan applications using alternative data, and enhance fraud detection.
Embedded Finance: This trend involves integrating financial services (like payments or lending) directly into non-financial platforms (e.g., e-commerce sites, ride-sharing apps), making financial transactions more seamless and contextual.
Payment Solutions: From mobile wallets to P2P payment apps and specialized B2B payment platforms, fintechs are continuously innovating in how money is moved.

The global fintech market is experiencing robust growth, with a projected compound annual growth rate (CAGR) of around 16.5% from 2024 to 2032/2034. This growth is fueled by increasing digital adoption, evolving consumer preferences for convenience and speed, and the ability of fintechs to address unmet needs in the market.

The relationship between fintech innovation and regulation is symbiotic. Fintechs often push the boundaries of existing financial frameworks, prompting regulatory scrutiny and adaptation. Well-designed regulations can foster responsible innovation, ensuring consumer protection and financial stability while allowing beneficial new technologies to flourish. However, as seen with the CFPB's 2025 shift in priorities (discussed later), changes in the regulatory landscape can also create uncertainty or potential gaps that could impact the trajectory of fintech solutions for financial inclusion.

IV. The Role of Artificial Intelligence (AI) in Advancing Financial Inclusion

Artificial Intelligence (AI) is rapidly emerging as a transformative technology with the potential to significantly advance financial inclusion. By leveraging AI, financial service providers can develop more personalized, efficient, and accessible products for underserved populations and entrepreneurs.

A. AI Applications in Financial Services for the Underserved

AI's capabilities are being applied across a spectrum of financial services, offering tangible benefits for inclusion:

Personalized Financial Services: AI algorithms can analyze vast amounts of data to provide personalized financial recommendations, budgeting assistance, and investment advice through robo-advisors, tailored to individual needs and circumstances.
Enhanced Credit Access: One of the most promising applications of AI is in credit underwriting. AI models can analyze alternative data sources—such as utility payment history, rental payments, and cash flow data from bank accounts—to assess the creditworthiness of individuals who lack traditional credit histories (the "credit invisible") or have thin files. This can open doors to affordable credit for millions who were previously excluded.
Cost Reduction and Efficiency: AI can automate various processes within financial institutions, such as customer onboarding, due diligence, customer service inquiries (via chatbots), fraud detection, and loan processing. These efficiencies reduce operational costs, making it more economically viable for financial service providers (FSPs) to serve low-income customers and handle smaller-value transactions profitably. For example, India's digital infrastructure combined with AI has dramatically reduced client acquisition costs for FIs.
Improved Risk Management and Fraud Detection: AI-powered systems can identify and mitigate fraudulent activities more effectively than traditional methods, enhancing security and trust in digital financial services.

The AI in fintech market was valued at approximately $17 billion in 2024 and is projected to grow to $70.1 billion by 2033. This growth reflects the increasing integration of AI to optimize operations and enhance customer experiences.

B. Benefits of AI for Entrepreneurs and Small Businesses

Underserved entrepreneurs and small businesses (SMBs) also stand to benefit significantly from AI:

Market Insights and Customer Engagement: AI tools can help SMBs analyze market trends, predict customer behavior, and personalize marketing efforts and customer interactions, enabling them to compete more effectively.
Operational Efficiency: AI can automate routine tasks, assist in data analysis for better decision-making, and streamline operations. According to a 2025 survey, 48% of SMBs plan to incorporate AI tools into their operations, with a focus on customer-facing applications like chatbots and marketing content creation.
Access to AI-Powered Fintech Solutions: Many fintech platforms designed for SMBs are now incorporating AI to offer services like intelligent cash flow management, automated accounting, and optimized spending.

