Sunday, June 24


Millions of people in the United States of America are 'unbanked'. Unbanked means that they do not use the traditional banking system in America. Instead, they use payday loan and check cashing companies. Why? Another case of financial illiteracy?

Some of the reasons why these 20 million people don't use traditional banking are mistrust, cultural and language barriers, and many misconceptions about the banking industry.

A vast majority of those that are unbanked are immigrants to this county who according to some estimates earn in the hundreds of billions of dollars annually. Many of these people come from countries where the banking systems are corrupt and depositors regularly lose their life savings.

Unfortunately for these people, the cost of using non-traditional banking in the United States is very high. Check cashing companies will charge between 2% and 5% of the face amount of the check, and payday lenders charge fees representative of interest rates of 100% or more.

U.S. banks recognize this market but so far haven't been able to change to accomodate it. For example, many banks require a hold of three to five days on checks presented for deposit. Many of these unbanked are living from paycheck to paycheck, and need the money now. They can't wait for the hold on the check to expire, so they're forced to use a check cashing company.

An estimated 10 million American households are "unbanked" or "underbanked" -- they do not have accounts at banks and other mainstream financial institutions. Unfortunately, as a result, these cash consumers pay excessive fees for basic financial services, are susceptible to high-cost predatory lenders, or have difficulties buying a home or otherwise acquiring assets.

So what is the answer? Both the NCUA and FDIC (federal credit union and bank regulators) actively promote reaching this market, but real progress is yet to come. If the root of this problem is a lack of trust in the banking system, is there anything that can be done to rebuild confidence?

Some companies are thinking outside the box, and are doing things to introduce the unbanked to more traditional banking. Watch this video about the "Revel Card".