Good morning. I would like to begin by thanking Jonathan Mintz and the Cities for Financial Empowerment Fund for the invitation to speak with you today. I would also like to take a moment, at the outset, to offer my appreciation to all of you as Bank On members for your efforts to help Americans establish banking relationships. Whether you are with a financial institution, a community organization, serve as a civic leader, policymaker, or in another capacity, the work you do to advance the Bank On mission is extraordinarily impactful.
The FDIC shares the Bank On movement’s commitment to advancing Americans’ economic inclusion in the banking system. Positive banking relationships are fundamental to consumers’ ability to benefit from the opportunities afforded by the nation’s economy. These relationships provide families with safe options for receiving and storing their paychecks and the ability to access a range of products and services that can help them manage financial affairs, build savings, and establish and make use of consumer credit. Moreover, relationships with insured financial institutions come with important safeguards, including protections against unauthorized transactions, the guarantee of timely availability of funds, and, critically, deposit insurance.
As Jonathan may remember, he invited me to participate in a 2015 event during which the initial Bank On national account standards were released. The standards succeeded and were consistent with the FDIC’s own SAFE Account template, which provided a framework for an accessible, transparent, and low-cost bank account with low or no minimum balances and no overdraft fees, designed to meet the needs of low- and moderate-income Americans. The subsequent work of Bank On coalitions to increase the availability and uptake of these accounts has been, if I may say, remarkable.
The launch event featured four banks with accounts certified as meeting the standards. As of this month, almost 300 banks offer a certified account. FDIC analysts estimate that these banks hold more than 61 percent of all domestic deposits. This is significant progress.
Even as Bank On members worked with financial institutions and others to expand the supply of accounts, local coalitions have helped consumers benefit by establishing banking relationships and opening certified accounts. Data aggregated by the Federal Reserve Bank of St. Louis show that among 28 reporting financial institutions, 14 million Bank On certified accounts have been opened through the end of 2021. It seems safe to say that these accounts have proven popular.
In fact, since the launch event in 2015, FDIC data show that the proportion of U.S. households that are unbanked has fallen by about one-third. While it is not possible to quantify precisely the extent to which this change may be attributed to Bank On and related efforts, FDIC researchers have estimated that changing economic conditions can only account for about half of the improvement. This suggests that efforts to connect consumers to responsive banking products are having a real impact.
The progress made on economic inclusion should not be taken for granted. Economic conditions play a large role in banking participation rates. If unemployment comes off the historic lows prevailing today, we might reasonably expect the unbanked rate to rise with it. Also, an increasingly complex marketplace for financial services may make it harder for consumers to perceive the value of banking relationships, or even to distinguish banks from nonbanks. The challenge is not only connecting consumers to the banking system, but ensuring that relationships are sustained over the economic cycle.
Consequently, it is important to understand consumers’ preferences and experiences with financial services and to identify strategies that support and sustain their participation in the banking system. To this end, I would like to share with you some of what we are continuing to learn from our research and detail some of the FDIC’s ongoing work to promote economic inclusion.
Unbanked and Underbanked Survey Results
Since 2009, the FDIC has conducted its National Survey of Unbanked and Underbanked Households. This survey measures the extent to which Americans participate in the banking system and highlights opportunities to expand economic inclusion. Undertaken in partnership with the Census Bureau, this survey provides authoritative data for the nation, all 50 states, the District of Columbia, and larger metropolitan areas. With more than 30,000 responses, the survey also affords insight into how results differ across demographic segments of the population.
Our most recent survey report was released last October. This release marked the fifth straight survey over more than a decade to show a decline in unbanked rates. In all, 4.5 percent of households were unbanked in 2021, meaning they did not have an account at an insured depository. To place this figure in perspective, in 2011, 8.2 percent of households were unbanked. Put another way, the gains over the decade have resulted in approximately 5 million additional households with banking relationships.
Also, in 2021, the results indicate that 14.1 percent of households were underbanked, owning a bank account but still using one of several nonbank products and services tracked in the survey. In terms of trends, the survey reports diminished demand for these nonbank products and services. For example, the share of households using nonbank check cashing has now fallen by half over the prior four years, from 6.4 percent to 3.2 percent. The data also reveal meaningful decreases in the use of nonbank consumer credit products that households may turn to for small amounts of money, such as borrowing from pawn shops, payday lenders, or auto title lenders.
Even if encouraging on the whole, it is important to recognize that these aggregate results mask stark differences across the population. These differences illustrate that substantial opportunities remain to ensure all Americans have meaningful access to, and can benefit from, a banking relationship.
While the unbanked rate among white households was 2.1 percent, unbanked rates among Black and Hispanic households, respectively, were 11.3 and 9.3 percent. These gaps cannot be understood as a simple product of differences in income. At every income level tracked in the survey, the unbanked rates of Black and Hispanic households exceeded those of white households.
Other population segments also had lower levels of engagement with the banking system. Single mothers, households headed by a working-age individual with a disability, and those earning less than $30,000 per year all were among the groups significantly more likely to be unbanked.
Challenges from a Complex Landscape of Options
The survey has also helped bring to light the extent to which households are turning to an increasingly diverse set of financial services providers. Almost half of all households reported that they had used a nonbank online payment service. The survey specifically asked about online payment providers that had a feature that allowed consumers to receive and store money with the service.
While banked households were significantly more likely to use nonbank online payments services than unbanked households, the most common use cases were quite different between the two groups. Banked households most commonly reported that they used these services to send or receive money from family or friends and to make online purchases, as a complement to a bank account. Relative to banked households, unbanked households reported that they were much more likely to use these services as they might otherwise have used bank accounts: paying bills, receiving income, and as a vehicle to save or keep money safe.
