The Unbanked, The Underbanked and The Underserved

About 6 percent of U.S. households are "unbanked," meaning no one in the household has a savings or checking account, according to the 2017 FDIC National Survey of Unbanked and Underbanked Households.  Although this is the smallest number since the study began in 2009, it still represents 8.4 million households, made up of 14.1 million adults and 6.4 million children, the study says. An additional 18.7 percent of U.S. households were "underbanked" in 2017, meaning that the household had an account at a FDIC-insured institution but also obtained financial products or services outside of the banking system. For example, the household had a savings or checking account but also used a financial product from an alternative financial services provider within the year preceding the survey. These products include money orders, check cashing, international remittances, payday loans, refund anticipation loans, rent-to-own services, pawnshop loans, or auto title loans.  When these numbers of unbanked and underbanked households are totaled, they represent about 31 percent of U.S. households or106 million people, according to Forbes.

This large underserved market represents a significant opportunity for financial service providers. In fact, PayNearMe says the underbanked represent $1 trillion in buying power. While some people are unbanked or underbanked because they lack jobs or other resources, about 28 percent of them are middle-class earners with an average household income of about $50,000 -- just a little shy of the U.S. median household income of $52,000. Slightly less than half -- 44 percent have some college education and 81percent of these consumers are U.S.-born citizens. About half are white; one-quarter are black and about 20 percent are Latino. They are tech-savvy, with a higher percentage using smartphones than their fully banked counterparts, according to PayNearMe. 

Underbanked households saved for emergencies at almost the same rate as fully banked households in 2017 (56.3 percent vs 61.6 percent). Even 17 percent of unbanked households found ways to set aside money. Alternatives to savings accounts included saving on a prepaid card or saving at home or with family and friends. Sixty percent of underbanked households use mainstream credit products, such as credit cards, mortgages, and home, student or personal loans from institutions other than banks. Usage of mainstream credit varies by ethnicity with underbanked people of color being less likely to use mainstream credit than underbanked white people, according to the FDIC study.

These statistics not only indicate the market opportunity presented by unbanked and underbanked households, but they also demonstrate the diversity. Just as different approaches are required to serve fully banked customers, different approaches will be required to serve the unbanked and underbanked, as well. Companies hoping to reach this underserved financial segment will need to be creative and flexible. Companies also will need to be diligent in determining which products can be offered to each population profitably and with low risk. Background screening and traditional and alternative credit reporting services are keys to raising profits while lowering the risks of serving this group.

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