The number of Unbanked U.S. households has fallen in recent years.
According to a 2021 FDIC National Survey of Unbanked and Underbanked Households, 4.5 percent of U.S. households (approximately 5.9 million households) were unbanked, the lowest since the survey began in 2009.
It can be expensive to have a bank account, so it's easy to see why some people skip banking at a traditional financial institution. Plus, many people are unable to meet the minimum balance requirements to maintain a bank account.
But it can be expensive not having a bank account too. When people use alternative financial services, whether it be prepaid debit cards, money orders, check cashing service, pawn shop loan, auto title loan, payday loan, paycheck advance, or tax refund advance, the fees quickly stack up.
Check cashing and other fees often create a financial burden on the people that can least afford it. It has been estimated that unbanked and underbanked Americans spend $303 billion in fees and interest on financial products according to the Financial Health Network.
Here's an example of how fees for alternative financial services stack up:
- Check-cashing institutions charge customers between 1 and 12 percent of a check’s value.
- To pay utilities, unbanked people often convert their cash to money orders which can cost $1 or more to pay each bill this way.
- Reloadable prepaid debit cards come with activation fees, monthly fees, and withdrawal fees.
- Tax refund advance costs can be hefty.
- The average fee for a payday loan advance is $15 per $100 borrowed but because these are short-term loans (typically 2-weeks), the annual percentage rate ends up being about 391 percent.
Fintech companies can offer unbanked people an inroads into the banking and lending industry that have been previously shut out.
What is Fintech?
Financial Technology (Fintech) refers to computer and mobile-based technology where a collaboration of software, algorithms, applications, and hardware mesh together to automate the delivery of financial services.
Fintech tools, platforms, and services include transferring money among accounts, bill payment solutions, mobile check deposit, peer-to-peer lending, online investment, crypto exchanges, and more.
Several businesses use fintech but banks, in particular, are venturing further into the fintech landscape. Banks use fintech for both back-end processes as well as consumer-facing solutions: For example:
- App use for checking account balance, transfer money, monitor activity, and deposit checks.
- Investing with no prior experience.
- Digital tools along with learning algorithms help consumers make better decisions.
Growth of Fintech Firms
The growth of Fintech Firms has been unprecedented in the past several years. According to the Financial Brand, more than 50% of banking customers use fintech firms.
Consumers using fintech banks typically enjoy sleek apps that offer most, if not all, functions offered by traditional banks. Fintechs empower customers with savings and budgeting tools that promote better management of finances.
Most fintech banks operate entirely online but not without the help of traditional banks. Traditional banks provide the means for fintech banks to operate as FDIC-Insured. Fintech bank accounts are insured up to the standard maximum deposit insurance amount of $250,000 through traditional partner banks.
The difference between unbanked and underbanked
While the good news is that the overall number of people who are unbanked has declined, millions of households continue to lack a banking relationship.
Being underbanked can be as detrimental as being unbanked.
- Unbanked, where no one in a household has a checking or savings account.
- Underbanked, where a household has a bank account but they rely on alternative financial providers for their banking needs such as money orders, check-cashing companies, and payday loans—usually for a fee.
When people are unbanked or underbanked, they are boxed into paying fees for basic transactions. For instance, many unbanked people resort to check-cashing companies, payday lenders, and money orders to take care of rent, utilities, and other monthly obligations.
Add in prepaid debit card fees, it's been estimated that being unbanked can cost up to $3,000 annually per person according to the Financial Health Network.
Top 10 Fintech Banking Companies
The Fintech industry has disrupted the traditional banking industry. This new form of technology utilizes modern tools and online platforms to provide innovative solutions to everyday banking needs.
- Upgrade Rewards Checking Plus: Customers get up to 2% cash back on common everyday expenses for active accounts with a monthly $1,000 direct deposit 1 and up to 1% cash back for other purchases2, ssavings account earns 5.21% APY3, get paid up to two days early4.
