Stop The Underbanked Confusion!

An American Banker article titled Reaching the Underbanked? Try Offering Control makes the following claims:

“The 37 million American adults who are underbanked have a tough time when it comes to basic financial activities such as paying bills. But banks don’t have to sit on the sidelines when it comes to the underbanked. There’s an opportunity to service this community through banks. Banks like Regions, Key Bank and Wells Fargo let non-customers come into a branch and receive services and transactions at an affordable price, in a way that’s good for the customer and the bank. [For example], Regions offers Now banking services for customers and non-customers that include check cashing at bank branches, reloadable prepaid cards, money transfers, and walk-in bill payment.”

My take: This represents a misunderstanding of who and what the underbanked are.


In the FDIC’s 2011 National Survey of Unbanked and Underbanked Households, published in September 2012, the two categories of consumers are defined as follows:

“Unbanked households are those that lack any kind of deposit account at an insured depository institution. Underbanked households hold a bank account, but also rely on alternative financial services (AFS) providers.”

Did you see that second sentence? Banks aren’t “on the sidelines when it comes to the underbanked. Underbanked households hold a bank account.


When a bank like Regions offers “check cashing at bank branches” to non-customers, what it’s doing, essentially is providing what the FDIC considers to be an alternative financial service.

In essence, if you use that service — regardless of whether or not you have a banking account — you put yourself in the Underbanked category. Even though you used that service at a bank!

If that makes sense to you, you belong in Washington.


The problem here is that the term Underbanked has some stigma attached to it, conjuring the image of someone pushing a stolen grocery shopping cart with all their earthly possessions around town. And that the growing number of them is some kind of epidemic plaguing the nation.

This is nonsense — total nonsense.

You qualify as “underbanked” if you use a non-bank money order, or do business with a pawn shop or rent-to-own business.

You’re probably thinking: “Hey! I was underbanked at one point!” Of course you were. Many people who aren’t starving, who aren’t out on the streets — and who aren’t being “overlooked” or “underserved” by banks — are, or at one point were, Underbanked.

According to the FDIC, only 10% of underbanked households use so-called alternative financial services (AFS) because they don’t have a bank account. Half, however, attribute their use to AFS providers being more “convenient.” And of the 24 million US households that the FDIC counts as Underbanked, 8.5 million — or 35% — make more than $50k a year. 


Bottom line: We’ve got to stop using the term Underbanked. Unbanked I can live with. But the misuse and misconceptions surrounding the use of the term Underbanked isn’t doing the industry any good. And it (obviously) rankles me when I see the industry’s leading publication adding to the confusion.

For other posts on this topic see:

Kill The Unbanked

It’s Time To Retire The Term Underbanked

The Debanked: The $1.7 Billion Threat To Banks

Ron ShevlinRon Shevlin is Director of Research at Cornerstone Advisors. Check out more of his ideas and research on Cornerstone's Insight Vault. And don't forget to follow him on Twitter at @rshevlin.

This article was originally published on March 7, 2013. All content © 2018 by The Financial Brand and may not be reproduced by any means without permission.


  1. Dave Frey says:

    Ron; And the sad thing is…in MY industry (Credit Unions) we “abuse” this term so much! Everytime I pick up a trade publication is always espouses the “great things” CUs are doing to help the “underbanked”. I, like you, think to myself—hmmm, who ARE these folks? Seems like everyone I see out and about are writing checks, using debit/credit cards, etc etc and (aren’t pushing the shopping cart around!!! lol!) So, hopefully, people will stop all this nonsense about how we have to help these “poor people” –As you mention (or as stats show), a LOT of people choose this way of doing their “banking”–and like it. And there isn’t any thing wrong with that Besides, if a bank (or CU) decide to go after this market, there could be some risk–which is up to that institution to provide, but watch out for the Regulators!!! They want you to help—but then again, they don’t.

  2. To be fair, you can’t entirely blame the media, since virtually every analyst/consulting firm puts out reports on how financial institutions can reach the “underbanked.” I don’t think any reporter would have thought up the term underbanked on their own.

  3. Doug: So the media is off the hook because the source that feeds them the information is wrong? Shouldn’t the publication haven’t taken the time to look up the definition of the term before simply publishing what they got from the source, who clearly had an interest in getting their research publicized?

  4. They’re not off the hook, that’s why I said you can’t “entirely” blame the media, though you could partially blame them. I’m just saying that in your post didn’t acknowledge that virtually every consulting firm has published a report about how banks can reach the “underbanked.”

  5. David Deckelmann says:

    Ron; What’s the big deal about the term underbanked?? I get it, these folks use AFS and banks and our regulators want us to help them errr maybe not. But I get it. Aren’t we just using the term to describe the a segment of the market in which we see opportunity for the banking (credit union) industry? Speaking from a credit union perspective, I look at alternative financial services, as an opportunity give the same value consumers want but at a lower price. We are state chartered, and our regulators for the most part have been supportive of our efforts to enter the AFS space that benefit members. Our problems have been around sales and marketing to develop enough volume to make these products feasible.

  6. Doug: Yeah, you’re right I didn’t cuz I chickened out of confronting a competitor.

  7. David: What’s the big deal? First off, the implication that at 24 million (or 37 million or 52 million) strong, this segment is somehow “underserved” or “overlooked” by the mainstream banking industry. They’re not “underserved” or “overlooked.” Second is the potential political ramifications. When a certain segment of our elected officials get into their head that some group is “underserved” by organizations that they have a preconceived notion are evil wrongdoers, they take regulatory steps to “correct” the situation. These steps almost never help. And in this case, any steps would be misguided because the underlying assumption that the segment in question is needy is wrong.

  8. Katie Robinson says:

    Although this segment (Underbanked) may not be underserved in general by providers of Financial Services (including those now labeled “alternative”) – they are being underserved by Financial Institutions. If using the term “Underbanked” convinces Financial Institutions to create products that are more convenient to use and have more transparent fees, I’m all for it.

  9. No one in their right mind would pay a large percentage for cashing a check or a stiff fee. BOA $6 to cash one of their own checks. Citizens $7 to cash their own checks.

    Walmart $3 to cash any check up to $1,500. $6 for up to $6,000.

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