Building Assets for the Rural Future

Encouraging Mainstream Banking for the Unbanked and Under-banked


Encourage Mainstream Banking for the Unbanked and Under-banked

The Opportunity

Approximately one-quarter of all households in the United States are  unbanked—having no relationship with mainstream financial institutions—or under-banked—having a current checking or savings account but still relying upon non-bank transactions such as check-cashing services.[1] Members of these unbanked and under-banked households are more likely to be on the economic margin, earning low- or moderate-income and possessing less education.[2]  An FDIC report estimated that North Carolina is worse off than the nation as whole, with 8.2% of North Carolina’s households being unbanked and another 20% under-banked.[3]   

Non-bank financial transactions take a heavy toll on individual wealth, because they are accompanied by high fees. One report estimates that a full-time worker could save as much as $40,000 over his or her career simply by relying on a lower-cost checking account instead of check-cashing services.[4]

This particular asset-building challenge may be one of the few solvable problems faced by those on the economic margin. Several researchers in this field have analyzed the reasons that individuals choose to be unbanked or under-banked, and they have concluded that all of the reasons can be addressed with tailored banking programs offered by mainstream financial institutions.[5]

How the Tactic Is Applied

  • Connect unbanked and under-banked individuals with mainstream financial institutions
  • Develop tailored products and services for individuals on the economic margin

Connect Unbanked and Under-Banked Individuals with Mainstream Financial Institutions

Bank On San Francisco (California)

San Francisco began the first citywide initiative to bank the unbanked in 2006, and now the program is being replicated across the nation.  Bank On San Francisco was the result of a partnership between city government, the Federal Reserve Bank of San Francisco, a local nonprofit called EARN (Earned Assets Resource Network), and the city’s private financial institutions.[6]  An initial planning group devised products, marketing materials, money management education programs, and tracking tools tailored for unbanked individuals.[7]  Fourteen private financial institutions have agreed to host the program, offering unbanked individuals the opportunity to open a free or low-cost checking or savings account with no minimum balance, even in cases of individuals with poor banking history.[8]  The nonprofit EARN offers financial education to all individuals participating in the initiative.

During the period 2006-2008, almost 25,000 checking accounts were opened and remained active[9] with an average account balance of $980.[10] Participating households rarely overdraw or close their accounts.[11] The model has won wide acclaim, but the program’s leadership continues to refine its offerings in order to reach more unbanked individuals by maintaining media exposure and adjusting marketing materials and financial products to meet emerging needs.[12]

As of this writing, efforts to bring a Bank On program to North Carolina are only in the preliminary stages.[13] Even if those efforts are ultimately successful, the model has not yet been implemented in rural areas. A remaining challenge would be extending the program to rural areas where population density is lower, perhaps by offering the program over a larger regional area or in conjunction with a hub metropolitan area.

Develop Tailored Products and Services for Individuals on the Economic Margin

Hope Community Credit Union (Mississippi)

Hope Community Credit Union (HOPE) was founded in 1995 by members of a church in Jackson, Mississippi—and staffed by volunteers—who were frustrated with the lack of affordable and responsible financial products available to community residents.[14] The credit union has since grown to serve more than 27,000 members, but it retains its mission focusing on low-wealth communities and individuals. In order to provide accessible alternatives to more expensive financial services offered by payday lenders, pawnshops, and check cashing facilities, the credit union’s products and services require low minimum balances and carry low or no fees. To counter predatory tax refund anticipation loans, HOPE offers its own refund anticipation loan in which the only fee is the credit union’s lifetime membership fee and the refund must be deposited into a savings account. For members with damaged or no credit history, it offers a credit repair loan product in which a customer borrows money against his or her own account and then makes payments back into the account. Taken together, the products are designed to help credit union members get accustomed to mainstream banking, learn money management skills, improve their credit histories, and establish long term banking relationships.[15] HOPE is not unique in offering these programs, but the credit union’s humble beginnings illustrate how community leaders can play a role in developing financial services for underserved low-income individuals.

