Unbanked Households Decline, More Work Left to Do

Last Tuesday, the Center for American Progress hosted an event that examined strategies to reach families underserved by the mainstream financial system. Lindsay Daniels, Manager of NCLR’s Wealth-Building Initiative, spoke at the event, which coincided with the release of the 2013 FDIC National Survey of Unbanked and Underbanked Households.

Releasing their latest findings on the financial experiences of people living outside the financial mainstream, the FDIC’s findings complement Banking in Color, a report released by NCLR, the National Urban League, and the National Coalition for Asian Pacific American Community Development. The FDIC’s findings can help identity trends in the lives of unbanked and underbanked households, many of whom are Latino.

This year’s FDIC findings saw some good news, with the overall number of unbanked households falling to 7.7 percent in 2013 from 8.2 percent in the 2011 survey. Further, the number of unbanked Latino households also declined, from 20.1 percent in 2011 to 17.9 percent in 2013.

While it’s encouraging that the number of unbanked Latino households is shrinking, the proportion of Latinos who are unbanked is still more than double the rate of the national unbanked population. At 20.5 percent , the number of Black households that are unbanked is also much higher than the national number.

Similar to the Banking in Color results, the FDIC report shows that socioeconomic and demographic characteristics can influence whether a household is unbanked or not. For example, households in the FDIC study headed by someone who was unemployed or who was not a U.S. citizen were much more likely to be out of the mainstream banking system when compared to their employed or citizen counterparts.

It stands to reason that the unbanked households are also heavier users of alternative financial services such as payday loans, which can be more costly than those found through more traditional mainstream institutions such as banks or credit unions.

Both the FDIC’s and Banking in Color report examine reasons behind the use of particular products. When the FDIC survey asked unbanked households to identify why they were not using mainstream banking, the top three responses were not having enough money, not trusting banks, and feeling that account fees were too high or too unpredictable.

The FDIC report also examines newer products such as prepaid cards and mobile banking. Of those surveyed who used prepaid cards, unbanked and underbanked households made up the majority. The findings suggest that many of these prepaid card users are utilizing this product in the same ways people with bank accounts are using checking accounts—withdrawing cash at ATMs, purchasing goods, and depositing checks.

NCLR has examined the use of mobile and online platforms in Latino financial access. While reports show that Latinos are large users of the Internet via smartphones, our research has shown that many low- and moderate-income Latino consumers have not translated this into using smartphones for financial transactions.

For the first time, the FDIC survey asked consumers where they access their accounts, with most households reporting that they access accounts in multiple ways, most often a bank teller in a physical branch or via online access. The prevalence of using a bank teller to access a bank account was high across the board, with 32.3 percent of households using this as their primary means of access.

A majority of the banked households were accessing a bank account online, and 23.2 percent used mobile banking. Also similar to NCLR’s research, unbanked households had less access to mobile or smartphones than their banked and underbanked counterparts. This is important in understanding ways to engage the unbanked—many new platforms are focused on an out-of-branch experience for consumers, but reliance on an online or mobile-only access point may be leaving many consumers behind.

We are glad to see that the FDIC’s recommendations for better serving these consumers echo much of what the Banking in Color report also detailed. The report calls for targeted outreach and services in helping the unemployed to remain in the banking system, and stresses the continued importance of bank branches as a means of fostering economic inclusion.

While a reduction in unbanked households is welcome news, it’s clear we have more work to do in bringing underserved households into the financial mainstream.