Many governments and nonprofit organizations have focused on financial access — enabling more individuals and businesses to enter the formal banking and credit system — as an important driver of economic development and financial security. On a global scale, financial inclusion underpins many of the United Nation’s SDGs (#1: No Poverty, #4: Quality Education, #8: Decent Work and Economic Growth, and #10: Reduced Inequalities), and it is also a direct goal of the World Bank and IMF’s Universal Access by 2020 Campaign (UFA2020). In our 2019 impact report, we addressed two potential root causes of financial insecurity: student debt and healthcare costs. This year, we update our work on healthcare costs and examine an additional element: how exclusion from the formal financial system can contribute to financial instability and creates barriers to wealth creation. Several of the companies owned in Putnam Sustainable Leaders and Putnam Sustainable Future Fund address these key challenges with innovative solutions.
According to the FDIC’s 2017 survey, 6.5% of U.S. households are considered unbanked and 18.7% underbanked, though these figures have been improving over time.51 Unbanked refers to people who do not have access to any banking services, including debit cards or savings accounts, while underbanked refer to those who have some access but are unable to take full advantage of banking services. An example of an underbanked individual might be someone who has a checking account but does not have enough of a credit history to open a credit card account or receive a loan. Access challenges are even more pronounced on a global basis. Globally, 1.7 billion adults remain unbanked, though interestingly, two-thirds of these adults have mobile phones, which can increasingly be used as tools for financial transactions.52
Those who are unbanked and underbanked face numerous challenges. For one, lack of a credit history and lower credit scores can limit access to credit. This can lead to reliance on very high-interest payday lending or other expensive loans in a financial emergency. Lack of access to banking also makes it difficult to save, to earn returns on savings or investments, and to access capital for any type of new business endeavor. There are direct costs too, as financial institutions often charge fees for cashing checks and other basic services. Some estimates peg the lifetime costs of these fees at $40,000, or ~$100 per month, which is over 10% of the U.S. poverty income threshold for a single person.53
Mastercard and Visa both prioritize financial inclusion, using their global reach and relationships with a range of key stakeholders to help address the global unbanked population. At their core, both of these businesses enable secure financial transactions, which can help individuals and small businesses to gain access to credit and avoid some of the costs of cash and check-based transactions. For example, new technologies like Visa Direct help provide on-demand, gig economy workers with immediate and safe pay for their services, and can also help employees access wages early, when they need funds. In collaboration with the World Bank, the United Nations, and other stakeholders, both Mastercard and Visa announced commitments in 2015 to provide access to financial services to 500 million people by the end of 2020.54 55 The companies are well on their way to these goals, each reaching around 400 million people through 2018.56 Both have also created programs that support micro and small businesses, empower women, and enable social disbursements.57 58
At the heart of all of these efforts is the use of digital technology to enable financial access. For example, one of Mastercard’s 750 global programs is called Jaza Duka (“fill up your store”); this program, in partnership with Unilever and Kenya Commercial Bank, offers lending programs for kiosk owners in Kenya with an interest-free credit line that is serviced by digital payments via mobile phones.59 Similarly, Visa partners with Mexican multinational baking company, Grupo Bimbo, to enable 70,000 corner stores in Mexico to process digital payments, including supply chain orders.60 This has allowed storeowners, who otherwise would not have easy access to credit, to improve their business prospects while accessing formal credit services.
Additionally, Mastercard has pledged $500 million for inclusive growth programs and established the Mastercard Impact Fund, which has committed grants to recipients like Benefits Data Trust (BDT). This program is helping to improve access to benefits for 5 million low-income people in the United States.61 Visa launched the Visa Foundation in 2017, and its inaugural grant to Women’s World Banking is focused on supporting women-led small and micro businesses.62
Evidence has shown that increasing financial access generates positive ripple effects across economies. These gains come from businesses being brought into the formal financial system and accessing credit, in addition to increased productivity in using digital payments instead of cash. One study has estimated that digital finance in emerging countries could potentially lead to a $3.7 trillion increase in global GDP by 2025.63 Small and medium enterprises (SMEs) are a key part of this equation, contributing 40% of GDP and 7 out of 10 jobs in emerging markets.64
In the United States as well, providing support to the unbanked and underbanked could have major implications for families and the economy. As noted earlier, the costs for cashing checks could be as much as $100 per month for many unbanked and underbanked U.S. households (about 32 million households in total).65 Extending access to more affordable financial services for these households could allow for saving over $38 billion of annual check-cashing fees annually, and these funds could be reallocated towards other expenses or to savings.
High and rising healthcare costs are contributing to financial instability and inequality in the United States. According to the Centers for Medicare & Medicaid Services, healthcare spending in the United States grew to $3.6 trillion in 2018, or almost 18% of GDP.66 On an individual basis, the numbers are perhaps even more daunting: in 2019, an average American family of four with an employer-sponsored healthcare plan incurred annual medical costs of over $28,000.67 Employees are responsible for more and more of their own healthcare expenses as employers cover less of this cost, and the growing popularity of high deductible plans in the United States can further increase out-of-pocket expenses for some consumers. These costs can be even higher for self-employed individuals or those employed by small businesses. Overall, as of 2018, employees covered approximately 44% of their healthcare costs, compared with approximately 20% in 2001. This means that employees are contributing over $12,000 to their annual healthcare costs today, versus just $1,400 in 2001.68 Additionally, out-of-pocket expenses can be especially burdensome for individuals with chronic conditions: For example, the average individual with diabetes incurs out-of-pocket expenses of nearly $2,000.69 The current COVID-19 situation is making these challenges even more visible, as we are witnessing the combination of a health care crisis plus an economic downturn.
