The number of unbanked households has declined nationwide, according to a recent survey of unbanked and underbanked households – a fact that federal researchers are chalking up to improved economic conditions and changing household demographics.

According to the FDIC’s 2013 National Survey of Unbanked and Underbanked Households, 7.7 percent of households nationwide were unbanked last year. That represents about 9.6 million households comprised of approximately 16.7 million adults and 8.7 million children. That’s down from about 10 million American households, or 8.2 percent, in 2011, when the survey was last conducted.

Underbanked households – meaning those who have a bank account but also use other alternative financial services, like payday lenders or check cashers – made up about 20 percent of U.S. households, representing approximately 16.7 million adults and 8.7 million children.

This year’s survey also contained a number of other revelations and new material this year – some of which could be useful to bankers trying to reach these vulnerable populations. In particular, the underbanked are actually more likely (29.2 percent) than the fully banked (21.7 percent) to use mobile banking to access their accounts.

Going Mobile

Where the FDIC is concerned, that means that mobile banking could have the potential to expand access to the banking system. Michael D. Goodman, executive director of the Public Policy Center at the University of Massachusetts Dartmouth, agreed with that.

“I think it’s clearly a market opportunity that’s pretty significant out there,” he said, while conceding that “of course it’s another challenge when it comes to security because of the potential for fraud and abuse and a compromised system.”

The FDIC also suggests in its report that reloadable prepaid debit cards, often favored by the unbanked and underbanked, might also present a gateway into the mainstream banking system.

“Prepaid debit certainly is convenient,” said David Tryder, senior vice president and chief marketing officer at HarborOne Bank in Brockton. “But it’s only an interim step … Where banks really add value in the landscape is our expertise in helping people manage their money a little bit better. While I think [prepaid] is certainly a good bridge, it doesn’t replace the value add.”

Since 2007, HarborOne has run its MultiCultural Banking Center in Brockton with the express intent of reaching those unbanked and underbanked citizens, many of whom are also immigrants. The bank goes beyond traditional financial literacy – it also offers courses in English as a second language and citizenship.

“Technology can only go so far, and technology for technology’s sake, I think, can be troublesome,” Tryder said. “You have to make sure you keep that face-to-face opportunity, regardless of their banking status.”

Goodman also thinks it’s important to understand the various motives of the unbanked and underbanked, which can range from “I don’t have enough money” to “I don’t trust banks” to “Account fees are too high or unpredictable.” Those might provide bankers with clues about how to better reach and talk to the unbanked.

New to this year’s survey of the unbanked and underbanked were questions relating to entrances and exits from the banking system. Unsurprisingly, the loss of a job or income often predicated an exit from mainstream banking, with about 34 percent of recently unbanked households telling the FDIC that a significant job or income loss was their reason for becoming unbanked. Conversely, about 19 percent of recently banked households responded that a new job was their reason for opening a bank account.

Long-Term Loyalty

According to Pedro Arce, vice president of the business banking group at Eastern Bank, “there are good incentives and there are bad incentives” for reaching the unbanked.

Some financial institutions may very well look at the unbanked and underbanked as a source of fee income. After all, customers who have difficulty balancing a checkbook are probably also those most likely to overdraft their accounts regularly, thereby generating some tidy noninterest income for a bank.

“I hate to admit that, but there are companies out there who think that way,” said Arce, who has spent much of his career trying to serve underbanked populations.

Also prevalent is the idea that poorer populations just do not represent much profit potential for a bank concerned with its quarterly earnings, he said.

“But if you’re thinking about long-term relationships, building loyalty … I think most banks want to get them into the system; eventually, they’re going to want to buy a house, they’re going to need a car, they may want to take out student loans,” Arce said. “It’s a long-term play. The long-term goal is to cross-sell these clients all these different products, while also helping the bank.”

Email: lalix@thewarrengroup.com