The Unbanked

I’m amazed at the number of people in the United States who do not have bank account. I remember how proud I was opening my own savings/checking account as a freshman in high school at Bank of Boston (now FleetBoston Financial). Over the years I’ve gotten so spoiled to the services offered, that I can’t imagine life without a bank account and more importantly, my debit card.
According to Treasury Department, over 35million people lack access to banking services. No wonder I see so many check cashing places all over the city. I really hate those places because I think they just take advantage of poor people. If necessary (and it’s not) I’d rather pay a monthly service fee to a FDIC bank than pay a check-cashing fee to these rip off plays. So it good to see that many banks are now catering to the “unbanked.” To read an interesting article about what banks are trying to do to help “the unbanked” click below. Article from The Economist is titled: Reaching Out.


Reaching out
The Economist: 20 February 2003
Next time, mommy, can we go to the bank?
America’s banks make new efforts to serve those they have hitherto ignored
HOW many bankers would take the kind of leap James Maloney has done? The chief executive of Mitchell Bank, a family-owned institution on the south side of Milwaukee, has plunged into one of the least banked groups in America: immigrant teenagers. For the past three years, Mitchell Bank has operated a full-service branch inside South Division high school, located in a low-income district of largely Hispanic immigrants. The branch, which is run by students who earn credit towards graduation requirements while working under adult supervision, has been so successful that many students’ parents now deposit their pay cheques there. At least 90% of the customers have never had bank accounts.
Nobody knows how many Americans lack access to bank services, but the Treasury puts the number at more than 35m. Whereas many of the rural poor and minorities in inner cities have been “unbanked” for reasons ranging from lack of education to bad credit, the wave of hard-working immigrants who have arrived in the past decade, primarily Hispanics, has financial-services firms salivating. Their growing economic clout (about $24 billion of remittances were sent to Latin America last year) has spurred many new bank services and marketing programmes.
Large institutions, including Wells Fargo, Citibank and Bank One, are now following the trail blazed by the likes of Mr Maloney, although they tend to be more cautious and many are reluctant to publish broken-out results. Several large banks now offer “payroll card” programmes to employers, who can put funds directly into the accounts of employees, typically teenagers or immigrants. The employees may not write cheques, but instead use special debit cards, co-branded by Visa, which allow instant verification that funds are available. This limits the bank’s risk.
Dual ATM cards, which allow a party in America to deposit funds that can be withdrawn by a recipient abroad, are also now available, as an alternative to more expensive wire-transfer services. In a tacit acknowledgment of the millions of illegal immigrants in America, numerous banks accept the matricula consular, a card issued by Mexican consulates regardless of the applicant’s legal status, as sufficient identification to open a bank account. And designated community banks, such as First Bank of the Americas in the heart of Chicago’s Hispanic district, are supported by the Treasury when they offer low-cost services, such as basic loans, aimed at previously unserved populations.
While community banks are dedicated to reaching poorer people or immigrants, at larger banks decisions about whether to accept or reject such new customers can cause conflict between the marketing and risk-control departments. “We’re trying to balance accessibility with fiduciary responsibility,” says Tom Kelly, a Bank One spokesman. “We’re protecting the integrity of the bank.” Typically, large banks charge higher fees to customers with small balances in their accounts.
People who remain outside the banking system often fall prey to predatory lenders and to the high charges levied by wire-transfer services, with little recourse when they are abused. “If you’re undocumented, are you going to create a fuss?” asks David Schnepp, a former economic-development official who plans to launch a low-cost money-transfer service aimed at the Hispanic market later this year. He and his partners intend to create an alternative to Western Union, which dominates the $122 billion international wire-transfer market. He plans to work with community groups, which will get a share of the profits. Many banks have also eyed the wire-transfer market with envy, but Western Union has fought back by opening a slew of new outlets in recent years.
Lack of trust in financial institutions remains a big hurdle for many of the unbanked. Hence the push by Mr Maloney’s bank and others to build ties with trusted community organisations, such as schools or social clubs. First Bank of the Americas, for instance, has linked up with churches serving immigrants. It sponsors a Spanish-speaking marketing consultant, who addresses churchgoers about the dangers of predatory lending and the benefits of using institutions recommended by their church or community leaders.
The government has played a growing role in the push to reach America’s unbanked population ever since legislation requiring all federal payments to be made electronically exposed the huge number of people without bank accounts several years ago. Last year the Treasury’s newly created Office of Financial Education launched a pilot programme, called First Accounts and operating in 26 states, that aims to bring 35,000 people into the banking system for the first time.
Mr Schnepp emphasises that ultimately, the integration of America’s unbanked population is in the broader interest. “A rich community buys goods, a poor community is a drain,” he says. “This is not about charity.”

5 Comments
  1. I’ve always wanted to know who REALLY owns check-cashing services and payday-loan storefronts. I’ll bet that some of America’s finest banking institutions have their hands in these businesses. By the way, at least some of those without bank accounts do so out of an increasing concern for privacy.

  2. Yeah, I myself am sometimes worried about the privacy issue. Just the other day, I was trying to decided whether or not to provide my bank number so that the IRS can do direct deposit for my refund. In the end, I just decided to give it to them, since I know if they really wanted it, they could easily find out.

  3. What annoys me is how the Social Security Number is being used as a means of identification for which it has never been legally designated. I’ve thrown in the towel as far as providing it for health insurance, but I’ll be gott-damned if I’m going to divulge it to get a supermarket discount card.

  4. I work at a bank and I KNOW that privacy is an issue. The problem is that it is SO easy to get another person’s personal information – and the SSN is one thing that is individual (ie you can have the same birthdate, address, etc as another person but your SSN is just yours). For security reasons we’re not asking for that as verification over the phone any longer – each customer is required to set up a password, which they’re asked for whenever we can’t verify id (mainly over the phone). But how secure is your password if you write it down in your checkbook?

  5. Just a response to the first comment, posted by Leigh. I work in the financial regulatory industry — I’m an event planner, but I create educational sessions for bankers on this kind of stuff. Actually, the banks DON’T have their hands in those check-cashing businesses. And that’s a problem. Because banks can offer, obviously, better security, and just better benefits and lower fees in general to the people that are currently targeted by check-cashing businesses.
    Banks are now starting to offer more innovative products to these people, because they are recognizing the need in the community, as well as the potential for profit. Better for the bank to make a reasonable profit than for a check-cashing place to, because banks are regulated extensively. Check-cashing places fly under the radar and many (most?) are deceptive.

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