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FDIC Survey Finds More Than 25% of U.S. Population Un/Underbanked (December 2009)

December 2009

By D.J. Murphy, Associate Editor

fdic-logo-smAt the beginning of this month, the FDIC released results of what it calls the most comprehensive survey to date of the unbanked and underbanked population in the United States. The FDIC National Survey of Unbanked and Underbanked Households reveals that 25.6 percent of all households in the United States are unbanked or underbanked and that those households are disproportionately low income and/or minority.

The survey, initiated by the FDIC in response to a 2005 statutory mandate to conduct ongoing surveys of banks on their efforts to serve the unbanked, is part of an agency-wide priority to examine and promote economic inclusion in the banking system, Barbara A. Ryan, deputy to the vice chairman of the FDIC, tells Paybefore. But to promote inclusion, the agency had to know who was being excluded.

“When we started looking into this, it became clear we didn’t have reliable data on the issue,” Ryan says. “We didn’t have accurate and reliable statistics on the number of unbanked or underbanked households, their demographic characteristics and where they lived. So two and a half years ago, as part of fulfilling the statutory mandate, it made sense for us not only to survey banks on what they were doing but to initiate the process of collecting these data at the national, state and MSA [metropolitan statistical area] level to try to provide the facts.”

FDIC partnered with the Bureau of the Census to conduct a supplement on the issue as part of its monthly Current Population Survey, which reaches more than 50,000 households around the country using thousands of Census Bureau field interviewers. The survey, conducted in English and Spanish, took place in January 2009 and 47,000 households participated.

A Look at the Numbers

fdic-usageOf the households surveyed, 7.7 percent were unbanked, which translates nationally to 9 million households (approximately 17 million adults). An additional 17.9 percent—or 21 million households nationally (approximately 43 million adults)—were found to be underbanked.

Households were identified as unbanked if they answered “no” to the question: “Do you or does anyone in your household currently have a checking or savings account?” Underbanked households were defined as those that have a checking or savings account but rely on alternative financial services. Specifically, underbanked households have used nonbank money orders, nonbank check-cashing services, payday loans, rent-to-own agreements or pawn shops at least once or twice a year or refund anticipation loans at least once in the past five years.

Minorities are unbanked and underbanked at a much higher rate than the general population. Overall, nearly 54 percent of African-American households, 44.5 percent of American Indian/Alaskan households, and 43.3 percent of Hispanic households are either unbanked or underbanked.

The survey asked several questions about alternative financial services (AFS) used by the underbanked and the unbanked and found money orders and nonbank check-cashing services were overwhelmingly the most popular. And, while the study did not define prepaid cards as an ASF, it did ask about the use of GPR cards and payroll cards.

It estimated about 12 percent of unbanked and 16 percent of underbanked households have used GPR cards. Only 3 percent of unbanked and 4.2 percent of underbanked households have used payroll cards. Previously banked households were three times more likely to have used GPR cards than those that never had a bank account.

“Those are the main findings that jumped out at me,” Ryan says. “But, with this survey we’re able to look underneath the headline number and look at variations demographically and geographically. Having the Census Bureau conduct this survey across so many households with such a high degree of reliability is really groundbreaking. It’s not only interesting from a policy standpoint, but I would also expect it to be very interesting from a market opportunity standpoint.”

‘On-Point and Exciting’

Previous numbers from the Center for Financial Services Innovation (CFSI), which has been at the forefront of the effort to describe the underbanked population quantitatively and qualitatively, are slightly different than the FDIC findings. Much of that difference, however, can be explained by methodology the government agency used to conduct its survey, Rachel Schneider, innovation director at the Chicago-based nonprofit, tells Paybefore.

“They found a similar number of underbanked households as we found: around 20 million,” Schneider notes. “They have estimated a smaller number of adults per household than we found in our survey [which accounts for CFSI’s higher number of underbanked individuals].”

Despite the difference, Schneider says, overall, the FDIC numbers were consistent with CFSI’s in many ways and confirmed many of its assessments about the un/underbanked.

“Their study is incredibly valuable, on-point and exciting for our field,” she notes. “Partnering with the Census Bureau to survey 47,000 people is extraordinary. Overwhelmingly, we’re excited to see them do these numbers and shine a spotlight on an important national issue.”

Geographic Breakdown ‘Invaluable’ for Industry

A unique facet of FDIC’s survey is that its scope enabled the agency to estimate numbers and demographics of the unbanked and underbanked households in all 50 states and in the top 20 MSAs.

The ability to easily access data that describes the un/underbanked market at a local level could have important implications for prepaid companies attempting to serve the market with its products, Schneider says.

“It’s critically important and no one has had local data like this until now,” she explains. “Because it is a public agency, FDIC’s data are publicly available and searchable by state and by large MSA. There is a lot here for companies to mine and understand. It still doesn’t get to the questions of [attitude and behavior], but the geographic data are invaluable.”

Opportunity Exists for More Research

Ryan says the FDIC survey is only the beginning of understanding the underserved population.

“We have a lot of data from the survey, but it’s only based on 31 questions, and we weren’t able to delve into the ‘whys’ as deeply as we would have liked, so I think there continue to be lots of areas for future research,” she says.

Schneider agrees and also suggests there is opportunity for more analytical work in the use of nonbank financial services, including prepaid. Though she notes it was “important and valuable” that the FDIC asked questions about nonbank services at all.

“Ultimately, what’s really important to understand about this consumer population is not that it’s underbanked,” she offers. “It’s whether or not they have access to the financial services that enable them to meet their everyday financial needs in a positive way. For the FDIC to be asking questions about other kinds of services people are using in addition to banking services reflects a deepening understanding of that dynamic.”

Results of the study, broken down by region, state and MSA, in addition to an executive summary, are available online at an FDIC-developed Website: www.economicinclusion.gov.



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