Meeting needs of the underbanked is challenge met by variety of financing tools
Dec 03, 2012 Sean Albert
For the nearly one-third of the American population that is considered underbanked, the reasons why they don't have bank accounts usually come down to things they lack. Often, they don't have the money to meet account requirements or banking services aren't readily available in their neighborhoods. They may lack enough time after working long hours or unusual work shifts that prevent business-hour banking. They may not trust financial institutions if they have had high-fee accounts in the past. According to Time Magazine, all these scenarios add up to one in nine households in the United States not having a checking account. The Federal Deposit Insurance Corporation's (FDIC) most recent survey of people who are underbanked nationwide showed the highest percentage of those with no checking account or limited banking services are either low-income, below age 25, unemployed or have no high school diploma. As alternatives to traditional banking, prepaid cards, ACH cards and - in cases when money is needed for more than daily expenses - short-term loans have become the new financial services for a wide range of people who don't or aren't able to avail themselves of bank services. Financing tools
The FDIC recently reported that more than 10 percent of Alabama's households - about 193,000 - don't have a checking or savings account, making the state one of the most unbanked in the country. Nearly 29 percent are considered underbanked, meaning they have at least one bank account but essentially rely on alternative financing services - non-bank money orders, check cashing services, short term loans and rent-to-own services – to pay their usual expenses. However, such alternatives, particularly prepaid stored value cards, have also grown in popularity with employed middle-class Americans who have traditional banking services. Time noted that only five percent of that group of Americans don't have a traditional account, but about 20 percent of them still take advantage of alternative financing found outside banks and other financial institutions. Convenience, the magazine reported, is the reason why. Finding the right financing tools for an individual's particular needs is the key to providing services that can be used by those who can't afford account-related fees at their local banks. "If they can find products that do that, without undue regulation from the new Consumer Financial Protection Bureau, that would be a win-win for everyone," Stephen Yoder, assistant professor at the University of Alabama at Birmingham's School of Business, told the Birmingham Business Journal.
The FDIC recently reported that more than 10 percent of Alabama's households - about 193,000 - don't have a checking or savings account, making the state one of the most unbanked in the country. Nearly 29 percent are considered underbanked, meaning they have at least one bank account but essentially rely on alternative financing services - non-bank money orders, check cashing services, short term loans and rent-to-own services – to pay their usual expenses. However, such alternatives, particularly prepaid stored value cards, have also grown in popularity with employed middle-class Americans who have traditional banking services. Time noted that only five percent of that group of Americans don't have a traditional account, but about 20 percent of them still take advantage of alternative financing found outside banks and other financial institutions. Convenience, the magazine reported, is the reason why. Finding the right financing tools for an individual's particular needs is the key to providing services that can be used by those who can't afford account-related fees at their local banks. "If they can find products that do that, without undue regulation from the new Consumer Financial Protection Bureau, that would be a win-win for everyone," Stephen Yoder, assistant professor at the University of Alabama at Birmingham's School of Business, told the Birmingham Business Journal.