- GO2bank:Free ATM Nationwide, Overdraft up to $200, Early Direct Deposit
- Albert: Checking, Early Direct Deposit, $250 No-Fee Cash Advance
- SoFi: Checking, Savings, Credit Card and Investing Platform
- Acorns: Automated Investment Platform, Retirement Planning, Checking Account with Metal Debit Card
- Novo: Small Business Banking, Multiple Small Business Tools To Streamline Your Business
- NorthOne: Small Business Banking, Business Debit Cards, Digital Banking Tools
- Revolut: Small Business Banking, Cashback Business Debit Cards, Virtual Debit Cards
- GoHenry:Debit Card for Kids and Parents, Financial Learning App
- Greenlight: Debit Card for Kids and Teens, Kids Earn Cash Back
Top 10 Fintech Lending Companies
Fintech offers a variety of tools that help lenders get a clearer picture of applicants' finances. Fintech companies look at a borrower's complete financial picture, not just credit score. It also enables borrowers to quickly connect their bank accounts for quick and convenient repayment of loans.
- Upstart: Personal Loan Amounts up to $50,000, No minimum credit score requirement
- SoFi: Personal, Student and Mortgage Loans, Refinancing Loans, Good credit required
- Upgrade: Personal Loans Amounts up to $50,000, 580 minimum credit score requirement
- OppLoans: Personal Loan Amounts up to $4,000, No minimum credit score requirement
- Universal Credit: Personal Loans up to $50,000
- PayOff: A personal loan to pay off credit cards up to $40,000
- Divvy: Business Credit Card
- Uplyft Capital: Small Business Funding For Any Credit Type
- Self: Credit Builder Loans
- Stilt: Affordable Loans for Immigrants, Visa Holders, and U.S. Citizens
Second chance checking as an option for unbanked people
When bad credit is the barrier to opening a bank account, second chance checking can be the answer.
Many banks and credit unions offer customers with negative banking records a chance to get back on track. These types of second chance banks are familiar with customers that need a second chance at banking.
Unbanked consumers reviewing second chance banking offers should look out for fees. You never want to open a bank account that is laden with fees.
1 Active Accounts with a monthly direct deposit of $1000 are eligible for additional benefits on Rewards Checking Plus such as additional cash back rewards, ATM fee reimbursement, and more. See the Active Account page for more information.
2 Rewards Checking Plus customers who set-up monthly direct deposits of $1,000 or more earn 2% cash back on common everyday expenses at convenience stores, drugstores, restaurants and bars – including deliveries – and gas stations, as well as recurring payments on utilities and monthly subscriptions including phone, cable, TV and other streaming services, and 1% cash back on all other debit card purchases. 2% cash back is limited to $500 in rewards per calendar year; after $500, customers earn 1% cash back on all eligible debit card purchases for the remainder of the year. Rewards Checking Plus accounts with less than $1,000 in monthly direct deposits 60 days after account opening will earn 1% cash back on common everyday expenses and 0.50% cash back on all other eligible debit card purchases. Some limitations apply. Please refer to the applicable Upgrade VISA® Debit Card Agreement and Disclosures for more information.
3 The 1.5% Annual Percentage Yield (APY) for the Performance Savings account is effective as of June 1, 2023. The APY for the Performance Savings account is variable and may change at any time. Active Accounts qualify for 5.21% APY with monthly $1000 direct deposit. The APY for Active Accounts is effective as of September 1, 2023, is variable, and may change at any time. Please refer to the applicable Cross River Bank Performance Savings Deposit Account Agreement and Truth in Savings Disclosure. To earn APY, you must open and fund a Performance Savings account. Rewards Checking Plus accounts do not earn APY.
4 Early direct deposit requires set up of recurring electronic direct deposit from your employer, payroll, or benefits provider and is limited to direct deposits under $5000. Early access to direct deposit funds depends on the timing in which we receive notice of impending direct deposit, which is generally up to two days before the scheduled deposit date.
Upgrade is a financial technology company, not a bank. Checking and savings accounts provided by Cross River Bank, Member FDIC.