These findings raise important questions about whether consumers are aware of potential consequences when selecting various financial products and services. For example, the availability of deposit insurance and certain consumer protections may depend on the product and provider they select. Simply put, the easiest way for most consumers to have confidence that their money is safe is to deposit it in an insured bank account. However, for consumers considering other options, it is important that they understand the risks that may be involved.
It is fundamental that consumers receive accurate and complete information about insured accounts. With this in mind, last year, the FDIC finalized a rule to help address instances in which firms misrepresent the availability of deposit insurance in violation of the law. It may interest you to know that, since 2022, the FDIC has taken action against more than 85 entities that were misrepresenting the nature, extent, or availability of deposit insurance. In some instances, these firms had made misleading claims in connection with crypto assets while others had apparently developed fraudulent websites to trick consumers into believing they were doing business with a bank.
Last December, the FDIC published a proposed regulation to update and clarify rules on required signs and advertising content related to deposit insurance. This proposal would extend the clarity and confidence provided by the FDIC official sign found at bank branch teller windows to digital channels. This is especially important given the growth in consumer reliance on digital banking channels. In fact, our most recent survey indicates that mobile banking is the most common primary method for accessing a bank account, relied on by 44 percent of households. In effect, the mobile phone has become a digital teller window, and the proposal seeks to provide consumers with clear indications of when they are working with an FDIC-insured institution and placing their funds in an FDIC-insured account. We are currently reviewing comments on this rulemaking and expect to have a final rule by the end of the year.
Importance of Bankable Moments
In addition to these insights into banking participation, the survey can also help bring promising economic inclusion strategies into focus. The most recent survey asked questions about what motivated households to establish a banking relationship. The results show that a significant proportion of households that had recently established a banking relationship (35 percent) reported that they were motivated to open an account to receive an economic impact payment or other public benefit, such as expanded unemployment insurance, during the pandemic. And this finding certainly was reflected in our experiences.
In the early stages of the COVID-19 pandemic, the federal government authorized Economic Impact Payments to support households. The Internal Revenue Service (IRS) was tasked with administering the distribution of these payments. For those with direct deposit information on file, this process was quick, secure, and no action was required. However, for those without a bank account – who might be thought of as needing the funds the most – payments would be distributed by paper check and the processing time could be several weeks or months.
To address this challenge, the FDIC worked with key partners such as Bank On, the American Bankers Association, the Independent Community Bankers Association, and other banking industry partners, as well as the IRS. The shared goal was to connect consumers with the information and opportunity to open a bank account online so that they could receive distribution of their Economic Impact Payment in a secure and timely manner, as a direct deposit.
Since the start of this collaboration, well over a million consumers have accessed information regarding the opportunity to open a bank account, including the opportunity to connect with a bank offering a Bank On certified account. In retrospect, this pressing need to distribute funds safely and quickly to consumers crystalized the opportunity to take advantage of what we have come to call “bankable moments.” These are moments, frequently associated with the receipt of funds, including the start of a new job, when consumers appear to be more inclined to open a bank account. Providing information and assistance so that consumers can identify accounts well-suited to their needs can be especially consequential at such a time.
We know this approach is utilized in innovative local and state programs and we are working to embed the opportunity to access a safe and affordable bank account across a wide range of bankable moments. For federal and state government agencies and for employers, this strategy can eliminate the need to issue paper checks or to rely on prepaid cards with limited functionality. For banks, this strategy helps identify new customers to serve the convenience and needs of their communities. And for consumers, this strategy can help initiate a positive long–term relationship that supports their financial needs and avoids higher-cost alternatives.
FDIC Efforts to Support Economic Inclusion
Before I conclude, I would like to share with you some additional details about the FDIC’s work in support of economic inclusion efforts.
One of our strategies has been to engage consumers directly through public awareness campaigns focused on the benefits of opening a bank account. Following a successful pilot public awareness campaign with a focus on Atlanta and Houston, the FDIC extended the program to include Dallas, Detroit, and Los Angeles. The announcements featured in the campaign raised awareness of the importance of banking relationships and encouraged consumers to visit the FDIC’s “Get Banked” webpage and open a bank account. The site, which serves as an ongoing resource, includes links to help consumers find a bank and open an account online, including certified Bank On accounts. And it appears that consumers were listening: while campaign messages were circulating, 90 percent of referral traffic to the Bank On webpage came from FDIC.gov.
In other efforts, the FDIC has worked to inform and connect financial institutions to contacts and resources that can support the development of new products, partnerships, and products responsive to the needs of underserved consumers. Along these lines, in 2022, the FDIC hosted dozens of events focused on account access. For example, the FDIC organized a national event at which community bankers shared their experience drawing on technical assistance from core service providers to offer affordable accounts and maintain competitiveness. Seventeen banks who attended the event began to offer certified Bank On accounts within a year. And the work continues, with FDIC community affairs specialists developing programs and following up with individual institutions in communities across the nation.
The FDIC recognizes that it will take a concerted and shared effort to expand and support consumers’ sustained participation in the banking system. Financial institutions, government agencies, community organizations, and others who directly serve consumers can all help unbanked consumers gain access to secure and affordable banking services. While I know our community affairs specialists will welcome all manners of engagement, one simple way to start is to consider providing a link to FDIC.gov/GetBanked on your organization’s website.
I have been focused today on the theme of economic inclusion, on the value and need to help more families develop and benefit from banking relationships. Of course, recent weeks have reminded many Americans of the value of deposit insurance as an important component of the banking relationship. I would be remiss if I did not remind you that since the FDIC started insuring accounts in 1934, depositors have not lost a single penny in insured deposits to a bank failure. The work that all of you do in Bank On to make that benefit available to all Americans is critically important and the FDIC looks forward to continuing our work together.