Underbanked
What Is Underbanked?
Underbanked refers to individuals or households that have a bank or credit union account but still rely heavily on alternative financial services outside the traditional banking system. These services may include payday loans, check-cashing businesses, pawnshops, or money transfer services.
Underbanked individuals use banks but may not fully rely on them for their financial needs.
Why It Matters
Being underbanked often indicates that traditional banking services do not fully meet a person’s financial needs. High fees, limited access to credit, or lack of trust in financial institutions may cause individuals to seek services elsewhere.
Reducing underbanked populations is a key goal of financial inclusion efforts.
How Being Underbanked Works
Underbanked individuals typically maintain bank accounts but supplement them with alternative financial services.
Common examples include:
- using payday lenders for short-term loans
- cashing checks at retail locations instead of banks
- relying on prepaid debit cards
- using money transfer services
These alternatives may carry higher fees or costs than traditional banking services.
Underbanked vs Unbanked
- Underbanked individuals have bank accounts but still rely on alternative financial services.
- Unbanked individuals do not have bank accounts at all.
FAQs About Underbanked
Why do people become underbanked?
Reasons include high bank fees, lack of credit access, or convenience of alternative services.
Do underbanked individuals still use banks?
Yes, but they may only use limited banking services.
Is being underbanked common?
Yes, many households rely on both banks and alternative financial services.
Related Terms
