To most, a bank account is not considered a luxury. Direct deposit, writing checks and transferring money are a staple in the average consumer’s life, as natural as the air we breathe, but to over 8 million households in the United States, a bank account symbolizes unattainable wealth and a particularly large life hurdle to overcome.
Individuals without bank accounts, or the “unbanked” as they’ve been unceremoniously dubbed, account for 7% of all Americans. Without a bank account, they are disconnected from the financial ecosystem, making it hard to become financially stable, save, build credit history, safely transfer money, take out a loan or seek financial advice. Dangerous stereotypes lead us to believe that the unbanked are poor, uneducated and trapped in a cycle of living paycheck to paycheck. The truth is, this overlooked demographic remains unbanked for practical reasons:
- It’s Expensive to Maintain a Bank Account
According to the FDIC, the number one reason households stay unbanked is because they simply cannot afford to keep a bank account. Average fees to maintain a checking account have tripled in the last four years. Today, most banks require a minimum balance or direct deposit to keep an account open or these fees from being waived. Without enough money to warrant a bank account, the expense to maintain an account and the high penalties for cashing checks can easily discourage an already skeptical consumer.
- Lack of Trust in Banks
Straight forward pricing is important to a consumer, but banks lack transparency and uniformity, especially when it comes to fees. The lengthy documents required to open a bank account, which are already intimidating and foreign to those not familiar with banking, make it easy for a bank to mask fees and incidents that trigger fees to hit. This can be detrimental to someone’s finances if their account consistently has limited funds in it.
- Check Cashing Services = Convenient & Easy
Check cashing services are convenient with more locations and longer hours than most banks, especially in low-income neighborhoods where bank branches are limited. These businesses offer quick access to money without waiting for the check to clear. While they do charge a service fee at a high rate, the fees are clearly listed and visible for the consumer to see. This builds the trust and familiarity with consumers that has proven difficult for banks to achieve.
- They Just Don’t Want a Bank Account
Why FinTech Matters
A 2015 study conducted by the Federal Reserve System found that 40% of unbanked Americans have access to a smartphone. This high rate of mobile penetration presents a huge opportunity for FinTech to revolutionize the position of the unbanked in the financial ecosystem.
FinTech applications are diverse and serve a wide array of individuals through accessibility and ease of us. With services ranging from peer-to-peer lending, investment management, credit scoring advice, money transfers and payments (just to name a few) they can be instrumental in providing basic financial services.
While Financial Institutions turn their backs on consumers if there is no profit to be made, FinTech has a social side. We are now at a point where people can better their position within society and grow their economy in a short period of time due to new technology that is more capable and less expensive. As FinTech applications progress, individuals without access to a bank account can enter the financial ecosystem regardless of wealth, occupation, race or geography – a truly incredible development in financial services.
This is part of my FunTech blog series; FinTech through the eyes of a Millennial.