US Federal Deposit Insurance Corporation (FDIC) Chairperson Gruenberg spoke at the Urban Financial Services Coalition June 2016 Annual National Summit and networked with the attendees. The FDIC insures over 4.8 Trillion Dollars in deposits and has over 5,000 employees.
Martin J. Gruenberg, Chairman, Federal Deposit Insurance Corporation to the Urban Financial Services Coalition; Washington, D.C.
June 24, 2016
Good afternoon. I am pleased to be here today. The focus of the Urban Financial Services Coalition (UFSC) on economic empowerment for diverse communities is an important goal that we at the FDIC share. I applaud UFSC for being a strong contributor to the development of effective leaders at financial institutions so that they can successfully serve their diverse communities.
The FDIC’s mission is to promote public confidence and stability in the banking system. While deposit insurance is a key factor in sustaining public confidence, consumer trust in the financial system is another important element. When consumers have a positive banking relationship, that relationship builds trust.
Many consumers—minorities in particular—remain unserved by the banking system. To promote banking relationships, it is vitally important that consumers have access to safe, secure, and affordable banking services. Having a banking relationship can give consumers the tools to pursue economic opportunity, such as by building assets, getting a good education, buying a home, or starting a business. Moreover, financial institutions that can effectively strengthen a broad range of customer relationships will be better positioned to adapt to the rapid changes in their markets and build their businesses.
Today, to reinforce the theme of your conference, “Leadership for Change,” I want to talk to you about what the FDIC has done in our leadership role to promote economic inclusion.
First, I will share what we have learned from our research about consumer access to financial services and what the FDIC has done to promote simple, affordable banking to reach those who do not have a banking relationship. Then I would like to review how our work in financial education and, in particular Money Smart, which celebrates its 15-year anniversary this year, is helping address the needs of people of all backgrounds and all ages. Finally, I will discuss the unique role of minority depository institutions and the FDIC’s efforts to support these institutions so that they may thrive and serve the people in their communities.
I know economic inclusion is of particular interest to many in the audience. Many of you have worked with us on outreach and financial education programs, including hosting Money Smart sessions, minority business forums, and other community initiatives. I am seeking your continued engagement in that work today as individuals, as a coalition, and as participants in the many community organizations you support.
Understanding the Unbanked and Underbanked
In order to have better data to help develop effective strategies in this area, and in response to a statutory mandate, the FDIC periodically conducts national studies that explore the financial lives and needs of consumers.
Our National Survey of Unbanked and Underbanked Households is conducted every two years in partnership with the Census Bureau. The survey estimates the size of these populations, describes their demographic characteristics, and provides insight into opportunities to address the financial services needs of consumers.
For 2013, the year of most recent data, the results show that substantial portions of the population remain unbanked or underbanked: 7.7 percent of U.S. households did not have a bank account, and 20 percent were underbanked, meaning that they had a bank account but had also used alternative financial services in the past year.1
As we found in earlier surveys, the 2013 report showed that unbanked and underbanked rates remain particularly high among African-American, Hispanic, and Native American households; households with lower income and education levels; young households; and households experiencing unemployment. The survey also showed that households headed by individuals with a disability are less likely than the general population to have a bank account and more likely to use alternative financial services, even when they have bank accounts.
Let me give you some additional figures for illustration.
- Among lower-income households, those with annual incomes below $30,000, almost one in five (19 percent) are unbanked and nearly one in four (23.8 percent) are underbanked.
- For black households, more than one in five (20.5 percent) are unbanked and one-third (33.1 percent) are underbanked.
- One in six Hispanic households (17.9 percent) are unbanked, and nearly three in 10 (28.5 percent) are underbanked.
- For households headed by a working-age individual with a disability, one in six (18.4 percent) are unbanked and more than one in four (28.1 percent) are underbanked.
- Young people are also disproportionately unbanked. For example, more than 75 percent of youth aged 15 to 17 do not have a bank account; for those 18 to 20 years old, the proportion unbanked is 50 percent.
While these figures show that access to mainstream financial services continues to lag among these populations, the survey also shows that banks can serve diverse needs. Even among these groups, about half of the households are fully banked. The challenge then is how to extend inclusion further.
The FDIC survey results suggest that product features or other approaches designed to help households begin and maintain their banking relationships may reduce unbanked rates. That is the case even when the households experience financial challenges, such as a loss of income.
Such approaches, for example, include offering opportunities to open a bank account to consumers who are starting new jobs or enrolling in public benefits programs. Perhaps a workforce development and social service organization might foster connections to financial services for their clients. A youth employment program might help introduce teens to their first accounts.
In addition, the survey showed that nearly half of those who were unbanked once had an account but had left the banking system. Many of them reported that they did so due to unexpected fees and costs of accounts. Instead of requiring consumers to maintain a certain balance, which can be difficult for households experiencing unemployment or receiving certain benefits, banks may consider offering an account that waives fees if the consumers use bill pay services. Moreover, it may mean that accounts designed to avoid fees related to overdrafts and insufficient funds may help people better sustain a banking relationship.
Another implication from the survey relates to the fast-growing use of prepaid debit cards among the unbanked and underbanked. Between 2009 and 2013, the proportion of unbanked households that indicated they had used a prepaid card more than doubled. The most recent data show that more than one in four unbanked households had used a prepaid card (27.1 percent). Moreover, consumers using prepaid cards generally report that they received them from nonbank sources, but they use them to conduct the same kinds of day-to-day transactions associated with bank accounts. Card-based products seem to offer the potential to link unbanked consumers to banking services.
The FDIC survey also found that mobile financial services—or MFS for short—offers intriguing possibilities for helping to expand economic inclusion. More than two-thirds of unbanked households (68 percent) and more than 90 percent of underbanked households own a mobile phone. While smartphone ownership lags somewhat among the unbanked (33.1 percent), underbanked households (64.5 percent) are more likely to have a smartphone than the fully banked (59 percent).
We followed up these findings with additional research, including consumer focus groups. Although we know that mobile services are being rapidly adopted by a wide variety of consumers and institutions, it is not clear whether the technology’s full potential is being leveraged to expand inclusion in the banking system. A recent FDIC report explained the potential for mobile banking to benefit underserved consumers while noting that MFS likely will only recognize its potential for economic inclusion when that goal is thoughtfully designed and integrated into a bank’s overall strategy.2