Mercator Blog

Solving the Problem of Financial Inclusion Can Benefit Both The Unbanked and Financial Services Providers
Date: October 31, 2017
Sarah Grotta
Director, Debit and Alternative Products Advisory Service

Serving people without access to mainstream financial services such as transaction accounts, loans, credit cards, and convenient payment products is a well-studied and frequently discussed topic. There is no lack of literature regarding how to improve the state of financial inclusion, and there are many organizations both domestic and international supporting this cause. Nonetheless, the need around the world to provide safe and convenient financial tools persists. Providing these tools to the underserved can produce life-altering benefits. Despite documented improvements and new solutions, reducing the ranks of the unbanked has proven difficult however, particularly in the United States. The Federal Deposit Insurance Corporation (FDIC) has conducted surveys regularly since 2008 to track the numbers of the unbanked and underbanked in the United States. The inaugural study found that 7.6% of U.S. households were unbanked. The most recent study, conducted in 2015, 7 years later, estimates the percentage of unbanked to be 7%—an improvement, certainly, but not a dramatic reversal despite all the effort, reports and studies, organized outreach, and good intentions. To place the FDIC’s finding in context, 7% of households equates to approximately 9 million households and 15.6 million adults, which means the unbanked represent a sizable market indeed.

Before venturing further into the topic, a definition of the distinction between unbanked and what it means to be underbanked is in order. 

  • Unbanked means no one in a household had a checking or savings account with an insured financial institution.

  • Underbanked refers to households that have an account at an insured institution but also obtained financial services and products outside of the banking system. Specifically, a household is categorized as underbanked if it had a checking or savings account and used one of the following products or services from an alternative financial services provider in the past 12 months: money orders, check cashing, international remittances, payday loans, refund anticipation loans, rent-to-own services, pawn shop loans, or auto title loans.

Financial inclusion has long been a goal in countries around the world. Finding ways to offer solutions that provide financial inclusion for the unbanked and underbanked—and do so profitably for the providers—is the topic of a research report titled Doing Well by Doing Good: Delivery Models and Channels Serving the Financially Underserved. Solutions that are succeeding in several developing economies are reviewed, and selected solutions in the United States are profiled.