What is Bank On?
Bank On programs negotiate with banks and credit unions in local communities to reduce barriers to banking and increase access to the financial mainstream. Typically led by local government or state public officials, Bank On programs are voluntary, public/private partnerships between local or state government, financial institutions, and community-based organizations that provide low-income un- and underbanked people with free or low-cost starter or “second chance” bank accounts and access to financial education.
Unbanked: No checking or savings account.
Underbanked: Has an account, but continues to rely on alternative financial services, like check-cashing services, payday loans, rent-to-own agreements or pawn shops.
For many Americans, safely accessing their money is never a concern; they may choose from a variety of institutions with which to safely save and access their income, obtain loans to buy homes and build businesses, and create financial stability and opportunity. But for a growing number of Americans, there are seemingly insurmountable obstacles to gaining access to this system, causing them to turn to financial services that deplete, rather than preserve, their money. This alternative system includes check cashers, payday loan providers, pawn shops, auto title lenders and rent-to-own stores that charge high fees for services the majority access for much less. Without the most basic financial tool – a checking account – families are hard-pressed to build savings and assets and to respond to emergencies.
Since the first Bank On program was launched in San Francisco in 2006, this model of financial access has been refined, replicated and identified as a leading strategy for state and local officials across the US to bring unbanked and underbanked consumers into the financial mainstream. Bank On programs thrive upon collaborative partnerships among local government, financial institutions and nonprofits. In addition to connecting unbanked individuals to low-cost bank accounts, Bank On programs involve efforts to raise public awareness, targeted outreach and expanded access to financial education. The appeal of Bank On is straightforward: it addresses the widely-recognized challenge of financial access by ensuring there are products out there that meet consumers’ needs and by enabling consumers to use those products safely and responsibly.
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Research conducted by the Federal Deposit Insurance Corporation (FDIC)1 in 2009 finds that more than a quarter of U.S. households rely on alternative financial services to manage their money. Of these 30 million households, nine million are “unbanked” – they do not have a checking or a savings account. Twenty-one million are “underbanked” – they may have a checking or savings account but still use costly alternative financial services.
Demographically, un- and underbanked households tend to be younger, be members of certain ethnic and racial groups, have lower incomes and have less education than the general population.
- 7.7% of U.S. households (approximately 9 million households) are unbanked.
- 17.9% of U.S. households (approximately 21 million households) are underbanked.
- 43% of households with a yearly income below $30,000 are either unbanked or underbanked.
- Nationally, 54% of black households and 43% of Hispanic households are unbanked or underbanked, compared to only 18% of white households.
Want to learn about the number of unbanked and underbanked households in your community? Visit the tools under Research Your Community.
There are many reasons why individuals do not have a transaction account in a financial institution or opt to use alternative financial services even if they do have an account. The FDIC survey identified some common reasons:
- High costs or the perception of high cost: Many individuals believe they do not have enough money to maintain an account and are often deterred by “hidden” fees such as high minimum balance requirements, monthly service charges and overdraft fees.
- Convenience: Banks are often not accessible to low-income individuals due to their limited hours of operation and the lack of branches in some low-income neighborhoods.
- Need for immediate access to funds: For those residents not using direct deposit, a check deposited into a checking account can take several days to clear.
- Lack of knowledge: Many individuals lack sufficient financial knowledge to navigate through the often complicated mainstream financial system.
- Identification requirements: Residents may believe they cannot open an account because they do not have a U.S.-issued driver’s license – a common misconception among recent immigrants.
- Previous banking problems: Individuals may be barred from opening an account due to mistakes they made in previous banking relationships.
- Overall perceptions of banking: Many low-income residents are distrustful of banks, have a cultural history of not using banks or simply hold a general belief that banks are not for them.
Something as simple as a checking account can be the first step in saving, planning for the future, building credit and climbing the economic ladder.
Unbanked and underbanked individuals operate in a mainly cash-based system, missing out on the stabilizing benefits a checking account provides, such as:
- Cost savings: The average unbanked person spends five percent of net income on unnecessary fees. For a lower-to-medium income worker, this amounts to about $1,000 in fees per year, or $40,000 over an average working life.3
- Public safety: Without a safe place to keep their money, unbanked people are more likely to be victims of crime because they often carry large sums of cash on their person or keep cash in their homes. Elderly, disabled or undocumented immigrants can be particularly vulnerable.4
- Disaster preparedness: In the event of an emergency, unbanked families have no safe way to access their money, and any cash kept in the home may be lost. The lack of a bank account impedes a government’s ability to get funds to people in the event of a disaster/evacuation. For example, in the aftermath of Hurricane Katrina, an estimated 70% of evacuees were unbanked,5 with no way to receive payments electronically.
- Asset building: Without a bank account, a family lacks the ability to save for the future, establish credit and access asset-building instruments such as loans for a car, small business or home mortgage.
1. FDIC National Survey of Unbanked and Under-banked Households. 2009. Washington DC: Federal Deposit Insurance Corporation (www.economicinclusion.gov).
3. Matt Fellowes and Mia Mabanta, “Banking on Wealth: America’s New Retail Banking Infrastructure and Its Wealth-Building Potential,” Washington, DC: Brookings Institution, 2008.
4. New research finds that in areas where financial institutions have begun to cater to Latino customers, the incidence of armed robberies has dropped significantly due to area residents’ reduced reliance on cash-based transactions. Gregory Fairchild and Kulwant Rai, Perdido en la Traducción: The Opportunity in Financial Services for Latinos (Charlottesville, VA: Tayloe Murphy Center, Darden School of Business, University of Virginia, 2011).
5. The Washington Post/Kaiser Family Foundation/Harvard University, “Survey of Hurricane Katrina Evacuees,” Washington DC: Kaiser Family Foundation, 2005.