Research Guides: Fintech: Financial Technology Research Guide: Unbanked & Underbanked (2024)

FAQs

What's the difference between unbanked and underbanked? ›

An “unbanked” person is someone that does not have a checking or savings account with an insured (FDIC) institution. The term “underbanked” means that the household had a checking or savings account with FDIC insured institution, but regularly used alternative financial services (AFS).

Risks of being unbanked

You'll pay fees for alternative services such as check cashing and prepaid debit cards. Not having a bank-issued debit card can mean you'll need to carry cash, which might not be recovered if lost or stolen.

Key statistics

The Federal Reserve found that in the U.S., 13% of adults are underbanked as of 2021, meaning they have a bank account but regularly use alternative financial services, and 5% are unbanked meaning they have no bank account at all. The unbanked population is made up of around 13 million people in the U.S.

Mobile Banking and Digital Wallets

One of the most impactful fintech innovations for the unbanked is mobile banking and digital wallets. With the widespread availability of smartphones, even in remote areas, individuals can now access basic financial services using mobile applications.

Using the FDIC's definition, a person who is underbanked maintains an FDIC-insured checking or savings account but regularly uses alternative financial services such as payday lending.

The underbanked can be characterized by a strong reliance on non-traditional forms of finance and micro-finance often associated with disadvantaged and the poor, such as cheque cashers, loan sharks and pawnbrokers.

Underbanked refers to individuals or families who have a bank account but often rely on alternative financial services such as money orders, check-cashing services, and payday loans rather than on traditional loans and credit cards to manage their finances and fund purchases.

Being unbanked means things like cashing checks and paying bills are costly and time-consuming. Those who are unbanked often must rely on check cashing services to cash paychecks because they don't have direct deposit. They also have to pay bills using money orders, which adds time and expense to the process.

A cashless society could bring various challenges for the unbanked and underbanked population. This group of people might not have consistent, reliable access to modern financial services or digital technology due to income, location, or other reasons, thus they might rely heavily on cash transactions.

However, there are at least six million people in the U.S. and almost 1.5 billion worldwide who are unbanked. When businesses stop accepting cash, the unbanked are forced to use payment methods like prepaid debit cards. However, these prepaid cards are costly.

Which banks are not going cashless? ›

Westpac, ANZ, CommBank and NAB have ruled out going cashless, but the banks have shuttered branches across regional Australia, leaving some customers without the option to bank with cash.

Underserved is a term used interchangeably to reflect individuals who are unbanked or underbanked. Financially underserved families and individuals pay a high price for managing their money outside of the digital economy.

In parallel, the threats posed by FinTechs have the ability to disrupt four categories of incumbents' business – market share, margins, information security/privacy and customer churn – at higher rates when compared to other financial sectors.

User retention and user experience

Keeping users engaged is one of the most common fintech challenges. Low retention means fewer users, resulting in reduced income. Increasing user retention is possible by providing a better experience. Here are some examples: Gamification and a reward system.

Disruption of Traditional Banking Models: One of the main ways in which Fintech is disrupting traditional banking models is through digital payments. Fintech companies have made it possible for customers to make payments seamlessly, securely, and at a lower cost than traditional banks.

un·​der·​banked ˌən-dər-ˈbaŋ(k)t. : not using or having access to a full range of banking options. [The survey] also measures how many households are underbanked, meaning they have a bank account but look outside the banking system to meet transaction or credit needs. FDIC.

Banked curves in roads and racetracks are tilted inward (i.e. toward the center of the circle) in order to help vehicles get around the turn. Figure 1 shows an unbanked curve, while Figure 2 shows a banked track. Figure 1: An unbanked curve is horizontal, so its normal force is vertical.

The term “unbanked” refers to people who don't use (or don't have access to) traditional financial services such as credit cards, personal checks, savings accounts, and loans.