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FDIC: Percentage of US Unbanked Households Decreasing

Prepaid cards are growing quickly in popularity among the unbanked.

The percentage of unbanked households in the US is on the decline, with employment and income levels rising, and with the economy rebounding from the Great Recession, according to a new survey from the FDIC and the US Census Bureau. The survey found that 7.7% of US households are unbanked, down from 8.2% in 2011, the last year the survey was conducted. The study directly attributed the decline to an increase in employment and income levels among those surveyed compared to 2011.

While the unbanked households are decreasing, those that are underbanked (that have a bank account but still use alternative financial services providers) remained steady since 2011 at 20%. The study found that nearly one in four households had used an alternative financial services provider (such as a check cashing or payday loan provider) in the last 12 months.

Unbanked and underbanked households also make up the majority of prepaid card users. The survey found that 66% of the respondents who had used a prepaid card in the last 30 days fell into those two categories. Nearly 80% of households that used a prepaid card in the last 12 months used it to pay for everyday bills and purchases.

Unbanked households are the fastest growing segment for prepaid cards, the survey found. The percentage of unbanked households that had previously used a prepaid card jumped from 17% in 2011 to 27% in 2013. Prepaid card products could offer an opportunity to draw unbanked households into the banking system, the FDIC concluded.

The survey also examined use of different banking channels for the first time. Underbanked households favored mobile banking more than fully banked ones: 32% of underbanked households said mobile was their primary banking channel, compared to just 21% of fully banked households. But households that cited mobile as their main banking channel also used a median of three other channels (such as ATMs or tellers), according to the study.

[For more on mobile and underbanked consumers, check out: How to Reach the Underbanked With Mobile Check Deposit.]

Jonathan Camhi has been an associate editor with Bank Systems & Technology since 2012. He previously worked as a freelance journalist in New York City covering politics, health and immigration, and has a master's degree from the City University of New York's Graduate School ... View Full Bio

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KBurger
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KBurger,
User Rank: Author
10/30/2014 | 4:40:58 PM
Re: Surprising?
I definitely feel like there are market opportunities for banks to better serve the unbanked/underbanked market. Maybe most banks feel like they've got what they want right now -- they're generating a lot of fee revenue. But it seems to me that with a different approach -- different kinds of products, priced differently, it's not so much about making money off fees but building a relationship, educating people about finances, enable them to build financial strength and then upsell them -- could pay off better in the long term. That's probably an oversimplified view,  but the current approach doesn't seem sustainable, not to mention fair to those consumers.
Jonathan_Camhi
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Jonathan_Camhi,
User Rank: Author
10/30/2014 | 3:14:43 PM
Re: Surprising?
I had some issues with overdraft fees when I was a college student. It's an extremely frustrating thing to get hit with. I can't say I really blame people getting hit with those for thinking that they are getting screwed over by the banking system. Prepaid cards though would probably be a better alternative for banks looking to attract those customers. Prepaid cards are a much cheaper product to offer, and the custoemr doesn't have to worry about overdraft fees.
Jonathan_Camhi
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Jonathan_Camhi,
User Rank: Author
10/30/2014 | 3:11:36 PM
Re: Surprising?
ApplePay has been marketed so far as though it's more geared towards credit cards. The merchant-backed mobile wallet MCX actually connects straight to a bank account. That way the merchants avoid paying interchange. But Greg's definitely right in saying that most of the alternatives out there still require a bank account.
KBurger
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KBurger,
User Rank: Author
10/30/2014 | 1:12:51 PM
Re: Surprising?
There's an interesting editorial in the NY Times today about the FDIC study, a professor who studies unbanked consumers and why they are unbanked. She spoke with people who use check cashing services and in many cases even tho the fees/rates of such services can be very high, based on the ways many of these consumers manage their financial needs it still works better for them than dealing with a bank. These consumers are getting slammed by bank minimum checking fees, overdraft fees, etc. Seems like with the non-bank services they feel more like "you get what you pay for" compared to dealing with banks.
Greg MacSweeney
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Greg MacSweeney,
User Rank: Author
10/30/2014 | 11:26:05 AM
Re: Surprising?
Even with Apple Pay, PayPal, Venmo and almost all the other payment options, you really do need a bank account to access all of the functions. You can use a card with PayPal, but if you ever want withdraw money from PayPal, you need a bank account. And as jon says, you still need a bank account for most employers.
Jonathan_Camhi
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Jonathan_Camhi,
User Rank: Author
10/30/2014 | 10:04:35 AM
Re: Surprising?
I think that those newer payments players are part of the reason that there's still so many underbanked. Having a bank account is historically tied very closely to gainging employment. Receiving direct deposits was one of the biggest reasons for having a bank account in the study. And by far the biggest reason reported in the study for recently becoming unbanked was loss of a job. So as unemployment goes down, so will the unbanked population. But that does preclude those people from moving into the underbanked category, and using alternative financial tools in addition to a bank account.
KBurger
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KBurger,
User Rank: Author
10/29/2014 | 12:57:28 PM
Surprising?
I actually am surprised to see that the % of unbanked households in the US is decreasing. With everything we're hearing and writing about regarding emerging untraditional competition and consumer interest in handling financial services activity with non-banks, I would have expected the numbers, or at least the trend, to be somewhat different. I don't think this means the threat to banks is easing, it's more that we're still seeing the trend play out. Give Apple Pay more time to gain traction, then I think the numbers will be more dramatic.
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