Nearly 30 percent of households nationwide are unbanked or underbanked, according to a recently released FDIC study. And that is cause for concern for bankers like Pedro Arce, who in 2008 attempted to launch Veritas Bank in Lawrence.

Veritas, which would have been the first bank to open in the city since about 1989, failed to attract the necessary funding to open its doors.

Arce was not discouraged, though, and in 2011, he joined Eastern Bank at its new Lawrence branch. Now the vice president of business banking, Arce said that Eastern Bank tries to bring the underserved into mainstream banking.

In 2011, 28.3 percent of households in the nation were underbanked or unbanked, up from 25.6 percent in 2009.

The FDIC study showed the percentage of unbanked – meaning households with no deposit accounts – increased by 0.6 percent or 821,000 households, bringing the total to 8.2 percent or 10 million households. The underbanked  — those who hold a bank account but also rely on alternative financial service providers, like pre-paid debit cards and check cashers — increased from 18.2 percent in 2009 to 20 percent in 2011. That’s one in five households, or 24 million households with 51 million adults.

If a potential borrower is too risky to underwrite, but the bank really believes in that customer, he might refer them to the microlender Accion, with whom Eastern recently formed a partnership, Arce said. Giving that borrower some credit can help get his or her business off the ground and eventually brings that person into the mainstream banking system, he explained.

The unbanked and underbanked are often comprised of low-income households and individuals and also include many new immigrants. That’s certainly the case in Brockton, said Leo MacNeil, senior vice president of community relations at HarborOne Credit Union. MacNeil estimated the city’s immigrant population makes up as much as 30 percent of the total population.

To reach out to the unbanked and underbanked, MacNeil said, HarborOne offers a variety of free educational programs at its multicultural banking center in downtown Brockton: financial literacy courses in four languages – Spanish, Portuguese, English and Haitian Creole – as well as classes in computer basics, citizenship prep and even English as a second language.

 “In many cases, these people come from countries where the banking system was not as accommodating as it is here. And if they felt delinquent in a loan, the consequences could be very severe, so they’ve learned to avoid traditional banking,” MacNeil told Banker & Tradesman.

 “Think about where these people are coming from. They’re coming from countries where they tried to save money, they put it in an institution, and then they had a financial crisis. These are countries that didn’t have FDIC insurance, so if your bank closed down, your savings was gone. You were done,” Arce said. “I think they feel vulnerable to begin with. If you think about how hard it is to migrate here and stay here, people want to protect the limited assets they’ve built up.”

But’ it’s also important to understand exactly why some people might choose to remain unbanked.

‘Close To The Edge’

Michael Goodman, an associate professor and chair of the public policy department at the University of Massachusetts at Dartmouth, says the poor often have very rational reasons for remaining unbanked, and those are often driven by a desire for simplicity and predictability.

Goodman cited research he conducted with his students in the former whaling capital of New Bedford, where unemployment eclipses the national average at around 12.5 percent and an estimated 27.3 percent of the city’s low-income residents are unbanked.

 “Many low income people are well aware of the costs and the benefits of banking, and they choose to cash their checks at non-banks because they know exactly what it’s going to cost them,” Goodman explained. “If you’re living very, very close to the edge where you have just enough money to make ends meet, if you run short or end up being overdrawn for even a small amount, you can suddenly find yourself underwater, and then you’re persona non grata in the banking community.”

It’s rational in the short term and for those individuals living at a very low level of income, Goodman clarified. “As a person’s income grows, remaining unbanked can be a real disadvantage for a low-income household because they don’t have that credit if they want to buy a business or own a home,” he said.

And the prevailing reason that Goodman’s research subjects gave for not using banks – a little over 23 percent replied, “I don’t have enough money” – revealed some ignorance of banking options.

Above all, Goodman said, his research underscores the need for greater financial education among the unbanked and underbanked.

“Over time, there is mobility, and people who are better able to manage their finances effectively and build credit are more likely to be able to change their circumstances and by extension improve their community,” Goodman said.

“Just because these folks are unbanked or underbanked doesn’t mean they don’t have assets. Many of them do, and they are probably saving it in non-traditional ways,” MacNeil said.

While it may be easier and more profitable in the short term for banks to focus on opening branches in more affluent regions, some community bankers say the investment in underserved areas can be an untapped source of capital and good will.

 “If you have a group of people who are underbanked and underserved, and you provide products that make sense, you will gain loyal customers,” Arce said. “It really makes sense when you look at it in the long run.”

Email: lalix@thewarrengroup.com