What Is Unbanked?
What does it mean to be unbanked ? What’s unbanked definition? So the word unbanked refers to the people who cannot avail of the essential banking services and products, with a majority of them belonging to the lower strata of the society, and hence, prohibited by conventional financial organizations due to diverse reasons. The unbanked people also consider those who do not choose to utilize the traditional financial service providers, including banks. While it is a frequent problem in the world’s developing regions, many unbanked people are also found in advanced nations such as the United States.
Generally, unbanked people recompense cash for purchasing things or buying prepaid debit cards or money orders. They may be benefited from substitutive financial services like payday lending and check-cashing if these services are available in the vicinity. In addition, these people typically do not possess pensions, insurance, or the rest of such professional services dealing with money.
Underbanked and Unbanked
Underbanked is another similar term that denotes the families possessing savings or checking accounts; however, it usually depends on substitutive financial services like payday loans, check-cashing, and money order services, contrary to conventional credit cards and loans, to deal with their finances.
A study conducted by Federal Deposit Insurance Corporation (FDIC) brought to the table that in 2019, up to 7M (or 5.4% out of) U.S.-based households were unbanked, which is considered the smallest figure since it organized a survey in 2009. Earlier research of FDIC anticipated that 8.4M (or 6.5% out of) households in 2017 were unbanked. The organization mentioned that the rates of unbanked people increase in particular sectors of the society in which the households with low income are included. Education is probably a significant factor as individuals who did not acquire a high school certificate were believed to be more likely unbanked.
Reasons Behind Unbanking
Poor Credit History
Individuals could have a poor credit history if they missed payments on loans or credit cards and because of that, could be unbanked.
Lack of Trust InMainstream Banking
Some people don’t trust the bank and believe that the fees banks charge are too high, and they sometimes remove themselves willingly from the mainstream banking system.
Difficulties With Convenience and Access
Most people find themselves underbaked because of the difficulty with convenience and access to the bank. That is, branch opening hours might not be convenient for some people.
Problems With Language and Literacy
Many unbanked individuals find it challenging to understand the language and literacy terms associated with various banking products.
Unemployed Or Lack Of Steady Income
Because banks will require you to have a job or a steady income before you can open an account, many unemployed people, therefore, find it difficult to access most banking products.
People who have already been declared bankrupt in the bank may not be able to open a new bank account until they settle all their neglected debts or have their assets unfrozen.