C. Challenges and Ethical Considerations (Bias, Transparency, Data Privacy)

Despite its immense potential, the deployment of AI in financial services is not without significant challenges and ethical considerations:

Algorithmic Bias: AI models are trained on data, and if this data reflects historical societal biases (e.g., racial or gender biases in lending), the AI can perpetuate or even amplify these biases, leading to discriminatory outcomes. This is a critical concern, especially when using AI for credit scoring or other decisions that impact access to financial opportunities.
Lack of Transparency and Explainability: Many advanced AI models, particularly deep learning algorithms, operate as "black boxes," making it difficult to understand how they arrive at specific decisions. This lack of transparency can erode trust, especially if individuals are denied services without a clear explanation, and makes it challenging to identify and correct biases. This opacity is particularly problematic for underserved individuals who may already harbor distrust towards financial institutions and may lack the resources or knowledge to effectively challenge decisions made by complex, inscrutable algorithms.
Data Privacy and Security: AI systems often require access to vast amounts of sensitive personal and financial data. Ensuring the privacy and security of this data is paramount. Risks include data breaches, unauthorized data use, and data poisoning (corrupting AI training datasets to impair performance or produce malicious outcomes).
Digital Divide and AI Literacy: The benefits of AI may not reach those who lack digital access or the skills to interact with AI-powered tools.
Regulatory Uncertainty: The regulatory landscape for AI is still evolving and can be fragmented, creating compliance challenges for FSPs and potentially leaving gaps in consumer protection. The U.S. Department of the Treasury released a report in December 2024 on the uses, opportunities, and risks of AI in financial services, highlighting these concerns and recommending further coordination among regulators and firms.

Addressing these challenges requires a multi-pronged approach, including developing ethical AI frameworks, promoting transparency and explainability in AI models, strengthening data governance and cybersecurity measures, investing in digital literacy, and establishing clear and consistent regulatory guidelines. Robust digital identity solutions, such as biometrics-based multi-factor authentication, are also recommended to mitigate some security risks.

V. Case Studies and Success Stories (Illustrative)

Examining real-world examples can illuminate how mentorship and payment modernization are practically empowering the financially underserved. While comprehensive U.S.-based case studies from 2024-2025 that explicitly combine deep mentorship for underserved entrepreneurs with cutting-edge digital payment integration are still emerging in detailed public reports, several programs and fintech solutions offer valuable insights into successful approaches.

A. Mentorship Programs Uplifting Underserved Entrepreneurs

Several mentorship programs have demonstrated significant impact:

SCORE: This organization has a long history of supporting entrepreneurs. Success stories include Hyacinth Tucker, founder of The Laundry Basket LLC, who received guidance on managing complex challenges, and Todd Graves, founder of the Raising Cane's restaurant chain, who received financial and marketing advice in the early stages of his business. These examples highlight how tailored mentorship can address diverse business needs.
Google for Startups Black Founders Fund: This initiative provides Black-led startups with equity-free cash awards (up to $150,000 in previous years), Google Cloud credits, advertising support, and hands-on mentorship from Google experts across various domains. This model combines financial support with critical technical and business guidance.
NAACP Powershift Entrepreneur Grant: This program empowers Black entrepreneurs with $25,000 grants and mentorship from prominent business figures like Daymond John, offering both capital and high-level strategic advice.
Black Ambition Prize: Supporting ventures with Black or Hispanic/Latino founding members, this tiered prize (grand prize of $1 million) includes mentorship and networking opportunities, focusing on sectors like consumer products, media, healthcare, and tech.

B. Fintech Solutions Driving Financial Inclusion through Payment Modernization

Fintech companies are actively developing products that improve financial access and efficiency:

Chime: A leading neobank in the U.S. with over 22.3 million users (a 53% year-over-year increase noted in a 2024/2025 context), Chime focuses on a user-friendly mobile interface and low/no-fee banking services. It has also expanded into services like facilitating tax returns for its users.
Ramp: Initially focused on corporate cards for SMBs, Ramp has expanded to offer treasury management products paying interest and travel booking tools, providing a more integrated financial platform for businesses.
Plaid: Known for connecting consumer bank accounts to financial apps, Plaid launched "Consumer Report" to help with underwriting consumer loans, potentially expanding access for those with non-traditional financial data.
Lili: This SMB challenger bank rolled out AI-powered financial management tools, helping small business owners with tasks like accounting and expense tracking.
Varo Bank: Another U.S. challenger bank, Varo launched a $2,000 personal credit line, offering a small-dollar credit option that can be crucial for underserved individuals managing cash flow or unexpected expenses.

