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FDIC Survey of Banks’ Efforts
to Serve the Unbanked and
Underbanked
February 5, 2009
Presented by:
Barbara A. Ryan, Deputy to the Vice Chairman, FDIC
Ed Bachelder, Director, Blueflame Consulting
Professor Michael S. Barr, University of Michigan Law School
Agenda
Background
Overview of FDIC Bank and Household
Survey Efforts
Bank Survey Findings
Recommendations and Discussion
1
Background
Survey required by the Federal Deposit Insurance
Reform Conforming Amendments Act of 2005
(“Reform Act”).
Scope includes unbanked and underbanked.
Unbanked: Rarely, if ever, held a checking account, savings
account, or other type of transaction or check cashing account
at an insured depository institution.
Underbanked: Have an account with an insured depository
institution but also rely on non-bank alternative financial
service providers for transaction services or high-cost credit
products.
2
FDIC Bank Survey
First bank survey was conducted in 2008.
Dove Consulting retained to help design and administer the
survey.
Bank survey goals were designed to address factors
identified in statute:
Identify the extent to which banks are serving the banking
needs of unbanked and underbanked individuals,
Identify challenges affecting the ability of banks to serve
unbanked and underbanked individuals, and
Identify innovative efforts banks use to serve unbanked and
underbanked individuals.
3
FDIC Household Survey
Reform Act also requests a “fair estimate of the size and
worth of the „unbanked‟ market” in the U.S.
Addressed by a separate FDIC/Census household survey
conducted as a supplement to Census‟ Current Population
Survey in January 2009.
Designed to generate the first reliable national and regional
estimates of the number of U.S. unbanked and
underbanked households, their demographic
characteristics, and factors hindering their use of banks.
Survey results expected to be released later this year.
4
Bank Survey Administration
Mail-in survey questionnaires were sent in Spring
2008 to ~1,300 banks and thrifts (54% response
rate).
Participation was voluntary.
96 percent of top 25 banks (Tier 1) responded.
61 percent of mid-sized banks (Tier 2) responded.
51 percent of smaller banks (Tier 3) responded.
Case studies were also completed on 16 banks to
highlight innovative efforts.
5
Bank Survey Questions
Education and Outreach
Perception of Market Opportunity
Education and Outreach Efforts
Perceived Effectiveness of Education and Outreach Efforts
Obstacles and Access
Perceived challenges to serving unbanked/underbanked
Efforts to modify bank branches to increase appeal
Services for non-customers who may be unbanked
Account opening policies and practices
Products and Services
Entry-level checking accounts
Entry-level savings accounts
Services provided to unbanked/underbanked
Funds Availability
Entry-level credit products
6
High-Level Survey Findings
Most banks are aware that significant unbanked and underbanked
populations are in their market areas,
But relatively few banks have made it a priority to target these market
segments.
Many banks offer basic financial education materials,
But fewer participate in the types of outreach efforts that are viewed by
the industry as most effective to attract and maintain unbanked and
underbanked individuals as long-term customers.
Most banks offer basic checking accounts to all customers,
But few offer deposit, payment, credit, and electronically-based
products that address the unique needs of unbanked and underbanked
customers.
Banks are concerned about the profitability of doing business with
unbanked and underbanked individuals as well as perceived
regulatory issues related to anti-money laundering laws and regulations
7
Case Study Banks are Engaged
in Innovative Efforts
Education and Outreach
Amalgamated Bank, New York, NY
Citibank, National Association, Las Vegas, NV
The Commerce Bank of Washington, Seattle, WA
Fort Morgan State Bank, Fort Morgan, CO
International Bank of Commerce (IBC), Laredo, TX Additional details
Mitchell Bank, Milwaukee, WI
Monroe Bank & Trust, Monroe, MI on each case
study bank are
Obstacles and Access contained in the
Bangor Savings Bank, Bangor, ME
Citizens Union Bank of Shelbyville, Shelbyville, KY FDIC Executive
Ridgewood Savings Bank, Ridgewood, NY Summary and the
Second Federal Savings of Chicago, Chicago, IL
detailed report by
Products and Services Dove Consulting
Artisans‟ Bank, Wilmington, DE
BancorpSouth, Tupelo, MS
Carver State Bank, Savannah, GA
Central Bank of Kansas City, Kansas City, MO
KeyBank, Cleveland, OH
8
Survey Findings
9
Perception of Market
Opportunity
The majority of banks (73%) are aware that there are unbanked
and/or underbanked individuals in their market areas
Q: Does your bank perceive that there are any unbanked or
underbanked populations in your market area?
Weighted
73% 17% 11%
Average
Tier 1 100%
Yes
Don't Know
No
Tier 2 90% 7% 3%
Tier 3 71% 11% 18%
0% 20% 40% 60% 80% 100%
Yet less than 18% of banks have identified expanding services to these
groups as a priority in their business strategy
10
Most Effective Outreach
Methods
Banks identified “Providing financial education sessions,”
“Participating in other organizations,” and “Outreach visits” as the
three most effective forms of education and outreach.
Q: What are the three most effective types of financial education and
marketing programs that your bank has used to help establish
account relationships with unbanked and/or underbanked
individuals?
Ranking Programs
1 Providing Financial Education Sessions
2 Participation in Other Organizations
3 Outreach Visits
4 Financial Education Materials
5 Targeted Marketing
6 Other
11
Provision of Education and
Outreach
Most banks (63%) provide financial education materials but fewer
provide the forms of education and outreach viewed as most
effective by the industry.
