Unbanked describes adults who don't utilize banks. While this is a problem in less developed countries, it exists in places like the United States.

The Unbanked: A Better Understanding

Those who don't have bank accounts typically pay with cash, money orders, or prepaid debit cards. They may use them if they have access to other financial services like check-cashing or payday loans.

Who Doesn't Have Access To Banking Services?

5% of American adults did not have a bank account in 2020. Another 13% were underbanked, meaning they had a bank account but also used an alternative financial service (AFS) like a money order or payday loan. Contrarily, 81% of people were completely banked, meaning they had their bank account and never used a money transfer service.

Unbanked Americans

More than 7 million, or 5.4%, of American families, were unbanked in 2019, according to a study by the Federal Deposit Insurance Corporation (FDIC). This number is the lowest since the poll began in 2009.

The FDIC found that households with low, fluctuating, or no income had a significantly greater rate of not having a bank account than other demographics. People who did not complete high school were more likely to be unbanked than those who did.

Reasons Why Some People Don't Use Banks

According to the FDIC survey, those who are unbanked primarily do so due to financial constraints; specifically, they do not have enough money to meet banks' minimum requirement balances. Another way of putting it is that those who aren't part of the banking system don't have easy access to the services and goods that would be useful to them.

Some people, such as those who are extremely low-income or whose income is highly unpredictable, may not have the luxury of waiting for a bank to clear their funds before they can spend their money. They go to a check-cashing business because they need quick cash, even if it costs them money.

Remote Banking With Mobile Device

Focus group data collected by the FDIC in 2017 indicated that mobile banking satisfied customer expectations in places lacking traditional banking. The main benefits of mobile banking are easier access to banking services, increased financial agency for customers, and, in some situations, lower service fees. Customers of banks that cater to mobile users can get alerts and other monitoring tools for their finances on the go.

Customers benefit from these notifications and tools because they save money on banking costs, stay on top of their finances, make better decisions at the moment, and keep better records, all of which contribute to fewer payment disputes.

Thanks to advancements in mobile technology, people may now use applications to make cashless, paperless, peer-to-peer (P2P) payments to one another. Increases in payment processing speed and ease are possible because of technological advancements that benefit consumers.

Actions Taken To Expand Access To Banking

While the percentage of Americans without bank accounts has decreased annually since 2011, the federal government is still pursuing many initiatives targeted at the unbanked and underbanked. The FDIC issued a "tech sprint" challenge in June 2021, urging member banks to discover resources and applications that could inspire more consumers to use banking services.

Economists have made suggestions for the unbanked, such as using the post office or another government agency as a banking alternative. Limiting overdraft fees has been shown to increase bank account ownership, according to a study conducted by the Federal Reserve and Dartmouth College in 2021.

Why Does Not Having A Bank Account Present A Problem?

Lack of access to financial institutions is a problem for many people. The fees associated with cash checking services and payday loans are substantially higher than those associated with traditional banking options.

Also, folks can't build up the records necessary to prove their creditworthiness without a bank account. Therefore, a payday loan may be the only alternative when it comes time to pay for an unexpected car repair or medical bill. These additional expenses harm families already trying to make ends meet.

Conclusion

Not all unbanked populations could be reached even if this technique were widely applied. Not everyone will be reached, and not everyone who is reached will be able to save money, improve their credit scores, and reduce the cost of their financial services. With about ten million unbanked households in the United States, even a moderate success rate might significantly enhance the quality of life for hundreds of thousands of low-income families.