C. Integrated Approaches: Combining Mentorship with Financial Technology

The most powerful interventions often combine the efficiency and reach of technology with the personalized support of mentorship.

JPMorgan Chase's Financial Health Lab (focused on India, but illustrative of an integrated model): This initiative supports a startup incubator by providing funding, mentorship, and access to digital tools to develop and scale inclusive fintech solutions for low- and moderate-income (LMI) individuals. The Lab backs startups in under-invested fintech sectors like savings, insurance, and agriculture. Reported outcomes include a 30% increase in access to digital financial tools and a 40% improvement in financial literacy in targeted underserved rural areas. This model demonstrates how strategic support can help fintechs tailor their offerings to effectively reach LMI populations.
Community Development Financial Institutions (CDFIs): In the U.S., CDFIs are crucial in serving distressed and underserved communities. In FY 2024, CDFI Program awardees collectively financed over 109,000 businesses and originated over $24 billion in loans and investments. While not always explicitly "fintechs," many CDFIs incorporate technology into their services and inherently combine access to capital with technical assistance, financial counseling, and mentorship-like support to ensure their borrowers succeed. Their model is a testament to the effectiveness of a holistic approach.

The synergy between high-tech solutions (fintech, AI, digital payments) and high-touch support (mentorship, financial counseling) appears to be a particularly potent strategy. Technology can scale access, improve efficiency, and provide data-driven insights, while mentorship and personalized guidance build trust, impart crucial skills, and help entrepreneurs navigate unique challenges. This combination addresses both the systemic and individual barriers to financial empowerment for underserved entrepreneurs.

VI. Policy, Regulatory Landscape, and Strategic Recommendations

Creating a financially inclusive environment requires concerted efforts from policymakers, regulators, financial institutions, non-profits, and technology providers. A supportive policy and regulatory framework is essential to foster innovation while protecting consumers, and strategic actions by all stakeholders are needed to address the multifaceted challenges of financial exclusion.

A. Current Government and Regulatory Initiatives

Several governmental and regulatory initiatives are underway to promote financial inclusion and support underserved entrepreneurs:

U.S. Department of the Treasury's National Strategy for Financial Inclusion (NSFI): Released in October 2024, this inaugural strategy aims to facilitate consumers' ability to access and use safe financial products and services that enable financial resilience and well-being, and to promote an inclusive financial system that reduces disparities. Key objectives include promoting access to transaction accounts that meet consumer needs (like Bank On-certified accounts), increasing access to safe and affordable credit (including through consumer-permissioned alternative data), expanding equitable access to savings and investments (with a role for employers in offering emergency savings and financial education), and improving the inclusivity of financial products and services provided or backed by the government. A pivotal aspect of the NSFI is its emphasis on the usability and benefit of financial products, not just access, marking an evolution in policy thinking. This acknowledges that simply providing an account is insufficient if it's costly, difficult to use, or doesn't genuinely improve financial well-being, a reality underscored by the large underbanked population who have accounts but still rely on AFS.
Biden Administration's Support for Small Businesses: The April 2024 "Small Business Boom Report" highlighted initiatives like the Treasury's State Small Business Credit Initiative (SSBCI) and increased SBA lending to minority-owned businesses as efforts to expand capital access.
Federal Deposit Insurance Corporation (FDIC): The FDIC conducts its biennial National Survey of Unbanked and Underbanked Households, providing critical data for policymaking. It also runs the #GetBanked campaign to encourage account ownership and promotes "Trust through Transparency" to foster public confidence in the banking system.
Office of the Comptroller of the Currency (OCC): Project REACh (Roundtable for Economic Access and Change) brings together leaders to find solutions for financial inclusion, focusing on areas like affordable homeownership, small business support, Minority Depository Institutions (MDIs), and leveraging alternative data for credit qualification.
Consumer Financial Protection Bureau (CFPB): The CFPB's role in financial inclusion is evolving. Its 2025 supervision and enforcement priorities indicate a shift towards focusing on actual fraud with identifiable victims and measurable damages, particularly within depository institutions, while deprioritizing areas like digital payments, peer-to-peer platforms, and broad data-driven bias assessments unless there's proven intentional discrimination. This shift, aimed at reducing regulatory burden, could create uncertainty or a potential regulatory gap for fintech innovators using these deprioritized channels to serve the underserved. If not carefully managed, this could slow progress in payment modernization for inclusion or allow consumer protection standards to become inconsistent.
Local Initiatives (e.g., New York City): NYC has established M/WBE contracting goals and launched a citywide mentorship program in 2024, run by the Mayor's Office of M/WBE, to help these businesses build capacity and access city contracts.

