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Unbanked and Underbanked Americans - Who Are They?

Posted by Wendell Brock on Thu, Dec 03, 2009

The U.S. Census Bureau conducted a National survey this year on behalf of the FDIC to ascertain the level of Unbanked and Underbanked households in the United States. The survey was designed to help the FDIC understand who is outside the banking system. The study which is the most comprehensive to date, reveals that just over a fourth (25.6 percent) of the households in the U.S. are unbanked or underbanked and those households are largely low-income and/or minority.

The survey additionally collected more accurate estimates of the Unbanked and Underbanked Households, and reasons why the people remain unbanked or underbanked. The survey estimates, represent the first time this kind of data has been collected in large metropolitan statistical areas (MSA), states, and across the nation.

"Access to an account at a federally insured institution provides households with an important first step toward achieving financial security - the opportunity to conduct basic financial transactions, save for emergency and long-term security needs, and access credit on affordable terms," stated Sheila Bair, Chairman of the FDIC. "By better understanding the households that make up this group - who they are and their reasons for being unbanked or underbanked, we will be better positioned to help them take that first step."


Unbanked is determined by households who answered "no" to the question "Do you or does anyone in your household currently have a checking or a savings account?"

Underbanked households were determined by those who have a checking or savings account but rely on alternative financial services. Specifically, using money orders, nonbank check-cashing services, payday loans, rent-to-own agreements, or pawn shops at least once or twice a year or tax refund anticipation loans at least once in the past five years.

Key Findings of the Study

  • Of the households surveyed, 7.7 percent were unbanked, which translates nationally to 9 million households - approximately 17 million adults. An additional 17.9 percent - or 21 million households nationally (approximately 43 million adults) - were found to be underbanked.
  • The proportion of U.S. households that are unbanked varies considerably across racial and ethnic groups with certain racial and ethnic groups being more likely to be unbanked than the population as a whole. Minorities more likely to be unbanked include blacks (21.7 percent of black households), Hispanics (19.3 percent), and American Indian/Alaskans (15.6 percent). Racial groups less likely to be unbanked are Asians (3.5 percent) and whites (3.3 percent).
  • Certain racial and ethnic minorities are more likely to be underbanked than the population as a whole. Minorities more likely to be underbanked include blacks (an estimated 31.6 percent), American Indian/Alaskans (28.9 percent), and Hispanics (24.0 percent). Asians and whites are less likely to be underbanked (7.2 percent and 14.9 percent, respectively).
  • Households with income under $30,000 account for at least 71 percent of unbanked households. As income increases, the share of households that are unbanked declines considerably. Nationally, nearly 20 percent of lower-income U.S. households - almost 7 million households earning below $30,000 per year - do not currently have a bank account. In contrast, only 4.2 percent of households with annual income between $30,000 and $50,000 and less than 1 percent of households with yearly income of $75,000 or higher are unbanked.
  • Households with an annual income between $30,000 and $50,000 are almost as likely as lower-income households to be underbanked.

This survey goes hand in hand with a survey the FDIC conducted earlier in the year of bankers efforts to serve the unbanked and underbanked households in their community, see FDIC's Unbanked Survey. The survey is of such important information to the FDIC that they created a special website to display the findings at online at

It appears that the unbanked and underbanked households are close to the same number of estimates of those without proper medical insurance. Is there a correlation here? Is this something congress should be addressing - making sure that every American has proper banking and financial services?

Topics: FDIC, underserved communities, underserved areas, Pay Day Loans, Banking, Unbanked customers, FDIC’s, Unbanked, Underbnked, banker's survey

Marketing to the Underbanked

Posted by Wendell Brock on Thu, Aug 20, 2009

Underserved and underbanked communities are well documented in the banking industry: the FDIC and others have published numerous reports, surveys and case studies on the topic. And, the FFIEC produces an annual list of underbanked communities, segmented by county and state.

As capital flows into the banking industry via bank acquisitions, many new business plans are incorporating programs to attract and retain underserved/underbanked consumers. Some bank acquirers are even selecting target banks based on their locations relative to known underserved communities.

Creating a plan

A bank purchase, like a bank start-up, has a rigorous regulatory approval process. Part of that process involves documenting and defending a viable business and marketing plan for the target institution. This is no small undertaking, particularly when an underserved community is being addressed. Studies have repeatedly shown that underserved consumers do not respond consistently to traditional bank marketing programs.

