# Presentation: 354979

## 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

**Agenda**

- Background
- Overview of FDIC Bank and Household Survey Efforts
- Bank Survey Findings
- Recommendations and Discussion

## Background

**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.

## FDIC Bank Survey

**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.

## FDIC Household Survey

**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.

## Bank Survey Administration

**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.

## Bank Survey Questions

**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

## High-Level Survey Findings 

**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

## Case Study Banks are Engaged in Innovative Efforts 

**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
- Mitchell Bank, Milwaukee, WI
- Monroe Bank & Trust, Monroe, MI
- Obstacles and Access
- Bangor Savings Bank, Bangor, ME
- Citizens Union Bank of Shelbyville, Shelbyville, KY
- Ridgewood Savings Bank, Ridgewood, NY
- Second Federal Savings of Chicago, Chicago, IL
- Products and Services
- Artisans’ Bank, Wilmington, DE
- BancorpSouth, Tupelo, MS
- Carver State Bank, Savannah, GA
- Central Bank of Kansas City, Kansas City, MO
- KeyBank, Cleveland, OH

**Additional details on each case study bank are contained in the FDIC Executive Summary and the detailed report by Dove Consulting**

## 
Survey Findings

**Survey Findings**

## Perception of Market Opportunity

**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?**

***Yet less than 18% of banks have identified expanding services to these groups as a priority in their business strategy***

## Most Effective Outreach Methods

**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 |

## Provision of Education and Outreach

**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 teach financial literacy and education sessions?

## Perceived Challenges to Serving Unbanked/Underbanked

**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 |
| 2 | Regulatory Barriers |
| 3 | Fraud Concerns |
| 4 | High Cost of Customer Acquisition |
| 5 | Competition from Alternative Service Providers |
| 6 | Unfamiliarity with this Regulation |
| 7 | Internal Challenges |
| 8 | Other Challenges |

***Regulatory issues were perceived by 40% of banks as impeding their ability to serve this market. ***

## Efforts to Modify Bank Branches to Increase Appeal

**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.

***Most banks (73%) report that have done this by offering Internet or mobile banking – fewer have added non-traditional locations or branches in LMI areas.***

## Services for Non-Customers Who May be Unbanked

**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.

## Account Opening Policies and Practices

**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%).

## Entry-Level Checking Accounts

**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%).

***But 38% of banks require a minimum balance on their most basic deposit/checking account and 99% charge a per-item overdraft fee on their most basic transaction account.***

## Entry-Level Savings Accounts

**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.

***Less than 10% of banks offer IDAs, Workplace-based savings accounts, and/or VITA programs and only 25% of banks offer “second-chance” accounts.  ***

## Services Provided to Unbanked/Underbanked

**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. ***

## Funds Availability

**Funds Availability**

- Funds availability for checks, while in compliance with federal regulations, is slow relative to non-bank check cashing services.

***Many banks (36%) require at least a one day wait for an established customer to access funds from a personal or business check drawn on the same bank and a longer wait for government or payroll checks and checks drawn on another bank. ***

***Q: How soon are funds ordinarily available for an established customer who presents the following items?***

## Entry-Level Credit Products 

**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.

## FDIC Recommendations

**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.

## 
Discussion

**Discussion**