Source: Centers for Disease Control and Prevention. Diabetes Home. PowerPoint slides on Diabetes (article online), 2017. Available from https://www.cdc. gov/diabetes/data/center/slides.html. Accessed October 19, 2017.
Within this landscape, the costs of chronic conditions like diabetes are of particular concern. The direct and indirect cost associated with diabetes in the United States is staggering. There are currently over 30 million Americans that have diabetes, and another 84 million are believed to have pre-diabetes.70 The American Diabetes Association estimates that Americans with diabetes have 2.3x greater healthcare costs than others, which results in an estimated $237 billion in annual direct medical cost. Moreover, these costs are rising, with a 26% increase over the past five-year period. In addition, indirect costs are significant, and include increased absenteeism, reduced productivity and ability to work, and early mortality. Financial barriers and lack of health insurance can further exacerbate the challenge of diabetes-related expenses.
While the U.S. healthcare system is effective at treating acute conditions like broken bones and cardiac surgeries, successful management of chronic conditions such as diabetes, obesity, and hypertension often benefits from a more hands-on, continuous approach to care. Physicians may lack the time and resources required to help patients with chronic conditions to make lasting lifestyle changes. Several healthcare innovations may offer solutions to these structural challenges.
One type of solution is digitally enabled healthcare platforms such as Livongo Health, which are helping to improve patient outcomes and lower total costs of care through improved patient adherence and fewer surprise trips to the emergency room. Livongo seeks to help people better manage their chronic conditions by providing live coaching and digital “nudges” that encourage choices like daily activity and healthier eating. The service provides members with wirelessly connected devices, such as scales, blood pressure cuffs, and blood glucose meters. The company analyzes and interprets a user’s biometric readings to send helpful and personalized feedback in the form of text messages, emails, and live calls. Peer-reviewed studies have found that, on average, people using Livongo’s solutions have achieved meaningful improvements in blood glucose levels, coronary heart disease, stroke, and weight loss.71
Several other potential solutions focus on improved access to care. For example, Teladoc Health is one of the leading telemedicine platforms that enables patients and clinicians to connect virtually in a secure and HIPPA-compliant manner. One Medical (1Life Healthcare) aims to transform access to care by offering a membership plan that allows for same-day primary care appointments and quick turnaround on testing services. Walmart has also begun to introduce clinics attached to existing retail stores that offer a range of primary care, dental, vision, and psychiatric services. All of these solutions provide patients, in particular those with chronic disease, greater access to care.
(As of March 31, 2020, Teladoc Health, One Medical (1Life Healthcare), and Walmart accounted for 2.61%, 0.21%, and 0.00%, respectively, of Putnam Sustainable Future Fund, and 0.00%, 0.00%, and 2.34% of Putnam Sustainable Leaders Fund.)
Using just one chronic condition, diabetes, as an example, patient-centric digital platforms could have meaningful impact on improving human health and reducing overall U.S. healthcare costs. As noted above, the American Diabetes Association (ADA) estimates that one in every seven dollars of total U.S. healthcare expenditures are diabetes-related expenses.72 On average, participants using Livongo’s diabetes solution were able to lower their total medical costs by 22%. If similar solutions were found to benefit all diabetics, total systemic cost savings could be more than $50 billion annually.
In addition to improved health outcomes and systemic cost savings, healthcare service innovation could directly benefit financial well-being for patients. People with diabetes have higher medical costs per capita as well as higher out-of-pocket costs, with one study concluding that they spent nearly $1,200 more annually for deductibles, copays, and coinsurance.73 If the reduction in average medical spend from programs like Livongo were proportionally transferred to out-of-pocket costs, the average program participant could save more than $400 annually.
Telemedicine can be an especially powerful tool for providing care when mobility and distance may limit access. Through the end of 2019, Teladoc Health increased the utilization rate of members using telemedicine services to over 9%.74 If the U.S. population were to mirror this same adoption rate of telemedicine over time, nearly 30 million visits could be offered virtually, saving both time and resources.
Other companies have been able to demonstrate improved health outcomes and lower costs by improving how people interact with their primary care providers. For example, One Medical has been able to demonstrate a 41% reduction in emergency room visits for its client populations by providing easy-to-schedule appointments. According to the CDC, there were 139 million U.S. emergency room visits in 2017, with nearly 19% of U.S. adults visiting the ER at least one time.75 If One Medical or similar primary care models could expand membership to 10% of the U.S. population over the longer term, more than 5 million ER visits could be avoided per year, resulting in easier access to care and over $10 billion in potential annual cost savings.76
Building clinic capacity in more user-friendly locations is another way that some companies are helping to improve access to care. For example, Walmart plans to open clinics adjacent to their existing retail stores. Ninety percent of the United States population lives within 10 miles of a Walmart store, and about 140 million customers visit U.S. Walmart stores every week.77 78 79 Additionally, many Walmart locations are in geographic areas with higher proportions of uninsured residents, who often have more limited access to healthcare. If the company chooses to build out clinics across all stores over the long term, and just 1% of regular customer trips include a clinic visit, over 70 million annual clinical care sessions could result — in convenient and easily accessed settings.
As we can see through these examples, there are meaningful challenges to financial access and access to healthcare, as well as important connections between these two areas. Our investment process finds companies that are improving existing systems, as well as many that are creating innovations that will shape the systems of the future.
Average minutes of car travel time to nearest hospital by census region
Sources: Survey of U.S. adults conducted September 24, 2018–October 7, 2018, and Homeland Infrastructure Foundation-Level data, Pew Research Center, pewresearch.org.