Financial Inclusion for LifeLine Phone Users

Adam Rust

The digital bank account delivered through a smartphone app is a natural fit for people who have a LifeLine phone.

Under the auspices of the Federal Communication Commission (the “FCC”), the government subsidizes low-cost mobile data and broadband driven by the aim to extend communication services for lower-income individuals. Additionally, it supports the same for a small set of demographic groups who tend to face steep hurdles to accessing digital services. A LifeLine phone brings the benefits of a smartphone to some of our nation’s most economically disadvantaged households.

In my opinion, the LifeLine phone program should become a vector for reducing the number of underbanked people.

LifeLine phones are already in the hands of the correct demographic – lower-income consumers who have a smartphone. While it could surprise some that so many have a device, among the approximately twenty million US households who are underbanked – meaning they have a checking or a savings account but not both – three in four have a smartphone. That percentage exceeds the share among people who are fully banked.

No one can miss the point that they match with the income profile of the unbanked and underbanked. To qualify for the Lifeline Assistance program, a person has either meet an income standard or fall into one of several assistance programs. According to industry estimates, approximately 10.7 million households had a Lifeline Assistance phone. That population represents only a fraction of the number of people who could utilize this program.

A caveat – the underbanked will be the low-hanging fruit. Unbanked individuals are much less likely to have a phone. According to Mobile Payments Today, only two in five unbanked households had a smartphone in 2018. Still, that could reflect unmet demand.

That does not mean that it would be a mistake to target the unbanked, and indeed, it might be the place with the most significant window of opportunity. The absence of a phone and the absence of a bank account could mean that providing one sets the stage for introducing the other.

Any home with an income at or below 135 percent of federal poverty guidelines will qualify to receive a Lifeline phone. The FCC also allows benefits recipients of any of the following programs to participate:


Supplemental Nutrition Assistance Program (“food stamps”)

Supplemental Security Income (“SSI”)

• The Section 8 Housing Choice program

• Several tribal assistance programs.

Fee-free smartphone-first bank accounts
Picture of card
Picture of card
poor person using lifeline smartphone

Critics of the program like to say that it is wrong to give people free stuff. They contend that a smartphone is a luxury good and not a necessity. Others have rightfully pointed out that there has been some mismanagement in the program. To their point, the Government Accountability Office (“GAO”) found fault with its fiscal policies.

Nonetheless, that should not cloud the fact that it makes sense to continue the service. It’s a stretch to say that a meager data plan amounts to a luxury. Years ago, that might have been the case, but it's now hard to navigate through life without one. Today, people manage their lives with their phones. I know this firsthand – it is might experience that people expect to be able to communicate with me all day. Indeed, putting smartphones in the hands of the poor might save money for the government. Social workers would otherwise find it hard to locate some of their clients. That would result in more missed meetings; more time spent rescheduling appointments. We would see increased costs if people missed appointments at clinics and later wound up in an emergency room.

Another note – instead of referring to Lifeline phones as "Obamaphones," we ought to call them Reaganphones, since it was during his administration that the FCC established the program when it authorized the FCC to create the Universal Service Fund. If you have a phone, a tiny portion of your bill goes to capitalize the fund. The Obama Administration merely updated the Lifeline program to provide subsidies for broadband and wireless.

Lower-income adults are less likely to have broadband than a smartphone. According to the Pew Research Center's most recent (2018) survey, 71 percent of adults earning less than $30,000 per year have a smartphone. Only 56 percent have at-home broadband. The study identified a large share (26 percent) who used a smartphone as their only channel to the internet. Those numbers lag the rates of adoption among people from higher-income strata.

That means that the right bank account should be one that builds its customer experience on the smartphone platform. For several years, it has been the case that the percentage of people with a smartphone data plan exceeds the share who have home internet. The message should come across clearly – people put more value in a smartphone.

The FCC’s policymakers should pair that known consumer preference with bank accounts that have the same design emphasis. I am thinking about bank accounts (not prepaid debit cards) that are available in the AppStore or GooglePlay. Bank accounts like Varo’s (details here) and Empower’s ask people to download an app as a first step in the process of applying for an account. They cannot be accessed through a desktop browser, and they don’t have branches. Some might perceive those constructs as shortcomings, particular the latter, but those aspects are what makes it possible for the companies to derive a profit on what are essentially fee-free accounts. Traditional banks set up their checking accounts to trigger fees, so even if they call their product “free checking,” branch banks rack up billions in overdraft and minimum balance fees. If we want people to warm up to using a bank account, we have to pair that entreaty with products that meet them where they are (on their phone), and at a price they can afford (free).

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Adam Rust has worked to defend consumers against harmful financial practices since 2005. He has written extensively about overdraft fees, payday lending, student loans, prepaid debit cards, and subprime mortgage lending. He serves on the Board of the US Faster Payments Council. He is Director of Research at Reinvestment Partners in Durham, North Carolina. He is the author of BankTalk. See more on his LinkedIn profile.