A notable tension exists between the strong push from the NSFI, OCC, and industry groups (like the American Fintech Council ) to use alternative data for expanding credit access, and the CFPB's 2025 narrowed focus in fair lending enforcement. The CFPB's stance of pursuing only matters with "proven intentional racial discrimination and actual identified victims," and not relying "solely on statistical evidence" for bias assessment , could make it more challenging to systemically identify and address algorithmic biases that may arise from new credit models using alternative data. Statistical analysis is often crucial for uncovering such biases, and this shift might inadvertently hinder efforts to ensure these new data sources are used equitably.

B. Building Trust, Enhancing Financial Literacy, and Overcoming the Digital Divide

Addressing the psychological and practical barriers to financial inclusion is paramount:

Building Trust: "Don't trust banks" is a significant reason for being unbanked (33%). Historical inequities and experiences with predatory practices or opaque fees contribute to this mistrust. Initiatives like the FDIC's "Trust through Transparency" aim to help. Building trust requires financial institutions to acknowledge historical context, engage in open dialogue with communities, partner with trusted community leaders (e.g., faith-based organizations, nonprofits, CDFIs), and design products with transparency and fairness. Financial literacy efforts will fall flat if not backed by trustworthy institutional behavior; education alone cannot mend broken trust stemming from negative experiences.
Enhancing Financial Literacy: Lack of financial knowledge can be a major impediment. Numerous resources and programs exist, including K-12 financial education initiatives supported by the FDIC, CFPB, and NCUA. Banks are encouraged to partner with schools to provide financial education and even school-based banking services. The NSFI also includes financial education as a component of expanding access to savings and investments.
Overcoming the Digital Divide: Over 21 million Americans lack broadband internet access, limiting their ability to use digital banking tools. Addressing this requires a multi-layered strategy:

Infrastructure: Government investment in mobile and broadband infrastructure, as outlined in the NSFI.
Accessible Design: Development of mobile-first, low-data applications.
Physical Access Points: Partnerships between banks and community venues like local stores, community centers, and libraries to offer services in underserved areas.
Digital Literacy: Providing education and training on how to use digital financial tools safely and effectively. Simply providing internet access is insufficient if users lack the skills or if services are not designed inclusively.

Bridging Cultural and Language Gaps: With only 12% of U.S. banking apps supporting Spanish , there is a clear need for multilingual support and culturally relevant user experiences that reflect the diverse needs and financial behaviors of different communities.

C. Strategic Recommendations for Stakeholders

A collaborative, ecosystem-wide approach is essential for meaningful progress in financial inclusion. No single entity can solve this complex issue alone; public-private partnerships and coordinated efforts are key.

For Financial Institutions (Banks, Credit Unions):

Expand the availability of low-cost, transparent transaction accounts, such as Bank On-certified accounts, which feature low or no minimum balances and predictable fees.
Develop and offer financial products and services tailored to the specific needs of underserved communities, including small-dollar credit options and pathways to build credit.
Invest in community-based financial literacy programs and partner with local organizations to deliver them effectively.
Improve transparency in fee structures and product terms to build trust.
Responsibly adopt AI and alternative data for credit underwriting, ensuring robust bias detection and mitigation strategies are in place.
Offer robust, accessible, and multilingual mobile banking platforms and digital wallet solutions.
Support and participate in entrepreneurship mentorship programs, particularly for underserved business owners.

