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Redefining Who's "Unbanked" in America


The FDIC’s biennial national survey of unbanked and underbanked households has been the “go to” reference for measuring whether our financial system is serving all Americans for more than a decade. It’s an incredibly valuable report, but it’s time for a refresh. Recently we had the opportunity to share some thoughts on how it should be updated in The American Banker. Here, we wanted to expand on a couple of these points.

One of the report’s fundamental challenges is that the way it defines “unbanked” doesn’t take into account the fintech revolution, which has changed the way millions of people bank. The FDIC says about 4.5% (or 5.9 million) U.S. households were “unbanked” in 2021, but today, millions of consumers are turning to non-traditional banks to meet their everyday financial needs. These alternative accounts (especially when linked to a physical debit card) are typically issued by banks, covered by deposit insurance, and protected against unauthorized transactions. The other benefits they offer – like no minimum balance, cash back rewards, early direct deposit, ATM access, peer-to-peer transfers, check writing, and mobile deposits – are comparable to or better than those offered by traditional checking accounts. The customer-facing brand may not be a traditional bank, but these are bank accounts, and they deserve to be counted as such. (Examples are legion, from Green Dot prepaid and debit cards issued by Green Dot Bank to PayPal debit cards and Venmo debit cards issued by the Bancorp Bank to CashApp Cash Card issued by Sutton Bank.) In fact, one source estimates over 85 so-called neobanks are operating in the U.S. alone, with all deposits sitting in FDIC insured banks.

According to the FDIC, about 1.9 million “unbanked” households are using a prepaid card and one million are using a “non-bank online payment service”. If these are distinct households, and if the “unbanked” households using payment services are using a version with a linked card or otherwise provided by a bank, fully counting all bank-issued (whether or not bank-branded) accounts could cut the number of unbanked households roughly in half, from 5.9 million to 3 million.

A second fundamental challenge is that the FDIC lumps checking and savings accounts together and declares somebody “banked” if they have either type of account. This means that the survey doesn’t provide meaningful information about whether Americans have access to high quality, fully functional savings accounts, or whether, when and how they are using them. Savings and checking are different – and each needs to be measured separately. More importantly, because the FDIC treats “savings” as a homogeneous product, the report fails to provide insights into different types of savings products – short term emergency savings, long term savings (for a house, a car, education, to start a business, etc.), and retirement savings.

Each of these is different, and all of them are essential. But currently, we’re blind to who has access to what.

We know that the dearth of savings is adversely affecting people’s day-to-day lives. With little to no savings to fall back on, Americans are struggling. Credit card balances are surging, delinquency rates are rising, 401(k) “hardship” withdrawals are hitting record highs, and more than half of all American workers are stressed about their finances, which is adversely affecting their productivity and attendance at work as well as their home lives, relationships, and physical and mental health.

We also know the hardships aren’t falling evenly. For example, almost half of all U.S. private sector employees don’t even have a chance to save for retirement at work. Access to workplace savings is even more limited for low-income workers, racial and ethnic minorities, and those who lack a high school degree. Women are much more likely than men to say they’re behind on retirement savings, to end up with retirement incomes that fall short of what they need, or to believe they will never be able to retire.

We’d love to see the FDIC measure when, where, and how banks are creating new pathways to savings, and the extent to which they work. For example, the non-profit Commonwealth (where one of us serves on the board) partnered with Truist (one of the country’s 10 largest commercial banks) to test a prize-linked emergency savings product. In their pilot, over 25,000 households opened accounts and generated $37 million of savings over six months. Can that solution be replicated and scaled by other financial institutions? Similarly, can the FDIC encourage traditional banks to match the savings inducements offered by newer entrants (like the online neobank Chime), such as purchase round-ups to fund savings, automatic transfers into savings from each paycheck, and a 2% APY on savings balances?

The FDIC’s survey is one of the most comprehensive and trusted barometers of whether our financial system is serving all Americans. It’s time for an update so it measures what matters and guides us toward solutions that meet our current challenges.


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