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Unbanked? Underbanked? Is there a difference?

by Leslie Connelly on September 29, 2009

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Unbanked? Underbanked? (by msr)

The terms unbanked and underbanked are often used interchangeably, without a clear explanation of the differences between the two markets; but there is a difference. So here’s a quick overview:

Unbanked refers to individuals who have no relationship with traditional financial institutions – meaning they do not have a bank account or credit cards; and transact primarily via cash, money orders and wire transfers. This group varies from teenagers who have little to no income to new immigrants who have language barriers, thin credit files or an inherent distrust of banks stemming from their native country.

Underbanked applies to individual who are considered underserved by financial institutions. They have some connection with traditional banking; but are either inactive for any number of reasons or have closed accounts as a result of credit problems.

A few facts on the underbanked population from the Center for Financial Services Innovation (CFSI)

  • 40 million households (or 106 million individuals) are classified as underbanked. With an almost 50/50 split, 21.6 million underbanked and 18.5 million unbanked.
  • 60% are white (non-Hispanic); only 19% are Hispanic and another 16% are black; with the remaining 5% being other.
  • 47% are employed full-time; 11 percent have part-time jobs
  • 41% are not employed (but 52% of these individuals are retired or homemakers).

For more on this market and the financial services they chose to use, read post Check Cashing 101: Why are check cashing stores necessary?

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