financial inclusion credit unions

How credit unions can help underbanked members overcome barriers to financial inclusion

Those who count on financial institutions to manage their primary banking requirements may find it difficult to believe that, according to the Federal Deposit Insurance Corporation (FDIC), 14.1 million adults, or 6 percent, are unbanked. Unbanked means the consumer has no connection to the national banking system.

They may also be surprised to discover that 16 percent are underbanked, meaning they may have a bank account but they use alternative financial services to meet their individual or family requirements. Unfortunately, a full 89 percent of those underbanked consumers depend on such alternative financial services as money orders, check-cashing, or payday lending services for their banking activities, per the Federal Reserve Board. The research also found that underbanked and unbanked individuals are characteristically minority, low-income individuals featuring lower levels of education. 


Respondents from the Federal Reserve report who claimed irregular income and had 90 days’ worth of emergency cash in savings were half as likely to report hardship in accessing money as opposed to 21 percent who did not.

Those surveyed for the FDIC’s 2019 report How America Banks: Household Use of Banking and Financial Services claimed they were unbanked because they did not have enough money to meet the minimum balance requirements for a bank account since so many financial institutions require the consumer to to maintain a monthly balance in order to avoid paying a fee. The FDIC research found that 23 percent of households earning less than $15,000 per year are unbanked. Most likely, they have simply been shut out of the opportunity to begin their journey towards financial inclusion.

Barriers on the journey towards financial health for the underserved

There are a number of reasons today’s unbanked and even underbanked consumers have reservations about joining and engaging with the modern-day financial institutions. Cultural skepticism, real or perceived, is certainly a factor. Believing they can trust a financial institution that can take care of their needs while offering a fruitful journey towards better financial health is another. Perhaps most of all, the challenge of accessing their money can have significant consequences for individuals with unpredictable income or limited savings. And don’t even get us started with those pesky and often debilitating overdraft fees. 

Cultivating one’s savings account can serve well in reducing the effects of unstable income by lessening the need to access money. Respondents from the Fed report who claimed irregular income and had 90 days’ worth of emergency cash were half as likely to report hardship in accessing money as opposed to 21 percent of those who did not have such a stable financial resource. 

financial inclusion credit unions
According to the FDIC, 14.1 million adults, or 6 percent, are completely unbanked.
Photo: Dasha Shchukova

Because of such instability on the part of the underbanked and especially the unbanked, those households can experience a myriad of financial challenges, and that includes the persistent effect of the payday lending industry. Consumers who don’t have a bank account are six times more likely to use check-cashing outlets. Based on updated data from Credit Summit, merchant lenders charge a national annual percentage rate (APR) of 396 percent that is exceedingly difficult to pay back. Such “debt traps” have the potential to spin the consumer into a financial crisis that is financially devastating to get out of.

The ramifications suffered by the unbanked only begin when consumers access those alternative financial service outfits. Consumers without access to a stable, consumer- or member-focused financial institution like a credit union cannot conduct banking chores on their own time. Not having a centralized source for their financial inclusion and health goals forces them to miss work, which means potentially taking more money out of their paychecks. Then there’s the transportation costs involved in getting the respective financial chore accomplished. The inconvenient tasks involved with the unbanked and underbanked cost more than anything they would be paying in fees, especially with member-owned credit unions who actively look out for ways to SAVE members money.

Even more, the underbanked and unbanked are missing out on the convenient financial inclusion tools available for mobile and online banking; direct deposit, no-cost money transfers, and automatic bill-pay. Routine, everyday financial products like savings accounts, certified deposit accounts, and secured credit cards can help members establish a pool for emergency funds if such an occasion arises. Failing to establish a credit history with a healthy credit score hurts consumers’ chances of securing opportunities like car loans, credit cards, or starting a business. 

National Federation of Community Development Credit Unions’ Pablo DeFilippi and Greylock FCU’s John Bissell joined Mike Lawson’s CU Broadcast in 2018 to discuss financial inclusion and why it’s a driver of growth and relevance for credit unions.

How can credit unions attract the underbanked and unbanked?

Taking practical action to increase financial inclusion offers the chance to encourage innovation and economic progress in the United States. A recent report by Finextra offered solutions on enhancing financial inclusion from six trade groups. Such suggestions included:

  • Underbanked and unbanked individuals should have verifiable identification be made available to them
  • Consumers, even and especially those enrolled in government benefit programs, should be actively encouraged to open new accounts
  • Authors in public policy should urge public and private partnerships to target financial education and literacy
  • Credit unions need to continue efforts to reduce the amount of unbanked and underbanked U.S. households by focusing on approaches that reflect practical success

Another way to encourage the underbanked and unbanked to participate in the financial growth-building community of a credit union is by promoting real-time payments. It doesn’t take a hedge fund manager’s financial lifestyle to recognize that the timing of paychecks matter; if they don’t match up with the timing of the member’s monthly expenses it often forces the worker to seek alternative financial services like check cashers, payday lending storefronts, or risk a costly overdraft notice. 

It makes sense then that nearly 20 percent of underbanked individuals had difficulty accessing money because of delays in payment, according to a Federal Reserve report. The benefit of real-time payments can assist underbanked individuals in getting the necessary funds when they are needed, thereby minimizing the extra expenses that are tacked on later in the form of overdrafts and loan interest fees. Such fees are central in trapping those individuals and their families into further financial instability. 

How CDFI certification helps promote financial inclusion

In the midst of the economic downturn due to the COVID-19 pandemic in 2020, Community Development Financial Institutions (CDFIs) have served as lifelines in providing financial relief to parts of the U.S. impacted the most by the crisis. These credit unions provided payment relief, Paycheck Protection Program (PPP) loans, and emergency small dollar loans, among other supportive products and services. And that was before Congress delivered additional billions in resources to CDFIs. 

In short, there has never been a better time for credit unions who have dedicated themselves to bettering their communities and those who are underbanked and unbanked to participate in the CDFI Fund. And the reward from attaining certification? According to an Inclusiv Finance report, CDFIs outperform non-certified peers in key performance indicators of earnings and growth. For more information on eligibility requirements or application, go to the CDFI Certification page.

In the end, however, there is no all-encompassing solution for elevating the underbanked and unbanked communities of this country away from the financial distress and challenges they deal with every day. But a unique mix of a supportive credit union community, real-time payments, and improved access to bank accounts is a great place to start. 

With the member-owned, member-focused community the credit union movement offers and the financial tools available to them, the opportunity for financial stability is more than possible for generations to come. 

What initiatives has your credit union enacted that have helped underserved individuals on their journey towards financial health? Tell us in the comments section below or head to your preferred social channel and find us @QCashFinancial.

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