There are fewer unbanked, but still too many: FDIC

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WASHINGTON — Even though the rate of U.S. households without a bank account continues to decline, over 14 million people in the county still lack a banking relationship, the Federal Deposit Insurance Corp. said Tuesday.

In the latest installment of a survey that the FDIC performs every two years, the agency found that 6.5% of households were “unbanked” in 2017, marking the lowest rate since 2009, when the FDIC began its survey.

However, that percentage translates into 8.4 million households — or 14.1 million adults — without ties to a federally insured institution. And levels of the unbanked continue to be disproportionately higher among lower-income families and minorities, the report said.

“The good news is that our nation’s banking system is serving more American households than ever before,” FDIC Chairman Jelena McWilliams said in a press release. “The bad news is that even as the overall number of people who are unbanked has declined, 8.4 million households continue to lack a banking relationship.”

The FDIC attributes the decline in unbanked to “improvements in the socioeconomic circumstances of U.S. households.”

The previous survey performed in 2015 showed that 7% of U.S. households were unbanked and nearly 20% were “underbanked,” which means the household had an FDIC-insured account but also used financial products outside the traditional banking system. The number of underbanked dropped to 18.7% in 2017, or 48.9 million adults in 24.2 million households.

The survey found that the levels of unbanked and underbanked households were relatively higher in lower-income areas, less educated households, homes with younger residents, black and Hispanic families, and households headed by working-age individuals with a disability.

The survey also found that black and Hispanic households were more likely to lack a credit score. Overall, 22.7 million households, or one in five homes, did not use mainstream credit in the last year and therefore lacked a credit score.

“Differences by race and ethnicity were substantial: 36.0 percent of black households and 31.5 percent of Hispanic households had no mainstream credit, compared with 14.4 percent of white households,” the survey said. “Racial and ethnic differences in bank account ownership and socioeconomic and demographic characteristics beyond income can account for some, but not all, of the racial and ethnic differences in the likelihood of not having mainstream credit.”

The FDIC said the data in the survey shows a greater need for consumers having access to small-dollar credit from a bank. Nearly 15 million households showed an “unmet demand” for such mainstream small-dollar credit and more than 57% of households said they were current on their bills in the prior year.

“New underwriting technologies could help expand access to small-dollar credit for banked consumers, including consumers with little or no credit history,” the FDIC said in the survey. “The vast majority of the 13 percent of households with unmet demand for mainstream small-dollar credit are banked, and almost all receive income and pay bills using their bank accounts. But few of these households applied for a credit card or bank personal loan. Account balances and transactions may provide information for banks to underwrite small-dollar credit to some of these households.”

For those that do bank, the survey found that more than 40% of households use mobile banking, nearly double the 23.2% surveyed four years ago.

“Mobile banking holds real promise for deepening the connection between underbanked households and their banks while increasing the safety and convenience of bill payments,” the survey said. “More than two in five of these households already use mobile banking to access their bank accounts. Increased use of mobile banking activities by these households may enable them to conduct a greater share of their basic financial transactions within the banking system.”

Survey results showed a “significant growth” in consumers’ reliance on mobile banking just in the past two years, FDIC staff said during a call with reporters Tuesday.

“I know that’s something that’s been remarked and pointed to from time to time, but . . . you see the magnitude of the growth, and the use and reliance on mobile phone to access bank accounts,” said a FDIC staff member. “It really is remarkable growth and more a sign of the changes that are taking place in consumers’ banking habits.”

The FDIC said that “mobile banking holds real promise for deepening the connection between underbanked households and their banks while increasing the safety and convenience of bill payments.”

Even though mobile banking has grown, FDIC staff emphasized that consumers are still visiting branches as well.

The 2017 survey specifically showed that 81% of households that used mobile banking also reported having visited a branch in the past 12 months, and nearly 23% went to a branch at least 10 times. In addition, for nearly one in six unbanked households, someone visited a branch in the past year to discuss non-account services, such as cashing payroll checks.

“These visits may represent key opportunities to inform unbanked households about products and services that can meet their needs,” the FDIC said in its press release.

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