The FDIC On The Underbanked: Successes, Failures And The Road Ahead

The Federal Deposit Insurance Corporation released its 2011 FDIC Survey of Banks’ Efforts To Serve the Unbanked and Underbanked last week, providing a comprehensive look at the successes, shortcomings and challenges banks face when dealing with a growing segment of the population. 

The study, which used responses from 567 banks from November 2011 through February 2012, was intended to “understand the efforts being undertaken by the retail banking industry to provide financial products and services to unbanked and underbanked consumers.”

Some of the most interesting findings: just 43 percent of banks were actively involved in developing products that targeted underserved customers, and almost half of all banks required an initial deposit of $100 or more to open a basic checking account.

What else from the study was especially noteworthy? takes a look in this Data Point.

Basic Account Fees

The FDIC found that 65 percent of banks charged no monthly maintenance fees for basic checking accounts, while 10 percent charged between $1 and $3 and 22 percent charged in excess of $3 a month. The median minimum average balance requirement to avoid fees for a basic savings account was $100, while those who failed to meet that threshold average $2.50 a month in fees. Overall, the median charge for overdraft payment and checks was $28.

Auxiliary Products: Accountholders Vs. Noncustomers

Payroll check cashing was the most common auxiliary product that banks offered, and was made available to 71 percent of accountholders compared to just 47 percent of noncustomers. Bank checks were offered to 86 percent of accountholders compared to 35 percent of noncustomers, while money orders were available to 68 percent and 33 percent of each group, respectively. Such gaps widened for remittances, as banks offered domestic remittances to 68 percent and international remittances to 57 percent of accountholders. Those percentages declined to 11 percent and 9 percent for noncustomers.

Financial Education

The FDIC study confirmed that 81 percent of banks reported offering free financial counseling to underserved consumers, with 58 percent responding that they found it to be very effective or effective. The most common venue for financial education programs were K-12 schools, which is where 74 percent of banks offered help. Around half of all banks used an additional strategy to promote financial education, with 30 percent participating in the four major types of outreach: free counseling, providing technical expertise, funding community partners and teaching basic financial education.

Barriers To Providing For The Underserved

Thirty-two percent of banks said fraud was the largest perceived business-related challenge for banks attempting to reach the underserved, while 28 percent cited underwriting, 24 percent cited profitability and 16 percent cited nonbank competition as their biggest obstacle. Thirty percent said that a lack of understanding by consumers was a major challenge, while 18 percent cited a lack of consumer demand and 12 percent cited product development as big obstacles. Finally, 35 percent said regulatory requirements were a major obstacle, while another 30 percent said they were at least a minor impediment.

To read more statistics and conclusions from the FDIC’s extensive study, read the full findings here.

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