Underbanked and unbanked are terms used to indicate individuals who have limited or no access to mainstream financial services that others are taking for granted. The reasons for this are diverse. Some people can’t afford a bank account because of the high fees. Some, such as international students, migrant workers and people with low credit scores aren’t allowed one because of the overwhelming regulations. And then there’s the group that feels they don’t need an account or they simply don’t trust banks with their money.
Where’s the problem?
It’s understandable if it’s a choice not to have an account, but to be denied one is, in our opinion, fundamentally a violation of basic human rights. The savings-in-the-stocking days are long gone and everyone should have the right to keep their assets safe with access to cheaper, simpler and more transparent banking services.
Besides the obvious security issues when storing money in a cookie jar at home or carrying it around in the pocket, there are numerous reasons why not owning a bank account can result in uncontrollable money loss.
On a smaller scale, if we can call it that, not being able to store money in a bank account leads to inability to keep track of one’s finances. This results in higher expenditures and failure to execute a money saving plan – if you have no real overview of what you’re spending on, then how can you start saving?
Being denied the access to bank accounts forces people to look for various alternative finance services such as payday loans, pawn shops, rent-to-own agreements and many more that have considerably higher service fees than banks. According to a U.S study1, using alternative financial services instead of bank accounts can cost a household with a net income of $20,000 as much as $1,200 a year for alternative service fees.
What’s more, people without a bank account are unable to make transactions online where goods and services tend to be much cheaper. Sure, there are prepaid card options available as well which are supposedly meant to decrease financial exclusion, yet they usually have minimum balance requirements and charge a fortune for withdrawals, which some people simply cannot afford. It’s ironic, isn’t it?
The situation gets even more ironic when we look at the big picture. According to The World Bank2, about 2.5 billion adults around the world lack access to the most basic financial services. That’s nearly half of the world’s adult population. This limitation of personal options triggers financial exclusion, which can perpetuate poverty and lead to social exclusion. As a result, it slows the economy down. But by all means, banks, do carry on doing everything you can to charge higher service fees from those already in trouble and law makers, do tighten regulations for those who are unable to join the banking system anyway!
Time for solutions
The good news is that modern age banking has already begun overcoming these issues, driving the change toward financial inclusion. Digital banking services can be quicker and more accessible than traditional banks because they don’t need to drag costly, slow and unreasonably bureaucratic branches behind them. While the bank demands people to show up in the branch with the necessary documents to validate their identity, the digital banks run the same Know Your Customer checks on the customers online, therefore offering a much quicker and more accessible service.
Those who’ve found joining the banking system unreasonably hard in the past can now take advantage of the digital banking services that offer bank accounts with all the modern banking facilities such as access to internet banking, cash withdrawals, card payments and money transfers. Well, it’s about time!
- Beard, M. P. (2010). Reaching the Unbanked and Underbanked. Federal Reserve Bank of St. Louis. Retreived November 16, 2013 from: http://www.stlouisfed.org/publications/cb/articles/?id=2039
- Financial Inclusion: Helping Countries Meet the Needs of the Under-Banked and Under-Served. Retrieved November 16, 2013 from: http://www.worldbank.org/en/results/2013/04/02/financial-inclusion-helping-countries-meet-the-needs-of-the-underbanked-and-underserved