Pay Theory Blog
January 31, 2022

Including the Un and Underbanked in Fintech Means Better Access for All

Stop and think about what it would mean to a business, an industry, or an economy as a whole to leave behind 25% to 30% of its addressable market? That is a huge percentage of a market to leave out - especially for products and services that need to reach everyone. On the flip side, it is also a massive opportunity, particularly for an economy at scale.

This is the discrimination that is happening to the unbanked and underbanked in America today. The FDIC’s 2019 report on the un and underbanked puts their total at 25% of our national population. Our team at Pay Theory went further, drilling down into subsets of the economy where we see that number rise materially.

  • In K12 public schools, the un and underbanked families make up 30% of the population. We arrive at this by taking the FDIC data cited above on un and underbanked children in the US and crossing it with the number of children in US Public Schools.
  • In rural communities where banking access is more physically limited, the un and underbanked represent more than 35% of the population. In some cities, such as North Star, Texas, that number approaches 60%.
  • In urban areas, like New York City, where the number of low-income families is disproportionally higher, the un and underbanked represent over 37% of the urban population. In specific New York Boroughs, like East Flatbush, the un and underbanked represent over 50% of the population.
  • Demographics also play a role. Nationally, 48% of Black households and 42% of Hispanic households are unbanked or underbanked, compared to less than 14% of white households.
  • Some states are more impacted than others, for example, 1 in 5 Black Missippians do not have a bank account.

This financial issue is prevalent across all groups of people. More broadly, cash remains an important method of payment.

  • Cash continues to be used extensively for small-value purchases, representing nearly half of all payments under $10 and 42% of payments less than $25.
  • Individuals aged 18 to 25 have the highest share of cash use, 34 percent, followed by those 65 and older who report using cash for 33 percent of payments.
  • For in-person payments, cash is used 35% of the time, followed by debit and credit cards at 30% and 25%, respectively.

Economic Impacts

In recent years, the un and underbanked have paid $140Bn in unnecessary financial services costs as a result of predatory financial services and improper banking options. (, 2021). Here are some of the key contributing fees and factors to this astronomical number.

  • The average annual cost of not having a bank account is $196.50 for people who use a prepaid debit card that features direct deposit. That figure jumps to $497.33 if the card doesn’t offer direct deposit or is being loaded in cash.
Chat comparing annual costs based on banking status
  • People who deal only in cash face average annual costs of $198.83 for check cashing and money order services.
  • The aggregate annual cost to the estimated 8.1 million unbanked households in the United States is between $1.8 billion and $4.5 billion annually.
  • Not having a bank account forces people to use alternative financial services; unbanked consumers are about six times more likely to use costly check-cashing services.

Credit risk can have a trickle-down effect into other areas of people’s lives, harming their ability to take out auto loans, get credit cards and even start a business. Without a credit history, small business owners have a harder time getting lines of credit.

Financial Goals of the Un & Underbanked

Cash-based, un and underbanked families have specific financial goals they are working to reach.

  • Creating an emergency fund is the top financial goal for the un and underbanked (65% of underbanked and 35% of unbanked).
  • The second and third most important financial goals for a family are developing and maintaining a budget, improving my credit, and eliminating my debt.
  • The underbanked are more likely to have financial goals and value saving for retirement beyond the goals above.
  • 21% of unbanked consumers say they do not have any financial goals, so teaching financial literacy, even at low-income levels, is both important and difficult.

There Are Other Important Implications

Most of us might not think about it, but being un or underbanked has implications on everyday life that isolate this group and prevent access to things most of us take for granted:

  • Cash-based families are likely to be lower income. Nearly 34% of unbanked and 45% of underbanked households earn less than $30,000 per year.
  • Cash-based families can be left out of the rush to “cashless” environments - such as school districts, stadiums and event centers, and even some retail stores who don’t have the expertise or want the liability of handling cash.
  • Cash-based families are less connected to the digital economy because they cannot easily make an online payment. We do so many things to make sure everyone in the US is included in our society. Why are we still leaving cash-based families out of the digital payment world?
  • These families are more likely to be cut off from reasonably priced credit products to help them cover income variability. This is due to low/no credit scores as well as lack of bank account and credit account histories.
  • Lack of access to common financial services can cut off access to the services people rely on. This is especially damaging in vital services industries like education, childcare, after-school programs, healthcare, and children’s activities. Unfortunately, it can also impact other must-pays like rent and utilities.

There is value for ALL of us in working to include the un and underbanked, especially getting and keeping them connected to services that have a disproportionately positive impact on individual life outcomes. Fintech innovation and public policy can come together here to ensure cash-based families maintain the same access to these vital services as the rest of America.

Solving the Problem

Helping cash-based families is a massive challenge to our profit-at-all-costs, retail driven, Big-Bank- focused financial services industry. However, it is clear to us that by developing and delivering financial services that include these financially disadvantaged families, we create a better future for all of us. Fintech can and should lead the way here.

Pay Theory is advancing inclusive payments innovations like Remote Cash Acceptance - a method of payment that allows payors to use cash to complete an online purchase. In addition to this, there are others that have taken up the cause to help us close this access gap.

  • U.S. Representative Ronald Payne Jr. introduced the Payment Choice Act to ensure that retail brick and mortar stores have to accept cash as a valid form of payment. Pay Theory has been discussing this legislation with his team as a first step toward greater inclusion of cash as an online digital payment method alongside conventional Card and Bank Account/ACH methods.
  • Federal action mimics public policy already in effect in New York City and Philadelphia as well as the states of New Jersey, Colorado, Washington DC, Massachusetts, and San Francisco.
  • Bank ON is a program created by the Cities for Financial Empowerment Fund (The CFE Fund) and the Federal Reserve that aims to support local coalition and financial institution efforts to connect consumers to safe, affordable bank accounts.
  • Even Amazon, famous for being focused on growth at all costs, has created a partnership with Western Union that allows a customer to buy something online and pay for it at a Western Union access point in physical cash.