The Future of the UnderBanked is Bright

Curious about the Unbanked in today’s world?

Underbanked and Unbanked are terms that are growing in popularity when it comes to FinTech. A decade ago, the unbanked were seen as a huge risk, and financial companies stayed FAR away. The exception to that rule was typically just prepaid credit cards.

Today, all of that is changing. Nowadays, these terms represent everyone from Gen Z consumers, students, struggling workers, and even cryptocurrency users. The FDIC estimates that in 2017, 10% of the households between the ages of 15-24 were unbanked. 8.4 million US households were unbanked, and 24.2 million were underbanked. 

Who are the Unbanked and Underbanked

An unbanked person has no checking or savings account. They rely on a cash-only economy or a system of prepaid card services. The unbanked may only be paid in cash, for example, a Gen Z’er who receives an allowance from their parents. In short, they lack access to banking options.

The underbanked have a checking or savings account, but they primarily rely on other nontraditional financial methods. These methods can include online cryptocurrency, or brick and mortar resources such as payday loans rent-to-own, and check cashing services.

Also, while one of the most cited reasons for not using a traditional bank is limited funds or poor credit scores, these aren’t the only reasons. Some individuals may have a distrust of banks due to bad experiences in the past, or they may find the fees of traditional banking too high.

AI Breaks Down Boundaries

In the past, providing services to the Underbanked has not been viable, but the increase of digital tools and a shifting competitive landscape has created more opportunities.

AI and mobile banking have played a significant factor in tapping into the Un/Underbanked population. They’ve allowed financial institutions to have more knowledge around risk factors and create personalized products for those who are classified as high risk. In the past, there wasn’t enough data to accurately target and provide alternative solutions, such as sliding fee accounts. The algorithms in banking become more advanced every day, making artificial intelligence a core port of serving the non-traditional banked.

Banks also are looking for new growth opportunities. Challenger banks are one of the fastest-growing areas of FinTech, raising $2.5 billion this year so far and opening more than 30 million accounts. With the onslaught of these digital banks, more established banks have to find new ways to generate revenue. The 33 million US residents who are unbanked or underbanked is the perfect place to target.

A Future Full of Solutions

Open banking and Alternative credit scoring are two ways that banks can help the under and unbanked.

The concept of open banking allows customers to approve of what financial information is shared, and by sharing that information, banks can create personalized apps and services. Open banking puts more pressure on banks to provide competitive rates and programs, that results in lower fees for those who need it most.

Alternative credit approval is in the early stages, but studies show that this model leads to cheaper loans. This year, the Federal Housing Finance Agency announced that it would require Fannie Mae and Freddie Mac to use alternatives to FICO and Credit Scores with determining an applicant’s creditworthiness.

According to Business Insider, “Using alternative approaches, in contrast, would enable a greater number of consumers to be approved for mortgages, which in turn will likely boost home sales and these lenders’ bottom lines.”


All American’s deserve access to banking institutions, and with the influx of focus on the unbanked and underbanked, the options will continue to grow.

With over a quarter of the households in the US having little to no access to mainstream banking, it’s a win for both the FinTech industry and the under-served.

CB Insights predicts that Q3’19 will see over $1 billion deployed to challenger banks, and a majority of that will focus on the unbanked and underbanked.