The Unbanked, the Underbanked, and the Underserved

About 5.4 percent of U.S. households are “unbanked,” meaning no one in the household has a savings or checking account, according to the 2019 FDIC Survey of Household Use of Banking and Financial Services. Although this is the smallest number since the study began in 2009, it still represents 7.1 million households, which is not insignificant.

An additional 16 percent of U.S. households were “underbanked” in 2019, meaning the household had an account at an FDIC-insured institution but also obtained financial products or services outside of the banking system. For example, underbanked households had a savings or checking account but also used a financial product from an alternative financial services provider within the year preceding the survey.

When the numbers of unbanked and underbanked households are totaled, they represent about 22 percent of U.S. households, or 63 million people, according to Forbes. When the next results are compiled, the COVID-19 pandemic is likely going to significantly shift all of these figures with more people potentially struggling to gain access to traditional credit and financial services.

This large, underserved market represents a significant opportunity for financial service providers. The purchasing power of this group is strong. The Financial Brand reports 89 percent of people who are unbanked or underbanked use alternative financial services providers and, of this group, 28 percent obtained money from products such as payday loans, pawnshops, tax refund advances, auto title loans, or paycheck advances.

While some people are unbanked or underbanked because they lack jobs or other resources, the FDIC reports 17 percent of those underbanked fall in the $40,000 to $100,000 income range (2 percent are unbanked in this income range). The federal agency indicates 22 percent of the unbanked and underbanked have “some college or associate degree.” There is also a large ethnic disparity. Federal statistics indicate 4 percent of white consumers are unbanked and 11 percent underbanked, 14 percent of black consumers are unbanked and 35 percent underbanked, and 11 percent of Hispanic consumers are unbanked and 23 percent underbanked.

Underbanked households saved for emergencies at almost the same rate as fully banked households (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, saving at home, or with family and friends. Additionally, a large percentage of underbanked households use mainstream credit products, such as credit cards, mortgages, and home, student, or personal loans from institutions other than banks.

Statistics not only indicate the market opportunity presented by unbanked and underbanked households but 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. Many underserved consumers are tech-savvy, and the rise of fin-tech will almost certainly offer more financial inclusion and address many of the issues this population faces when it comes to accessing financial options.

Companies hoping to reach this underserved financial segment will need to be creative and flexible if they want to attract this population. Consumers who don’t possess a credit score, or have a low one, have the opportunity to demonstrate to these lenders they are creditworthy and responsible by obtaining an alternative credit score. This score is achievable by simply paying your monthly bills on time.

Connect has been empowering consumers since 2005 by helping them earn alternative credit scores. To learn more, contact us today.

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