Challenges Faced by the Unbanked and Underbanked

Posted by Sheena Allen in BankingFebruary 21, 2022(Last Updated December 11, 2022)5 min read
Key Takeaways
  • Almost 50 million Americans lack access to a bank account.
  • The COVID-19 pandemic exposed a financial inequality problem that has long been a thing in the U.S.
  • Financial exclusion may be among its worst since the start of COVID-19.
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The coronavirus pandemic exposed the dire need for people to access inclusive financial services, mainly since the pandemic has caused people to scramble to obtain funds for their essential needs. Additionally, unemployment has skyrocketed, with millions of Americans out of work. The United States federal government's decision to disburse stimulus checks unveiled the shocking fact that millions of Americans do not have a bank account or have convenient access to open an account.


In 2017, the Federal Deposit Insurance Corporation (FDIC) released a survey on unbanked and underbanked households that reported the unbanked population in 2017 consisted of 48 million adults and 15 million children. The study also states a total of more than 14 million adults and 6 million children were reported as underbanked. 


Here's a breakdown of the meaning of both unbanked and underbanked.


What does it mean to be unbanked? 


When a person is considered unbanked, they do not use the regular financial services used by the majority of the population. Instead, they conduct a large portion of their transactions using cash and cash equivalents such as money orders and prepaid debit cards.


There are many reasons why a person may decide not to use financial institutions as their primary banking method. One reason is that there are no convenient locations near them, which is called a banking desert. In addition, by not having regular access to a financial institution, some people decide not to open a bank account altogether, thus, leaving them unbanked.


Editorial credit: RogerMechan /


Another reason people wish to remain unbanked is due to their lack of trust in traditional banking institutions. According to a 2018 survey run by Edelman Trust Barometer, financial services were ranked as one of the least trusted services among the United States global consumer market. 


The lack of trust issues stems from many reasons, across all different ages, socio-economic backgrounds, and ethnic groups. Reasons that people may lack trust in banks or other financial services may include lack of financial knowledge, the history of banking discrepancies, and the lack of experience working with banks. As a result, some individuals may be reluctant to open and store their money in bank accounts.


Furthermore, regular and hidden fees which the bank charges to one’s bank account is an essential factor that comes into play when a person is contemplating opening a bank account. These fees, such as overdraft, minimum balance, and exceeding the number of transaction fees, can be high and unpredictable. Due to these high fees, saving money and building wealth becomes a challenge for some people, leading to them choosing to remain unbanked as a higher portion of their money would be at their disposal. 


Lastly, a poor experience with a previous bank may cause people to be reluctant to open another bank account and choose to become unbanked as a result. Some of the most common issues a customer may experience are poor customer service, hidden fees, and lack of reward for a loyal customer. These continued and tedious negative experiences can eventually lead to customers deciding to take their money elsewhere, sometimes meaning into their own pockets.


What does it mean to be underbanked? 


Underbanked individuals are people who have a bank account, yet they rely on alternative financial services such as payday loans and check-cashing services. They may rely on alternative services because their misuse of credit cards caused their credit history to be negatively affected. Therefore, they are unable to apply for and receive low-interest loans for major financial purchases. Though there are some differences between being underbanked and unbanked, both options are not sustainable for long-term growth.


When people are underbanked, they look at alternative financial services to help pay for their financial needs. One main example of underbanked financial services is predatory lenders. A predatory lender is a person who lends money to someone at a high-interest rate. 


A few examples of predatory lenders include pawn shops, title loans, rent-to-own services, and check-cashing stores. Therefore, when paying back the loan plus the interest accrued, the payee will have trouble doing so, leaving them in a worse financial situation than before. 


A person is also considered underbanked if they live in a remote location where access to a financial institution is not convenient or do not have access to standard technology such as high-speed internet and a smartphone. As a result, a person may use alternative financial services to receive the necessary funding needed for their everyday needs. However, as mentioned before, predatory lending will lead to accruing high-interest debt.


What is financial exclusion?


Financial exclusion is defined as when a person does not have convenient access to financial services. As a result, everyday life becomes more difficult as the lack of access can cause financial distress. Consequently, to prevent financial difficulty, it causes them to rely on secondary financial services such as predatory lending to secure sufficient funds for daily expenses.


CapWay is creating financial access and opportunities for everyone.


CapWay is a neobank designed to address the needs of the unbanked and underbanked communities, by increasing financial access and financial inclusion while breaking down systemic financial barriers. CapWay is more than banking. CapWay is a financial ecosystem that helps people bank smart, learn about money in a modern way, and build wealth. 


A few of the products and services that CapWay has to offer are: 


CapWay's Digital Banking and Debit Card  


CapWay’s debit cards do not have any unnecessary or hidden banking fees like a minimum balance fee or an overdraft fee. Also, when you sign up for a bank account with CapWay you will have access to many features of the debit card like the Money Goals, Financial Education, and more. 

Phunds, Financial Literacy Programs and Modules


CapWay’s financial education curriculum offers schools, employers, organizations, individuals, and more, the opportunity to learn about more than 30 financial topics that were intentionally designed to help grow your knowledge surrounding money. Furthermore, when you sign up for a CapWay debit card, you will gain access to the Phunds program for free for four weeks. 


Financial Content and Resources


On CapWay’s website and mobile app, you can access free financial education content to learn about any financial topic. Additionally, if you would like to request a certain kind of financial topic to learn more about, CapWay has that option available on their website. 


If you would like to learn more about CapWay, open a CapWay Money Account, or gain knowledge about money, please visit the website or mobile app (iOS/Android).

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