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

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