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Despite rise of mobile money, millions still outside U.S. bank system

Customers in the newly remodeled branch of Check:Time in the Williamsburg neighborhood of Brooklyn in New York on Thursday, January 14, 2016.
Customers in a Brooklyn, New York, branch of Check:Time, which provides financial services to the unbanked. Photo: Richard Levine/Corbis via Getty Images

More than 60 million Americans continue to exist on the fringes of the financial system, the Federal Deposit Insurance Corporation announced this week. They either have no bank account or are “underbanked,” meaning they do have an account, but also have used payday loans, pawn shop loans or money orders in the past year.

Why it matters: Because insurance, savings and other protections often require ownership of a bank account, those who are excluded from the system are highly vulnerable to unexpected financial hardship. Not having a bank account also means being almost completely locked out of the benefits of a growing stock market.

By the numbers: Even as more than two-thirds of Americans are now “fully banked,” 63 million adults and 21.8 million children remain excluded from the financial system, or are only partially included. Underbanked households skew younger, and disproportionally comprise people of color.

  • At 17% and 14%, black and Hispanic families are about five times more likely to be unbanked than Asian or white households.
  • Most (67%) of those that are unbanked save their money at home, or keep it with family and friends.
  • The most-cited reason for being unbanked (53% of respondents) is not having enough money to keep an account. Lack of trust (30%) also scores high. 

Yes, but: The good news is that the percentage of Americans who are “financially excluded” has been marginally declining over the past decade. From 2009, the first year surveyed, the percentage of Americans without a bank account declined from 7.6% to 6.5% in 2017. Among those considered “underbanked,” the percentage fell from 20% in 2013 to 18.7% in 2017.

In some developing countries, such as Kenya, mobile-money technology is integrating millions of previously unbanked people into the financial system. 82% of Kenyans now have a financial account of some sort, up from 40% just a few years ago, and a full quarter of Kenyans have only a mobile account. 

What to watch: As the percentage of unbanked and underbanked households in the U.S. remains stubbornly high, it's possible that policymakers and “do-good” fintech providers might try to increase financial access with mobile-only technology like that used in Kenya. Alternatively, the Postal Service could provide a public-sector solution by offering low-fee bank accounts, as Senator Kirsten Gillibrand proposed earlier this year.

Peter Vanham is a lead writer at the World Economic Forum.

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