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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

Building Stronger Communities through Bank Acquisitions

Posted by Wendell Brock on Thu, Aug 13, 2009

The decision to acquire a bank in an underserved community is ultimately based on the investment value of the target bank. But determining that investment value is a tricky proposition; a low-income neighborhood may not offer much appeal currently, but infuse that low-income neighborhood with capital, and the situation might look quite different.

Residents of underbanked communities typically have their financial needs fulfilled by payday loan stores, check cashing establishments, and even unlicensed predatory lenders. The expense associated with these services creates inefficiencies in the cycling of cash within the community. In other words, predatory lenders can drain more money out of the community—through high finance and service charges—than they put into it.

A banking institution, however, can have the opposite effect. When a bank reaches out to underbanked consumers and educates them on the advantages of keeping a deposit account, that bank is also compiling assets that will be returned to the community in the form of loans. Those lend-able funds are the building blocks of home ownership and local business development.

Financial education creates financial efficiencies

Studies have repeatedly shown that financial education is a huge component of attracting and retaining underbanked consumers. A bank that operates effectively in a previously underserved community isn’t limited to showing consumers how to reduce their finance charges, however. The bank can also initiate programs to help consumers develop more efficient budgeting, spending, savings and even tax planning habits. Over time, those cumulative household savings can also be directed back into the community, through discretionary spending.

With a creative vision and effective outreach and education programs, then, a newly acquired bank can anchor a turnaround within an underserved community.

Overcoming the failures of previous banks

The challenges in initiating such a turnaround are large, but not insurmountable. If the target bank is already located within the underserved community, the bank organizers need to understand why that institution wasn’t previously effective. The product and service set, the brand image and the marketing programs (to name a few) need to be overhauled to address the needs and wants of local consumers.

If the target bank is to be relocated to the underserved area, the bank organizers must try to gain some insight from the history of banking in that community. Did previous banks or branches fail? If so, why?

Underserved communities and unbanked consumers obviously aren’t the low-hanging fruit of the banking industry. However, initiating real and positive change within a community is an endeavor that can be both rewarding and profitable. And, because there are many underserved locales in the U.S., the group of bank organizers that defines a workable model for one community has ample opportunity to roll out variations of that model to other areas.

Next week, we’ll discuss marketing strategies for attracting and retaining underbanked consumers.

Topics: bank buy out, Bank Opportunities, Community Bank, failed banks, Buy a bank, mergers and Aquisistions, underserved communities, bank acquisition, Bank Buyers, bank aquisition, underserved areas

Composition of Distressed/Underserved Community List Remains Largely Unchanged

Posted by Wendell Brock on Fri, Jul 10, 2009

Last week, we addressed the FFIEC’s 2009 list of distressed and underserved communities in the context of identifying geographies appropriate for bank acquisitions. This week, we’ll look at how the composition of that list has changed between 2005 and 2009, and what that might mean for bank acquirers.

The chart below shows the ten states with the highest number of distressed or underserved counties in 2009, along with the data from 2008 through 2005 for those same states. To clarify, the FFIEC list identifies specific community tracts and the counties in which those tracts are located. The data below represents the number of counties in each state that have one or more distressed or underserved community tracts.




As the chart indicates, several of these states show relatively small changes over the five-year time period. Texas, Georgia, Mississippi, Missouri, Arkansas and Oklahoma show an increased number of counties in 2008 and 2009 compared to prior years. The data from Nebraska, Kentucky and Kansas, however, have remained almost flat.

Obviously, we don’t have the data here to understand why these particular states routinely have distressed or underserved community tracts in more counties than other states. But, since the composition of these “top ten” hasn’t changed much in five years, it’s probably safe to say the banking community hasn’t found an effective and sustainable means of serving many of these communities.

The 2009 data reports that in Texas alone, there are 335 distressed or underserved tracts, spread out among 126 counties. Among those tracts, poverty is the most pervasive problem; 173 tracts are designated as impoverished, while 120 have suffered from population loss. Another 85 tracts are in remote rural locations. Only five of the tracts have a noted unemployment problem. (Some tracts fall into more than one of these categories).  

In 2005, Texas had 258 distressed or underserved tracts among 109 counties; 125 of the tracts were designated as impoverished, 120 had experienced population loss, and 85 were in remote locations. Twenty-six tracts had problems with unemployment. The change from 2005 to 2009 in Texas’ data looks to be largely driven by an increase in the number of poverty-stricken communities.

Residents of poor, shrinking and/or remote communities aren’t the ideal “target” for most banks. But the conventional school of thought supports the notion that these customers do offer opportunity for banks. They can be weaned onto starter banking services and eventually converted into more sophisticated banking customers.

A bank acquisition team that addresses these customer segments early in the strategic planning process can devote the resources necessary to gain a foothold in underserved areas. That foothold can then develop into a strong competitive advantage, as residents and businesses benefit from the financial support of a community-oriented bank.

For additional reading on addressed underserved communities, see:

•    Dryades Savings Bank Case Study
•    FDIC Advisory Committee on Economic Inclusion
•    Reaching Underserved Borrower Prospects: A Case Of A Small Rural Bank

Topics: underserved areas, distressed banks, distressed tracts, FFIEC

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BankNotes© is published by De Novo Strategy as a service to clients and other friends. The information contained in this publication should not be construed as legal, accounting, or investment advice. Should further analysis or explanation of the subject matter be required, please contact De Novo Strategy at