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How to Fight Economic Inequality With Smartphones

For minority communities hampered by a lack of financial services, there might be an app for that.

Stephen Lam/Getty Images

For all the differences between the Democratic and Republican presidential candidates, there is one thing on which they all agree: It is increasingly difficult for poor and working-class Americans to make better lives for themselves and for their children, especially in communities of color.

But this is where the similarities end. Republican candidates tout tax reform and smaller government as the best way to help these citizens. Senator Ted Cruz often cites the case of small business owner Sabina Loving, a black woman, whose inner-city tax preparation service was nearly pushed out of business by relatively costly new IRS regulations. Her company was saved when the U.S. District Court of Appeals ruled the IRS overstepped its authority in regulating tax preparers. Democrats believe new laws protecting civil liberties and tailored government programs are appropriate and more effective. This is evinced in Senator Bernie Sanders’s proposed $5.5 billion jobs plan, which would earmark much of those dollars to address black youth unemployment.

Both approaches require bipartisan support and a cooperative Congress to implement, which don’t seem likely. And while the candidates debate the merits of their proposals, poor communities of color continue to be left behind even as upper-middle-class and wealthy Americans make unprecedented gains.

What’s missing from this presidential campaign are real and tangible solutions that can be implemented in short order to help those most in need. This can only be accomplished if proposed initiatives leverage resources already in place. Fortunately, there is such an opportunity. To improve chances of upward social mobility, we should look to mobile technology.

This idea is not new. Many businesses, non-profit organizations, and philanthropic groups have recognized the value of mobile technology in improving the well-being of people residing in poor countries. Yet, here in America, the full potential of the role this technology can play in impoverished communities has yet to be realized.

Mobile technology can facilitate economic opportunity and social justice by improving access to health-care professionals and educational resources, reducing financial transaction fees, increasing civic engagement, making housing and employment resources readily available, and even fostering a sense of inclusion to the larger society.

Most importantly, the technology is already in place. According to the Pew Research Center, more than half of households with income of less than $30,000 own smartphones and are twelve times more likely than higher income households to be smartphone-dependent—that is, their phone is essentially the only means they have to access the internet. Poor blacks and Hispanics are three times more likely to be smartphone-dependent than whites (12 percent vs. 4 percent). Further, the technology is available and affordable since smartphones can be purchased for low costs without contractual obligations.

It only makes sense to utilize this widely held technology to try and make progress on the black unemployment rate, which has been consistently twice the rate of whites for decades, or to address the wage and wealth disparities prevalent in minority communities. And the government’s primary role in this all will be ensuring a regulatory framework that protects citizens while incentivizing businesses to invest more heavily in this space.

Consider mobile pay. The Federal Reserve reports that nearly a quarter of all Americans are unbanked or underbanked, meaning tens of millions of households have no checking, savings, or money market account, or they have such accounts but use alternate financial services like payday loans and check-cashing services. These households tend to be low-income, minority, young, and under- or unemployed. They are also more likely to use pawn shops, rent-to-own financial services, title loans, and prepaid cards. And Consumer Reports notes these alternative services do not offer much, if any, consumer protection and charge much higher interest rates and fees, which reduce the amount of disposable income that is already at a premium for these households. For example, in the recent RushCard fiasco caused by a computer glitch, poor and working-class families who utilize this prepaid car service could not access their cash for weeks and had no recourse for immediate restitution.

Though the Consumer Finance Protection Bureau is expected to cap the interest rates such services can charge, it cannot put a complete stop to the predatory lending practices that target indigent communities. For these reasons, the government has begun exploring how to best expand economic inclusion by bringing these households into mainstream financial markets. 

This is where mobile technology can assist. The Federal Reserve notes that 63 percent of the unbanked and 91 percent of the underbanked have mobile phones—more than 40 percent of which are smartphones. And the most frequent mobile pay activity was paying bills online, a service usually provided at an additional cost. According to the Fed, the primary reason unbanked and underbanked Americans cite for not having or fully utilizing a bank account is that they don’t like dealing with banks and they don’t write enough checks to make the account worthwhile. Mobile pay technology ameliorates both of these issues.

In fact, many smartphones are now shipped with mobile pay applications already loaded. For example, prepaid smartphones can be bought for as little as $40 at electronic, discount, and office supply stores, and the Android Pay application comes with some of them preinstalled. So not only can those in need have more reliable access to more of their money, they also have increased access to capital through person-to-person payments and remittances, which could also have positive impacts for small businesses in minority communities.

And this is where today’s presidential candidates should make their case. By putting forth policy that incentivizes use of mobile technology in minority and poor communities, they will increase consumer protection by bringing the unbanked into the banking sector while also protecting the most vulnerable from reliance on predatory lending services. The technology exists. And since the wireless and banking industries are already regulated, the ability to make friendly rules towards this aim is well within the authority of the presidency from the outset.

So what could the executive branch do to incentive growth? First, it can ensure the regulatory maze is navigable for established players and new entrants. Mobile applications inherently cross sectors, tying together numerous industries on a single device. The mobile startup that wants to connect impoverished communities with little access to medical facilities to health-care professionals will have to navigate wireless, medical, privacy, consumer protection, insurance, liability, and electronic funds transmission regulations for each transaction. Without streamlining, this can be prohibitive for all but the largest companies. 

Another way to encourage growth is to permit government programs and payments to be mobile-compatible, such as Medicare and Medicaid enrollment and services management, Social Security and EBT direct deposits, and other social safety net programs. Not only can this help reduce the incidence of fraud, but it also signals to businesses that this market is open and to consumers that they can trust in the security of mobile technology. Government participation inherently increases the number of users and helps create a lucrative market that will have positive impacts on communities most in need.

We know the campaigns are familiar with mobile technology because it has become an essential tool for fundraising, marketing, and engagement. But in addition to looking at this technology as a mechanism to get elected, they must also think of ways to incorporate it into governing.

The current political environment requires creative solutions to age-old problems. And those who are confronting the highest hurdles to the American Dream should not have to sit on the sidelines until the bickering ceases. Surely this is a point to which all of the candidates can also agree.