Who are the unbanked?

In 5.9 million U.S. households, no one has a bank. Not a checking account. Not a savings account. They don’t “go to the bank.” These are the unbanked. Who are they and how do they operate financially in 2023? Let’s take a closer look.?

Who are the unbanked??

The unbanked are not a static group. As Lisa Servon writes in The Unbanking of America: How the New Middle Class Survives, “Many people — not just the poor — move in and out of banks.”1 Certainly households that are white, married, able bodied, higher income, and more educated are less likely to be unbanked — but this doesn’t in and of itself tell me much about the banked or the unbanked. It tells me much more about the banking industry.?

In fact, the “bank” that comes to mind when we think of the category is likely one that no longer exists. The extinction of those banks started in the 1970s, when bank failures, consolidations, and the transformation of credit created bigger banks less focused on consumers.2 The banks we have now are “catering more and more to the well-off, leaving the rest of us to pay too much at banks or to settle for imperfect alternatives such as check cashers and payday lenders.”3 Many of us are unbanked; just about all of us are underbanked. If you don't have a private client advisor, you are likely underbanked.

We often equate financial stability with participation in so-called traditional banking, yet as Servon points out, “there’s a chicken-and-egg problem here —?do banks make financial security possible for their customers, or is the other way around? Do people with financial security make banks possible?”? I’ll add: Possible means profitable.?

Servon sums up her in-depth research like so, “From the evidence I’ve gathered, mainstream banks aren’t doing a whole lot for people who aren’t financially stable already.”? In my view, we’re leaving more than 5 million households — that’s more than 15 million people — on their own, when we could instead have a tremendous impact by helping them save money and decrease their feelings of financial fragility.?

Why are they unbanked??

It’s easy to think that the unbanked are a group of people who have been financially irresponsible — those who did something that made them so unsavory in their previous banking life that they were basically “kicked out” of the traditional financial services industry. When we think of it this way, the unbanking of America seems like a kind of well-deserved ostracization. Yet, this just isn’t the case.?

In the 2021 FDIC National Survey of Unbanked and Underbanked Households, only 13.9% of respondents cited problems with past banking history or credit history as the reason they were unbanked. According to Lisa Servon, that category includes the one million people who have been deemed ineligible for bank accounts because of information in private databases like ChexSystems.? They’re blacklisted. What have they done wrong? Something as minor as a $40 overdraft could bar a person from opening a bank account for years. Imagine if you were blacklisted from your cell phone provider or from Amazon for a half decade — it’d impact your ability to participate in the modern world. The same is true here and It’s an egregious overcorrection in my view.

That leaves about five million households unbanked for other reasons. Here’s why:

How banks are losing customers?

1. Minimum balance requirements too high — 22%
2. Not trustworthy — 13%?
3. Don’t provide enough privacy — 8%
4. Fees too high — 6%
5. Credit history requirements too stringent — 5%
6. Locations inconvenient — 4%
7. Require ID — 3%
8. Don’t offer the needed products and services — 2%
9. Fees too unpredictable — 2%

I believe that financial services are a utility — everyone should have access. So, what can we do to lower minimum balance requirements? How can we build trust and increase privacy? What can we do to lower fees, give people second chances, and provide the services people need and want most in ways that are easy to access? These are serious questions for every fintech business that can have a huge impact on the unbanked and the banked.

What’s our role in this??

At Sawa, we’re starting with the problem of savings. By tapping the power of community, our platform makes it easy to save money and build healthy savings habits together. In a Sawa pod, everyone is part of a Savings Wheel — a group of ten people all committed to saving every week for ten weeks. (We start everyone off at $10 a week.) At the end of their first round, everyone in the pod has saved $100 —?a huge deal for the 18% of Americans who could only afford a $100 emergency, and a demonstration of what’s possible for everyone involved. The first round on a Sawa Savings Wheel is an onramp to financial stability that can lead to building up that down payment on a home or the start-up capital for a business —?two routes to creating lasting generational wealth.?

We believe that if a person can save $10 a week, they can save more. Depending on their savings goals, the next Savings Wheel they join could be for $100 a week or $500 a week. For many, the goal is to put together a down payment on a house. For others, it’s amassing the funds they need to launch their business. It might take five or ten rounds to get there, but they’ll be getting payouts along the way and encouragement from their Sawa pod. Over time, we can also see their ability to pay week after week and because of their participation in Sawa’s trust engine, we can help them rebuild their credit or qualify for financial products that they might otherwise seem too risky for.?

Ultimately, in the U.S. there’s a gap between the banked and the un- and underbanked, which is a symptom of a larger problem: a wealth gap where 50% of Americans own just 2% of the wealth.? The situation is extreme, and a systemic change would help —?until then, at Sawa, we’re doing our part to help people save and engage productively with the flawed system we have. When I read Economic Well-Being of U.S. Households in 2022 report and saw that 35% of people are “worse off than a year ago,” the percentage of people “doing at least okay” was down 5%, and more people couldn’t pay for a $400 emergency, my sense of urgency only increased. No one should be asked to go this alone.

1 Lisa J. Servon, The Unbanking of America: How the New Middle Class Survives (Boston: Mariner Books, 2018), XVII.

2 For more on the consolidation of the banks in the last fifty years, see: The Great Consolidation of Banks and Acceleration of Branch Closures Across America and Bank Mergers and Industrywide Structure, 1980–94.

3 Servon, The Unbanking of America, XII.

? Servon, The Unbanking of America, XVII.?

? Servon, The Unbanking of America, XVII.?

? Servon, The Unbanking of America, XVI.

? “That is, of total wealth of land, buildings, business assets, and industrial and financial wealth of all kinds, net of debt.” Thomas Piketty, A Brief History of Equality, trans. Steven Rendall (Cambridge: Harvard University Press, 2022), 32.