Page 24 - GS161101

Views
Insider's report on payments
Fewer Americans
unbanked; more
using prepaid cards
By Patti Murphy
ProScribes Inc.
A fter years of brow-beating banks to do more for
the poor, the federal government reported that
the share of Americans without bank accounts
fell to 7 percent last year. That's the smallest category consists of folks who have had bank accounts
that group has been since 2009, according to the Federal
Deposit Insurance Corp.
Putting this into raw numbers: approximately 9.0 million
households, made up of 15.6 million adults and 7.6 million
children were unbanked in 2015. Growing numbers of
these households reported using prepaid cards in lieu of
bank checking accounts; many prefer mobile rather than
face-to-face access to financial services. Banks and credit
unions can do more to reach these consumers. Mobile and
prepaid products can help.
"Developing a relationship with a bank helps consumers
build assets and create wealth, makes them less susceptible
to discriminatory or predatory lending practices, and
can provide a financial safety net against unforeseen
circumstances," said FDIC Chairman Martin Gruenberg.
"The decline in the share of households who do not have
a banking relationship is a positive development, and the
FDIC will continue working to help ensure households have
access to safe, secure and affordable banking services."
The decline in the share of unbanked households was broad
based, although some demographic groups saw larger
drops than others. The share of U.S. households deemed
to be underbanked remained relatively unchanged,
according to the FDIC's latest National Survey of Unbanked
and Underbanked Households. Data was collected in 2015
(with assistance from the U.S. Census Bureau) and findings
were published by the FDIC this October.
24
The FDIC has been conducting surveys to gauge the number
of unbanked and underbanked Americans every two years
since 2009; that year 7.6 percent of U.S. households were
unbanked. The FDIC defines an unbanked household
as one where no one has accounts at federally regulated
financial institutions; underbanked households have bank
accounts, but also use nonbank alternatives, such as check
cashers, payday lenders and prepaid debit cards.
The FDIC's data shows 19.9 percent of U.S. households
were underbanked in 2015; those households included 51.1
million adults and 16.3 million children. The unbanked
and underbanked are often referred to collectively as the
financially underserved. The international consultancy
KPMG LLP estimated in a 2013 report that the underserved,
collectively, generate $1.3 trillion in U.S. wages.
The reasons U.S. consumers give for being unbanked vary,
but generally fall into three categories. Many people cite
financial reasons: they don't feel they have enough money
to keep bank accounts going, for example, or they may
object to fees and check holds. Many others (particularly
millennials) don't like or don't trust banks. The third
closed, or landed on an industry hot list for some other
reason.
The unbanked and underbanked pay plenty of money
in fees and interest for financial services: $138 billion in
2014 alone, according to the Center for Financial Services
Innovation. That's a 7.6 percent increase from the year
before.
Since 2010, consumer spending on nonbank financial
services has been growing at an average annual rate of 6
percent, based on CFSI's analysis. Lending is the fastest
growing segment, with a 310 percent increase in revenues
from 2013 to 2014. Payments accounted for $10.1 billion
of the total, and include check cashing, general purpose
reloadable prepaid cards, and remittances.
Making the case for prepaid cards
The CFSI reported that revenue growth for general-pur-
pose reloadable (GPR) cards was up 6.8 percent in 2014.
Although that exceeds other economic growth indicators
for the period, it was lower than other products. The FDIC
said growth was stymied, in part, by increased competi-
tion which drove down card fees. New regulations that
extend federal consumer protections for consumer credit
and electronic funds transfer transactions to prepaid cards
could further dampen interest. The Consumer Financial
Protection Bureau, the agency behind the new regulations,
however, delayed implementation until October 2017.
As the FDIC's and CFSI's data suggest, the financially
underserved represent no small segment of the financial
services market. Nor is it a recent phenomenon. Nearly 30
years ago the U.S. Department of the Treasury tried to ad-
dress the problem by developing a prototype basic (low-