Earlier this year, the FDIC completed a survey to identify initiatives and programs that had successfully attracted underserved consumers. Effective outreach efforts incorporated the following actions:

•    Early identification of suitable underserved populations
•    Early commitment to serve the targeted underserved population
•    Launch of educational programs, teaching consumers about managing their finances
•    Partnership with established community organizations
•    Off-site outreach visits and programs (at high schools and/or community organizations)
•    Providing educational pamphlets and brochures
•    Marketing specifically to certain demographics (such as Hispanic Americans)
•    Empowering bank employees to welcome underbanked customers  

The FDIC study concludes that educational programs, community partnership and off-site visits are among the most effective strategies. Subjects most commonly addressed in educational sessions are basic banking and savings programs. While the development of financial pamphlets and brochures is a popular strategy among banks, it is not considered one of the most effective methods.   

Widening the service set

An effective underserved outreach program must also include the establishment of services for noncustomers, such as:

•    Check cashing
•    Money orders
•    Bill-pay
•    Reloadable, prepaid cash cards

A challenge in offering these services to noncustomers is setting effective identification policies. Underserved customers are less likely to have traditional forms of I.D., such as a driver’s license or state-issued I.D. card. Also, the goal in developing relationships with noncustomers is to transition them into accountholder status over time. Banks must therefore establish identification policies for account openings as well. Lack of identification is a common reason new account applications are denied. Other reasons include negative results on a check screen and a low credit score.

Assuming noncustomers can be converted to accountholders, these entry-level customers will also have specialized service needs. Banking services to consider for this customer segment include:

•    Checking and savings accounts with no balance requirements
•    Accounts with less severe overdraft penalties
•    Short-term, unsecured loan facilities with specialized eligibility requirements

For further insights on working with underserved customers, read the full FDIC survey, available here:

Topics: underserved communities, underserved areas, Unbanked customers, Bank Marketing

FDIC’s Unbanked Survey Reveals Key Strategies for Reaching Unbanked Customers

Posted by Wendell Brock on Fri, Feb 06, 2009

The FDIC has just released the results of a national survey pertaining to banks’ efforts to reach unbanked and underbanked individuals and households. This demographic is widely recognized as untapped potential for the banking industry—but industry efforts to move unbanked customers into traditional checking, savings and credit products have not been consistently successful.

The survey, conducted by Dove Consulting, was designed to quantify the efforts of banks to meet the needs of the unbanked/underbanked demographic, to identify the challenges associated with serving this market, and to identify innovative products and services which appeal to this target customer.

Outreach plays pivotal role

More than 25 percent of respondent banks recommended the use of outreach programs to bring unbanked households into the conventional banking system. The bank employees tasked with designing appropriate outreach programs can turn to local employers, labor unions and community organizations to gain deeper insights into the needs and motivations of the targeted group. Alliances with these local organizations can also be leveraged by the bank to build awareness and trust quickly within the community.

Improved access

The traditional bank branch, with its limited hours and relatively formal setting, may be off-putting to this customer demographic. To address these concerns, banks might consider broadening customer access via kiosks, extended hours, web access and phone service. Some banks also reported success with hiring staff members who are fluent in foreign languages.

Specialty products and services

Banks nationwide recognize the importance of the check-cashing service to unbanked customers. Many institutions, unfortunately, are reluctant to take on the risk associated with offering this service. A secondary barrier is the inability for many unbanked individuals to produce acceptable forms of identification.

Money orders, international remittances and bill payment services were also identified as service offerings that would appeal to unbanked individuals. Of the banks that responded to the survey:

•  49 percent offer check-cashing to non-customers.
•  37 percent offer bank checks and money orders to non-customers.
•  6 percent offer international remittances to non-customers (32 percent of respondents cited regulatory concerns as a barrier to offering this service.

Downsized credit products

Entry-level credit products are useful in helping the unbanked individual enter or re-enter the economic mainstream. Prepaid cards and debit-card accounts are two services that often resonate well with this customer segment. Secured credit cards, tax refund anticipation loans and other advances on funds that are due to arrive were also recommend, although these services are not widely offered by mainstream banks.

Banks’ interest in providing these alternate services varies widely. There is a perception that the costs and risks associated with catering to the unbanked group will fall outside the bank’s strategic parameters. The FDIC’s survey did reveal, however, that 77 percent of banks had not conducted any research on the potential unbanked customers in their areas—which could mean that the reluctance to provide tailored products and services to this group is largely based on unproven assumptions.

The FDIC’s survey did not delve specifically into the long term value of the unbanked customer—but it is generally believed that these individuals, once obtained, can be transitioned into conventional banking services over time.

Survey methodology

The surveys were sent out by mail to a nationally representative sample of 1283 banks with brick-and-mortar branches. Six hundred eighty-five surveys were returned; at the time the survey was conducted, the respondent banks represented $8.3 trillion in assets or 70 percent of the total assets within FDIC-insured institutions.

Topics: FDIC, Banking, Unbanked customers, bank customers, survey

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