. Does your bank provide financial education Does your bank teach financial literacy and
materials aimed at the unbanked and/or education sessions?
underbanked?
No
47%
Yes, off-
No, 37% premise
35%
Yes, 63%
Yes, at the
Yes, at the bank and off-
bank premise
4% 14%
12
Perceived Challenges to Serving
Unbanked/Underbanked
When asked to rank order challenges serving unbanked and/or
underbanked individuals, banks identified “profitability” first,
followed by “Regulatory barriers”, and “Fraud concerns.”
Ranking Challenges
1 Profitability Issues
Regulatory issues were
2 Regulatory Barriers
perceived by 40% of
3 Fraud Concerns banks as impeding their
4 High Cost of Customer Acquisition ability to serve this
5 Competition from Alternative Service market.
Providers
6 Unfamiliarity with this Regulation
7 Internal Challenges
8 Other Challenges
13
Efforts to Modify Bank
Branches to Increase Appeal
Most banks (64%) report that they have modified their retail
branches to make them more welcoming and/or convenient to
unbanked and/or underbanked.
Internet or Mobile Banking 73%
Most banks (73%) report External ATMs 47%
that have done this by
Extended Banking Hours 44%
offering Internet or
mobile banking – fewer Off-Premise ATMs 43%
have added non- New Branch in LMI Area 20%
traditional locations or
Innovative Branch Design 17%
branches in LMI areas.
Non-Traditional Locations 13%
0% 20% 40% 60% 80% 100%
14
Services for Non-Customers
Who May be Unbanked
Services provided are typically limited to cashing checks drawn on
the bank itself.
37% of banks offer bank checks or money orders.
6% of banks offer international remittances.
Identification can be a challenge: most banks will accept a drivers
license (92%) or state-issued photo ID (86%); 20% of banks
accept Matricular Consular cards and 38% accept ITINs.
Many banks indicated regulatory concerns about providing
payment services to non-customers.
15
Account Opening Policies and
Practices
Account opening requirements can present significant obstacles to
the development of banking relationships with unbanked
individuals.
Unbanked and/or underbanked individuals with blemished credit
histories likely face challenges to account opening since most
banks (87%) require a third-party credit check or new account
risk management screen such as ChexSystems.
Most banks require either a driver‟s license (99%) or passport
(92%) to open an account and Matricula Consular cards are
accepted by less than one-third (27%).
16
Entry-Level Checking Accounts
Most banks offer basic deposit accounts that do not require a
minimum balance (62%) and free check writing in their most
basic transaction account (90%).
No Minim um
Balance Required
w ith Direct Deposit,
But 38% of banks require
8% a minimum balance on
Minim um Balance
Required, 30% their most basic
deposit/checking
account and 99% charge
a per-item overdraft fee
on their most basic
No Minim um
Balance Required,
transaction account.
62%
17
Entry-Level Savings Accounts
Most banks offer basic savings accounts and money market
accounts, but few offer savings products designed to help
unbanked and/or underbanked individuals.
Basic Savings Account 97%
Money Market Account 70%
Less than 10% of banks offer
Specialized Savings Clubs 50%
IDAs, Workplace-based
Individual Development Account 8% savings accounts, and/or
VITA programs and only 25%
Workplace-based Programs 7%
of banks offer “second-
IRS VITA 3% chance” accounts.
0% 20% 40% 60% 80% 100%
18
Services Provided to
Unbanked/Underbanked
About half of banks offer check cashing; fewer offer money
orders, bill payment, prepaid cards, check cashing kiosks.
Q: Indicate efforts your bank makes as part of its branch strategy to
serve un/underbanked in your market areas.
60%
49%
50%
41%
40%
30%
20% 18%
12%
10%
1%
0%
Check Money Orders Bill Payment Prepaid Cards Kiosks for
Cashing Check
Cashing
19
Funds Availability
Funds availability for checks, while in compliance with federal
regulations, is slow relative to non-bank check cashing services.
Q: How soon are funds ordinarily available for an
established customer who presents the following items? Many banks (36%)
Personal Check Drawn on the Bank 64% 36% 1% require at least a one
day wait for an
Business Check Drawn on the Bank 63% 36% 1%
established customer to
Government Check 50% 48% 1%1% access funds from a
personal or business
Payroll Check 32% 50% 17% 2%
check drawn on the
Business Check Not Drawn on the Bank 28% 48% 21% 3% same bank and a longer
wait for government or
Personal Check Not Drawn on the Bank 27% 47% 21% 5% payroll checks and
Double Endorsed Check 24% 35% 8% 33%
checks drawn on
another bank.
0% 20% 40% 60% 80% 100%
Current Day Next Day Second Day Three or More Days
20
Entry-Level Credit Products
Banks offer few advance or credit products tailored to LMI and/or
unbanked and underbanked individuals.
Less than 6% of banks provide an advance on funds due to arrive
by direct deposit or check.
Over two-thirds (69%) offer closed-end unsecured personal loans
for amounts up to $5,000, but bank loan eligibility requirements
(credit history, proof of income, and credit score) may hinder
unbanked and/or underbanked customer access to these and
other alternatives to costly payday loans.
21
FDIC Recommendations
Consider defining a national shared government-industry goal to
lower the number of unbanked and/or underbanked individuals
and households in the U.S.
This could include creating a national task force to provide
oversight and guidance for the achievement of the shared goal.
Goal would best be based on reliable and regularly reported
statistics on the number of unbanked and/or underbanked
households in the U.S.
22
Discussion
23