For Policymakers (Federal, State, Local):

Continue and strengthen support for national strategies like the NSFI, and programs like the SSBCI, MBDA initiatives, and the CDFI Fund, which have proven track records.
Prioritize public investment in digital infrastructure (broadband) and digital literacy programs to bridge the digital divide.
Foster a regulatory environment that encourages innovation in fintech for financial inclusion while ensuring strong consumer protection, clear rules of engagement, and fair competition.
Actively address the potential for algorithmic bias in AI-driven financial services through research, guidance, and appropriate oversight.
Review and reform policies that create "asset limits" or "savings penalties" in public benefit programs, which can discourage savings among low-income households.
Modernize regulatory frameworks to accommodate emerging models like open banking, ensuring data security and consumer control.

For Non-profits and Community Organizations:

Act as trusted intermediaries, connecting underserved individuals and entrepreneurs with appropriate financial services and resources.
Provide culturally competent financial counseling, education, and mentorship.
Advocate for policies and practices that meet the needs of their communities.
Partner with financial institutions and fintech companies to co-design and deliver inclusive solutions.

For Technology Providers (including Fintechs):

Design financial products and services that are inclusive, accessible (e.g., low-data, multilingual), user-friendly, and low-cost, specifically targeting the needs of unbanked, underbanked, and underserved entrepreneurs.
Prioritize the user experience for diverse populations, incorporating human-centered design principles.
Implement robust data security and privacy measures to protect vulnerable users.
Develop and deploy AI ethically, with a strong focus on fairness, transparency, and bias mitigation.
Collaborate with traditional financial institutions, community organizations, and regulators to scale solutions effectively and responsibly.

Ultimately, the goal is shifting from mere "financial inclusion" (access to accounts) to fostering genuine "financial health" and well-being. This more holistic objective requires strategies and product designs that focus on measurable improvements in individuals' ability to manage day-to-day finances, withstand financial shocks, pursue opportunities, and build long-term wealth.

VII. Market Opportunities and Future Outlook

Empowering the financially underserved is not only a social imperative but also represents a significant, often untapped, market opportunity. As technology evolves and awareness grows, the landscape for inclusive financial products and services is poised for substantial growth, driven by innovative providers and increasing investment.

A. Sizing the Opportunity: The Market for Inclusive Financial Products and Services

The sheer number of unbanked and underbanked individuals, coupled with the financing needs of underserved entrepreneurs, constitutes a substantial market. Several rapidly growing sectors are indicative of the demand for financial solutions tailored to these populations:

Alternative Finance: This global market, encompassing peer-to-peer lending, crowdfunding, and invoice trading, is projected to reach $316.25 billion in 2025 and grow to $676.67 billion by 2034, exhibiting a compound annual growth rate (CAGR) of 20.9%. This growth is significantly propelled by the financing needs of small and medium-sized businesses (SMBs).
Microfinance: Globally, the microfinance market is expected to grow from $215.51 billion in 2024 to $240.49 billion in 2025 (a CAGR of 11.6%), and further to $368.02 billion by 2029 (a CAGR of 11.2%). Like alternative finance, this sector's expansion is driven by the needs of SMEs and a focus on financial inclusion, offering services like microcredit, savings accounts, and microinsurance.
U.S. Banking-as-a-Service (BaaS): The BaaS market in the U.S. was valued at $1.3 billion in 2024 and is forecast to reach $1.6 billion in 2025, with a projected surge to $8.5 billion by 2032, representing a strong CAGR of 26.6%. BaaS platforms enable fintech companies and other non-bank entities to embed financial products into their offerings, often reaching niche or underserved markets.
U.S. Factoring Services: This market is projected at $364.1 billion in 2025 and is expected to grow to $637.1 billion by 2032 (CAGR of 8.32%), largely driven by the digitalization of financial services and the demand from SMEs for accessible financing alternatives to traditional credit.
Community Development Financial Institutions (CDFIs): The impact of CDFIs highlights the scale of financial activity in underserved areas. In FY 2024, CDFI Program Awardees originated over $24 billion in loans and investments, financed more than 109,000 businesses, and supported the creation of over 45,000 affordable housing units. The CDFI Fund itself awarded nearly $789 million in appropriated resources, allocated $5 billion in New Markets Tax Credits (NMTCs), and guaranteed nearly $500 million in bonds in FY 2024.

