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

Mar 30, 2021 MicroBilt News

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

According to CNBC’s March 9, 2019, On the Money podcast, nearly 25 percent of U.S. households are either unbanked or underbanked. More than half of these “unbanked” households cite not having enough money to keep in the bank as a primary factor in their decision to avoid banks. Additionally, 30 percent of those who are unbanked reported a lack of trust in banks and nine percent commented on the lack of banks convenient to their locations.

Among this group are many who are considered to be “credit invisible.” For any number of reasons, these individuals choose not to do business with traditional money management or transaction options available to them. They are often referred to as unbanked or underbanked.

The problem is that many people use these terms interchangeably. In reality, they are quite different, despite the similarities in their names. For clarity’s sake, these are some characteristics of each term so you can better see how they compare and contrast with each other.


Unbanked Americans are those who do not use any banking services at all, including the following that many people consider essential:

  • Debit cards.
  • Checking accounts.
  • Savings accounts.

The CNBC article went on to state that among those who don’t have bank accounts, as well as those who have bank accounts by using financial services outside of the traditional banking system, many of them use short-term loans to help make ends meet.

In 2015, the number of U.S. households remaining unbanked was only seven percent, leaving nearly 23 million people, including children, without access to banking services. This was done from 7.7 percent in 2013 and both were a far cry from the 2019 numbers cited by CNBC. Nearly 30 percent of all unbanked households are in the lower-income bracket.


The underbanked households represent a larger piece of the pie than unbanked households. In fact, nearly 20 percent of all Americans are underbanked meaning they either have a checking or savings account. Rarely do they have both.

Households are generally designated as underbanked households if they’ve used alternative financing options during the previous years. This includes money orders and rent-to-own services and accounts for nearly 67 million Americans.

Millennials are the most likely demographic group to be identified as underbanked with nearly 33 percent of them falling into the category.

In spite of definite differences between the two groups, they are often identified and treated the same as businesses seek to offer more financial services for both groups.

What does this mean?

More major retailers are reaching out to this group to provide things like debit card services to help them make online purchases, participate in electronic bill payment options, etc. This includes Amazon Cash, which allows people to load money onto their balances through various retail locations so they can shop with their debit cards rather than using cash.

Another option financial services companies are offering for the “credit invisible” is the use of alternative credit data to verify payment histories and creditworthiness when applying for loans. Microbilt offers a variety of tools to help with alternative credit decisioning needs.