The Financial Inclusion Conundrum: To Bank or not to Bank?

Photo by Fabian Blank

Today, about seven percent of U.S. households (nine million in total) are unbanked. This equates to roughly fifteen million adults.

So…what does this mean?

It can mean many things, no doubt. Yet it must mean that certain households do without bank accounts — neither checking nor savings accounts.

Instead, they use expensive, alternative financial services (AFS): check cashing institutions, payday lenders, and pawn shops, among others.

Unfortunately, there are more who struggle under the cloud of financial exclusion. Twenty-seven million households, to be exact, are underbanked (or roughly 51.1 million adults).

These communities use traditional and non-traditional financial products — though access to the former may be volatile.

Clearly, many Americans fall into one of these buckets. Some of the reasons include:

  • Not earning enough money to merit opening an account.
  • Liquidity demands — takes too long for a check to clear, resulting in overdrafts or late bill payments.
  • Lack of transparency — obscure fee structures, leading to uncertainty.
  • Limited trust in banking institutions.
  • Costly fees.
  • Failure to have proper identification.
  • Poor track record — too many bounced checks, foreclosed loans, etc.
  • Language barriers.

Regardless of the factors, being in either category is hard. Some of the implications include:

1. Spending an inordinate amount on fees

Unbanked households earning less than $20,000 per year might spend $1,200 in annual AFS fees. That’s at least 6 percent of their income.

For more affluent households, that might be manageable. But for low-income communities, “6 percent” is a huge burden.

2. Greater exposure to uncertainty

Those who are neither banked nor use a digital substitute face the added risk of theft and natural disaster. They’ve practically substituted security for liquidity.

With the uptick of climatic volatility, it’s easy to see how risky this move can be.

3. Insufficient retirement savings

Having a bank account correlates with higher savings — capital set aside for retirement, for example. Unsurprisingly, the unbanked are unlikely to save, as they live paycheck to paycheck. This jeopardizes their financial future.


Quite often, proposed solutions to the issue of financial exclusion are similar. In so many words, the message is simple: “bank” the underserved.

And at face value, that might resonate, for it’s clear and straightforward. .

Yet, I remain skeptical, for it’s too simplistic and inconsistent with the realities these communities face.

Instead of being bottom-up driven, it reflects a top-down driven analysis — one that fails to adapt to the needs of the underserved.

For what good is banking to someone whose income is too low; whose cash flow is too volatile; or whose financial needs warrant more liquidity? The answer is: not very good. Not very good at all.

Further, such a proposal ignores a crucial point: banks can be more expensive than their alternative counterparts — if not less accommodating to the needs of the underserved.

For example, RiteCheck, a checking cashing firm, is open 24 hours a day, 365 days a year. Whether a customer needs a check cashed, billed paid, or money transferred, RiteCheck is available. Can banks match that level of service? Are they even motivated to try? It would appear not.

To be clear, I don’t dislike banks. They’re vital to our economy. We need them. We truly do. Yet we also need real solutions to this issue. And as of today, it’s not clear if banks are that solution.

And again, maybe I’m wrong. It’s happened before. But until I see evidence to the contrary, I’ll remain skeptical — but ever hopeful.

In closing, this dialogue must continue. Millions of Americans are suffering, waiting for relief.

But as we converse, we must frame the debate around meeting the unbanked and the underbanked where they are. Not doing so does a disservice to the ones who need some help.

As always, thanks for reading! If you liked the story, feel free to share.

You can also let me know what you think on Twitter: @Gmasejr

Gerald is a graduate of Cornell University, where he was a Fund Manager in Big Red Ventures and Fellow at Impact America Fund. He is passionate about the intersection of technology, culture, and impact.