The high CAGRs in these sectors (Alternative Finance: 20.9%; BaaS: 26.6%; Microfinance: 11.2%) strongly suggest that innovative and non-traditional financial models are rapidly gaining market share, partly because they address needs unmet by conventional banking for underserved consumers and businesses. This signals a substantial market appetite for more flexible, accessible, and tailored financial solutions. Furthermore, the sustained success and significant scale of CDFIs demonstrate that serving low-income and underserved communities can be both impactful and economically viable, often through a blend of public mission and private capital. This provides a proven model from which mainstream institutions and fintechs can learn or with whom they can partner to expand their reach.

Table 1: Market Opportunity Snapshot – Selected Financial Services for/Enabling the Underserved (2025-2034 Projections)

Market Segment	2025 Projected Size	Projected CAGR	Key Drivers	Snippet ID(s)
Global Alternative Finance	$316.25 billion	20.9% (2025-2034)	SMB growth, demand for diverse funding options
Global Microfinance	$240.49 billion	11.2% (2025-2034)	SME growth, financial inclusion initiatives
U.S. Banking-as-a-Service (BaaS)	$1.6 billion	26.6% (2025-2032)	Fintech innovation, embedded finance
U.S. Factoring Services	$364.1 billion	8.32% (2025-2032)	Digitalization, SME alternative financing needs
Global Community Banking (Indicative)	$17.69 billion	5.5% (2025-2034)	Localized services, relationship banking

Note: Market sizes and CAGRs are based on available projections and may vary based on source and methodology. "Global Community Banking" is included as indicative of the value placed on tailored, community-focused financial services.

B. Competitive Dynamics: Fintech vs. Traditional Institutions in Serving the Underserved

The market for serving the financially underserved is characterized by dynamic competition and, increasingly, collaboration between fintech innovators and traditional financial institutions (FIs).

Fintech companies often lead with technological innovation, user-centric design, and lower-cost structures. They leverage AI for personalized services and risk assessment, and rapidly deploy mobile-first solutions. Challenger banks like Chime have gained millions of users by offering streamlined, low-fee mobile banking experiences.

Traditional FIs, while sometimes slower to innovate, possess establshed trust, extensive customer bases, regulatory experience, and significant capital. Many are now actively responding to the fintech challenge by investing in their own digital transformations, launching digital-only brands (e.g., Santander's Openbank ), partnering with fintechs (e.g., Regions Bank's collaboration with BILL for payment solutions ), and adopting AI technologies.

Mobile banking is a key arena, with nearly half of banked U.S. households using it as their primary account access method. Digital wallets are another area of intense activity, with tech giants like Apple dominating certain segments , but FIs also entering the space. Investment in the broader fintech sector, after a period of recalibration, showed signs of recovery heading into 2025, with AI-driven solutions and payment technologies attracting significant interest.

This evolving landscape is less about a zero-sum game and more about "coopetition." Fintechs often require partnerships with chartered FIs to offer regulated products, while FIs increasingly rely on fintechs for innovation and to reach new market segments. BaaS models exemplify this, enabling non-banks to offer financial products powered by licensed institutions. Such hybrid models, combining fintech agility with FI stability and reach, are likely to be increasingly prevalent and effective in serving the diverse needs of the underserved. However, one potential consequence of intense competition, particularly on fees, is the pressure it creates on revenue models. While lower fees benefit consumers in the short term, if business models become unsustainable, there could be a temptation to aggressively monetize customer data. For vulnerable populations, this raises significant privacy and ethical concerns if not managed with robust consumer protections and transparent practices.

C. Investment Trends and The Future of Financial Empowerment

Investment trends point towards a future where financial services are more personalized, embedded, AI-driven, and focused on holistic financial well-being.

