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Unbanked vs. Underbanked: Who they are and how they differ

Dec 23, 2017 Walt Wojciechowski

Unbanked vs. Underbanked: Who they are and how they differ

Slightly more than two-thirds of households in America frequently make use of traditional banking services, according to the Federal Deposit Insurance Corporation. But that leaves 33 percent of people in the U.S. who don't, a significant percentage by any measure.

Making up this group are the so-called credit invisible, who for any number of reasons opt to go without regular patronage of traditional money management and transaction options. They're typically classified as "unbanked" or "underbanked."

The problem with this terminology is the two distinctions are often used interchangeably. In reality, however, they're quite different, even though the similarity between these titles might suggest otherwise.

For the sake of clarity, here are the characteristics that the unbanked and underbanked frequently possess, and how they compare and contrast:


As the title implies, unbanked Americans are those who don't make use of any banking services whatsoever. This includes debit cards and checking accounts, as well as savings accounts. In 2015 - the most recent year for which data is available - the unbanked represented 7 percent of U.S. households, translating to approximately 23 million individuals, including children, the FDIC reported. The percentage of unbanked households in the U.S. is down slightly from 2013, when it was 7.7 percent.

Families have a plethora of rationales for why they opt to go without banking services, but it's usually due to what they do not have in terms of savings. Nearly 57 percent of unbanked households cite this as their prime reason, according to the FDIC report. This may explain why almost 30 percent of households fall in the lower income bracket.

"Around 33% of the underbanked are millennials."


The underbanked represent a slightly broader percentage of the household pie, as even though they may not make use of the full slate of banking services, they do take advantage of some of them. Around 20 percent of Americans are underbanked, according to the FDIC, which means they have either a checking or savings account, though rarely both. Households are also usually given the underbanked distinction if they've used alternative financing options during the previous year, such as money orders or rent-to-own services. Around 67 million Americans are underbanked, or the equivalent of 24.5 million households, based on 2015 figures from the most up to date FDIC survey.

As far as demographics are concerned, millennials are among the most likely to be underbanked, with 31 percent of them under the age of 24, according to federal figures.

While the unbanked don't use any banking services, checking accounts may be utilized by the underbanked. While the unbanked don't use any banking services, checking accounts may be utilized by the underbanked.

Despite the distinct differences between the underbanked and unbanked, they may be so often considered one and the same because businesses are increasingly offering more financial services to them both. For instance, earlier this year, online retail giant Amazon launched Amazon Cash, a service that works like a charge card but is funded by users' money. They can apply some of their own funds by visiting retailers that offers Amazon Cash services, which include CVS, GameStop, 7-Eleven and Cumberland Farms, among others.

Lesser-known companies are also appealing to both the unbanked and underbanked through mobile apps of their own, the likes of which include Prism, PayGoal and Digit, American Banker reported.

Financial services companies are appealing to the credit invisible because alternative credit data serves as a reliable indicator of payment history for borrowers seeking loan products. Microbilt offers the decisioning tools that can help ensure this process is above board and transparent. Here's additional information on how we can help you assess creditworthiness when traditional forms of credit are unavailable.

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