Learn More

William Bynum
Executive Director
Enterprise Corporation of the Delta/HOPE Community Credit Union
Jackson, MS

On the Internet

William J. Clinton and Arnold Schwarzenegger, Beyond Payday Loans, Wall Street Journal op-ed, January 24, 2008

Federal Reserve Bank of San Francisco, From Mattress Money to Bank Account: A Profile of Bank on San Francisco, Community Investments, Spring 2008, pp. 3-7 http://www.frbsf.org/publications/community/investments/0805/mattress_money.pdf

Bank on California Initiative



[1] Fed. Deposit Ins. Corp., FDIC National Survey of Unbanked and Underbanked Households 10 (2011), available at http://www.fdic.gov/householdsurvey/full_report.pdf);

[2] Ctr. for Fin. Serv. Innovation & Asset Funders Network, above note 1.  See also Matt Fellowes & Mia Mabanta, Banking On Wealth: American’s New Retail Banking Infrastructure and its Wealth-Building Potential 4 (2008), available at http://www.brookings.edu/~/media/research/files/reports/2008/1/banking-fellowes/01_banking_fellowes.pdf; Michael A. Stegman & Robert Faris, Banking the Unbanked: The North Carolina Financial Services Survey 34-36 (2001), available at http://ccc.unc.edu/contentitems/banking-the-unbanked-untapped-market-opportunities-for-north-carolinas-financial-institutions/ 

[3] Fed. Deposit Ins. Corp., above note 1, at 19, 69.  Nationally, it is reported that 7.7 percent of households are unbanked and another 17.9 percent are under-banked

[4] Fellows & Mabanta, above note 2, at 1 (further finding that this amount, if properly invested, could have resulted in $360,000 in additional wealth over the same period).

[5] The reasons include believing that they do not write enough checks to justify an account; service charges and fees are too high; minimum balance requirement is too high; non-bank cash-checking establishments are more convenient; believing one can get money faster at non-bank financial institutions; and ease of getting loans at pawnshops or payday lenders. See Fed. Deposit Ins. Corp., above note 1, at 25, 41-43; Fellows & Mabanta, above note 2, at 6; Stegman & Faris, above note 2, at 37-40.  See also Michael A. Stegman, Marta Rocha & Walter Davis, The Role of Technology in Serving the Unbanked 9 (2005), available athttp://ccc.sites.unc.edu/files/2013/05/RoleTechnologyServingUnbanked.pdf. It should be noted that North Carolina has outlawed payday lending.

[6] Anne Stuhldreher, Bank on San Francisco: An Initiative to Bring all Residents into the Financial Mainstream 1 (date unavailable), available at http://www.frbsf.org/community/issues/assets/bankonsf/resources/casestud....

[7] Ibid. at 5-6.

[8] Bank on San Francisco, Partner with Bank on San Francisco, http://bankonsf.org/partners (last visited July 31, 2010).

[9] More than 31,000 accounts were opened in total during that two year period.

[10] Bank on San Francisco, Bank on San Francisco: 2006-2008 Program Highlights 3 (2008), available at http://www.frbsf.org/community/issues/assets/bankonsf/resources/bankonsf....

[11]  Federal Reserve Bank of San Francisco, From Mattress Money to Bank Accounts: A Profile of Bank on San Francisco, 20 Community Investments 3, 7 (2008).

[12] Stuhldreher, above note 6, at 6.

[13] The N.C. Department of State Treasurer is working with the Pew Safe Banking Opportunities Project to bring the Bank On initiative to this state, with Durham being the likely pilot site. 

[14] Interview with William Bynum, Chief Executive Officer, ECD/HOPE Community Credit Union (Mar. 25, 2010). Initial funding came from within the church community and the founding members of the credit union, who were all church members, and the credit union was staffed by volunteer church members.

[15] Ibid.

Topics - Local and State Government