Fintech Investment Recovery: After a slowdown, investment in fintech, particularly in AI-related ventures and areas like B2B payments, is showing signs of resurgence. Cryptocurrency startups also saw renewed investor interest in early 2025.
Focus on Financial Health: There is a discernible shift in emphasis from mere financial access (e.g., account ownership) to promoting tangible improvements in individuals' overall "financial health"—their ability to manage daily finances, absorb shocks, and pursue opportunities. This more outcome-oriented approach is gaining traction among investors and program designers.
ESG Investing: Environmental, Social, and Governance (ESG) criteria are increasingly influencing investment decisions. Financial inclusion aligns strongly with the "Social" component of ESG, potentially channeling more private capital towards solutions that empower the underserved. This could incentivize the development of more responsible and impactful financial products that balance profit with measurable social benefit.
Technological Convergence: The future will likely see a greater convergence of AI, open banking (consumer-permissioned data sharing), and digital identity solutions. This convergence holds the potential to create highly personalized and adaptive financial ecosystems. For an underserved entrepreneur, this could mean dynamic access to credit based on real-time business performance, digitally delivered tailored mentorship, and seamless integration of payment and financial management tools. However, this interconnectedness also amplifies risks related to data privacy, algorithmic bias, and cybersecurity, necessitating proactive governance, ethical frameworks, and robust consumer protections.
Emerging Technologies: Tokenization of assets, including real estate, is expected to grow, potentially opening new investment avenues. Digital currencies, including stablecoins and potentially Central Bank Digital Currencies (CBDCs), continue to be explored for their potential to streamline payments and reduce costs.
Personalization and Financial Literacy: There is a growing recognition of the need for proactive financial planning and enhanced financial literacy, particularly for retirement readiness. AI can play a role in delivering personalized financial education and guidance.

The future of financial empowerment hinges on leveraging these technological advancements responsibly, fostering collaboration among stakeholders, and maintaining a steadfast focus on the genuine financial well-being of underserved individuals and entrepreneurs.

VIII. Conclusion

The journey towards comprehensive financial inclusion in the United States is ongoing, marked by both significant progress and persistent challenges. While unbanked rates have reached historic lows, a substantial number of households remain underbanked, and stark demographic disparities in access to and use of beneficial financial services continue to exist. The high cost of alternative financial services further burdens financially vulnerable populations, hindering their ability to build stability and wealth.

Entrepreneurship mentorship has proven to be a powerful catalyst for success, particularly for individuals from underserved communities who often face heightened barriers. Mentorship programs provide not only crucial business knowledge and network access but also the confidence and support needed to navigate the entrepreneurial landscape. Initiatives from organizations like SCORE, the MBDA, and private sector entities like JPMorgan Chase are making tangible differences, though the need for culturally competent and widely accessible mentorship remains vast.

Simultaneously, payment modernization, driven by fintech innovation, offers transformative potential. Digital wallets, real-time payment networks like FedNow and TCH RTP, and the increasing integration of AI are reshaping how financial services are delivered and accessed. These technologies can lower costs, increase convenience, and provide tailored solutions that better meet the needs of the underserved. However, the digital divide, concerns about data privacy, algorithmic bias, and the need for robust consumer protection must be proactively addressed to ensure that these advancements lead to equitable outcomes.

The most impactful solutions often lie at the intersection of high-tech innovation and high-touch human support. Combining the scale and efficiency of digital platforms with the personalized guidance of mentorship can create a powerful synergy for empowering underserved entrepreneurs and individuals.

Achieving true financial empowerment requires a sustained, collaborative effort from all stakeholders. Financial institutions must prioritize the development of inclusive, affordable, and beneficial products. Policymakers need to foster an environment that encourages responsible innovation while safeguarding consumers and addressing systemic inequities, as envisioned by frameworks like the National Strategy for Financial Inclusion. Non-profits and community organizations play a vital role as trusted intermediaries and advocates. Technology providers must design with inclusivity at their core.

Looking ahead, the focus is shifting from mere access to fostering genuine financial health and well-being. This involves not only providing accounts and tools but ensuring they empower individuals to manage their finances effectively, build resilience against shocks, and create pathways to long-term prosperity. The significant market opportunities associated with serving the underserved, coupled with growing ESG investor interest, can provide further impetus for developing sustainable and impactful solutions. By embracing innovation responsibly, prioritizing collaboration, and maintaining an unwavering commitment to equity, the U.S. can continue to make meaningful strides in empowering all its citizens to participate fully in and benefit from the economy.

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Financial Inclusion and Economic Growth in the US.