Expanding access to mainstream financial services has proven especially challenging in a handful of states, mostly in the South, as local banks struggle to overcome misperceptions and mistrust.
Some of those banks have found that the key to getting unbanked individuals to open savings accounts is making sure they have money to put in them — even if that requires making a small loan first.
At least a third of the population in eight states is either unbanked or underbanked, based on recently released data from the Federal Deposit Insurance Corp. The data shows that, in six states, more than a tenth of the citizens are unbanked.
Bankers and other community advocates are working to address many of the underlying issues behind the numbers. The FDIC, in its biennial report on the subject, noted that key factors include concerns over privacy, a lack of trust and high fees.
The biggest reason, however, was individuals' belief that they didn't have enough money to merit an account, the FDIC report said.
"It's a complex issue," said Bob Jones, chief executive of United Bank in Atmore, Ala.
"It's cultural, it's generational, it's obviously economic, so there's a lot of dimensions to it," Jones said. "In order to make any sort of inroad … you really have to spend time on the front lines working with these people and trying to understand what their needs are and how you can participate in bringing them around to a more mainstream financial relationship."
In Alabama, 36.4% of the population is unbanked or underbanked. Nearly 13% of the state's citizens are considered unbanked.
The $529 million-asset United is trying to make a difference by offering small-dollar loans. Half of the funds, which carry a roughly 10% interest rate, are put in the borrower's savings account.
"It's to help them establish that seed money," Jones said, noting that the bank doesn't need to advertise the program. "It really works by word of mouth."
Bankers are pursuing similar efforts in neighboring Mississippi, where 38% of the population is classified as unbanked or underbanked. The goal is to reshape citizens' perceptions about banking, said Charlotte Corley, the state's banking commissioner.
The state, which struggles with high unemployment, low median household incomes and a high dropout rate in schools, is doing more to educate younger people about the importance of banking and personal finance.
Mississippi's Department of Banking and Consumer Finance, in conjunction with the state treasurer's office, formed a program that reaches out to middle school and high school students. "We're real excited that the numbers appear to be improving," Corley said.
The state is also home to a number of community development financial institutions, including the $2.6 billion-asset BankPlus in Belzoni, which is dedicating resources to reach more unbanked and underbanked communities.
BankPlus, for its part, is focusing on financial education, modeling its efforts off of the federal government's Money Smart program. Over the last eight years, more than 20,000 people have participated in the bank's Credit Plus program.
Credit Plus begins with a finance course, and participants get a certificate that they can take to a BankPlus branch, said Max Yates, the bank's chief risk officer. That certificate lets them open a checking account and savings account. Those depositors also get access to a loan — ranging from $500 to $1,000 — with half of the funds placed in their savings accounts.
The Mississippi Bankers Association started a program six years ago where it connects bankers with schools to help teach students about banking.
"Personal finance education is where we're trying to put our influence," said Mac Deaver, the association's president. Otherwise, people will turn to businesses such as payday lenders "because it seems easier to do business with them."
Improving personal finance habits is a key strategy to combat the issue, bankers said.
"A lot [of the issue] is just lack of education as far as people understanding banking," said Ken Hale, president and CEO of the $234 million-asset Bank of Montgomery in Louisiana. "We still have a lot of folks who come to us and cash their Social Security checks."
Bank of Montgomery, like United in Mississippi, also makes loans as small as $150. Hale said his bank originates about 100 loans each month that are less than $1,500 each. Bank of Montgomery also has a "Christmas club account" where people can stash funds for the holidays without worrying about fees. The bank tries its "best to keep" people — who tend to save $300 to $400 — from removing the money, Hale said.
Not all initiatives by bankers have gained traction.
The Oklahoma Bankers Association had been working with a local community college to help Hispanics overcome an "inherent lack of trust" in banks, said Roger Beverage, the trade group's president. Many banks tend to lack bilingual employees, which can create challenges since Hispanics are the fastest-growing ethnic group in the state.
About 37% of Oklahomans are either unbanked or underbanked, the FDIC study found.
Unfortunately, outreach efforts "kind of stalled and I don't really know why," Beverage said.
Deaver also acknowledged that the banking industry still has work to do to bring more people into the system. Unbanked and underbanked rates remain "too high," he said.
The same can be said for Alabama bankers.
"The opportunity we have is to work harder, do more and say more about this particular problem," said Scott Latham, president and CEO of the Alabama Bankers Association. "We certainly want to do that every day."