In 2019 everyone has a bank account, right? Wrong. In fact, some  people around the world are currently “unbanked,” meaning they have no account with either a financial institution or a mobile money provider. Even more people are “underbanked,” meaning they have accounts, but tend to rely on cash rather than checks, credit cards or other banking services.

The problem is a big one. Around the world, nearly one in three adults has no bank account. And that’s not only in the developing world. For example, in the United States, about 8.4 million households — or more than 6 percent — are unbanked. And nearly one in five U.S. households is underbanked. Among people of color in the United States, the numbers are even higher — 16.9 percent of African-Americans and 14 percent of Hispanics were unbanked as of 2017.

The unbanked and underbanked are also often late paying their rent, utility bills and other important charges. Since many of those people are on public assistance, that, in turn, puts a big drain on government funding, payment costs and more.

In the United Kingdom, for instance, fully half of the tenants in council housing who receive Universal Credit payments from the federal government are at least one month behind in their rent. Nearly a third are two months behind.

Fortunately, the problem can be solved with a combination of digital technology and clever financing.

Clever combination

While these problems aren’t new, to date no one has seriously tried to solve them. The main sticking points have been high costs and the lack of a technology ecosystem.

Digital technologies, however, are paving the way for new services that — when combined with creative financing models — could overcome those sticking points and deliver free digital banking services to low-income people who are either underbanked or completely unbanked. Bank cards can be used like cash at participating retailers. The service could also include a digital wallet, smart direct debits, the ability to offer smart loans and credit — and all of it extremely easy to use.

Instead of collecting fees from these users, the service gets its financing from participating banks, government agencies, housing associations, utility providers and others. Their incentive for paying? The promise of reduced costs, accelerated payments and eliminated debt.

Digital jam jar

Unlike other payment systems, this new approach uses digital technology to “ring fence” funds for vital payments. It’s a next-generation form of money management, and the digital equivalent of saving bills and coins in individual jam jars earmarked for specific bills.

For example, imagine a hypothetical person who receives $1,000 a month in government benefits. With this new approach, a subset of that total — say, $400 — could be automatically set aside for paying the person’s rent and utility bills.

In this way, the housing association is assured of getting its rent, the utility providers get paid on time, the individual stays current on essential payments, and a tangle of overdue payments and fees is completely avoided. Also, the free banking cards would not offer an overdraft feature, making overspending essentially impossible.

Other benefits are likely, too. These include both an improved customer experience and lower costs for government agencies. And for participating retailers and banks, an improved brand reputation.

Late payments from the underbanked and unbanked are a large and costly problem. Free digital banking could be a solution.