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The Underserved — the Unbanked and Underbanked

What does it mean to be “underserved” when it comes to banking? Let’s break it down.

Surfing the Internet on the topic of banking, you’ll come across the terms “underbanked” and “unbanked.”  For those of you who aren’t versed in the latest industry lingo, this may all seem a bit confusing.  What do these terms mean? And how do they relate to broader, catchall terms like the “underserved”?

Relax.  This concepts can be a little overwhelming at first, to be sure, but it’s not so scary once the concepts have been demystified.

Luckily, blogger Matt Vitko already neatly summarized the meaning of these categories a couple years back.  In so doing, he makes a number of passing but insightful observations about the changing demographics of the underserved along the way:

  1. Unbanked: The unbanked are those individuals without an account at a bank or credit union and are considered to be outside the mainstream financial system for one reason or another.  The majority of the unbanked are American-born, though a growing number of the unbanked are immigrants with a low income and who possess insufficient savings for the minimum balance to open checking and savings accounts.
  2. Underbanked: Although they may have an account with a bank or credit union, the underbanked are people that have poor access to mainstream financial services from banks and credit unions and rely upon alternative financial services from non-banks such as check cashers, money orders, remittances, payday loans, pawn shops, and auto title lenders.
  3. Underserved: The term “underserved” is a catchall word typically used for individuals who are unbanked or underbanked.  It’s also used to refer to “subprime” consumers — or consumers who have full credit files with low FICO® scores, to whom traditional lenders are unwilling to offer traditional credit products.

Over the past few weeks, there have been a growing number of posts relating to the issue of unbanked, underbanked, and more generally underserved portions of the population.  Timothy Taylor over at the blog The Conversable Economist wrote up a pithy post on the subject a few days ago, under the title of “The Unbanked and Underbanked.”

Admittedly, a lot of the recent buzz regarding underserved populations — both the underbanked and unbanked — can be traced to a report that was released last week by the Federal Deposit Insurance Corporation (FDIC).  The 2011 FDIC National Survey of Unbanked and Underbanked Households, as it is called, is a long and labyrinthine document, but includes lots of really useful and interesting information illustrated by charts and graphs.  Still, such an unwieldy blob of undifferentiated data may seem a little daunting even for specialists, let alone your ordinary layman or laywoman.

That’s where the Refundo blog comes in.  So you didn’t have time to read over all 155 pages of the report? That’s okay, we’ve read it for you! And we’ll give you the digest version of it so you don’t have to waste hours poring over the document.

To give just a broad outline, which can then be clarified and expanded upon in posts down the road, here’s some of the more important stuff you need to know about underserved populations today:

Unbanked households by race and ethnicity.

Some of the main factors indicating an uneven distribution of banking services are ethnicity, immigrant status, and language, respectively.  


According to the survey,

Black (21.4 percent), Hispanic (20.1 percent), and American Indian (14.5 percent) households have the largest proportions of unbanked households. In contrast, much smaller proportions of white and Asian households (4.0 percent and 2.7 percent, respectively) are unbanked.  Unbanked households are also disproportionately represented among foreign-born non-citizens (22.2 percent) and households where Spanish is the only language spoken (36.9 percent). 

Distribution of households by banking status.

Or if pie-charts are more your thing, we have them, too!


Another major takeaway from last year’s annual FDIC survey is the disparity between different age groups among the population.  This is “old” news, at one level, because there has always been a descending scale of underserved individuals ranging from the youngest to the oldest members of society.  That is to say, younger people tend not to take advantage of banking services as much as their older, wiser counterparts.  As a result, the younger you are, the more likely it is that you are underserviced.  The paradox of all this is that, with so many new banking services being facilitated by brand new laptop and mobile technologies, there has not been a corresponding decrease in the number of youths (generally thought to be more technologically-adept) who are underserviced.

This is a brief overview, and really doesn’t admit of in-depth analysis or profound new insights.  Nevertheless, it should give readers a good sense of what’s what when talking about groups and individuals who suffer from not knowing about or not having access to contemporary banking services.  In future posts, we can spotlight some of the nuances and spell out exactly what these numbers all mean.  Stay tuned!

Topics: Industry, Refundo, underbanked, underserved, banking


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