Moreover, although fintech funding, and payment services funding specifically, is down from its pandemic heights, this shouldn’t suggest fintech innovation is cooling. The billions of dollars invested in the industry over the past several years will continue to bear fruit over the coming decade. Even if current economic conditions worsen, that’s not enough of a reason to think financial innovation will stagnate; in fact, the last recession saw a boom in fintech.
In August alone, two powerful fintechs, Plaid and Wise, announced a partnership that will give Wise users access to thousands of other fintechs even if they don’t have a bank account. Government regulation is also moving, albeit slowly, toward more fintech acceptance. Just this month, the Federal Reserve released clearer guidelines for how nonbank institutions can access Federal Reserve master accounts.
With all of these nonbank financial services successfully cementing themselves in consumers’ financial lives, it’s a wonder that more U.S. adults aren’t underbanked — at least, based on the term’s commonly accepted meaning.
Being “underbanked” is all in the definition, and the current one is outdated
Consumers can manage more of their financial lives without the help of a bank than ever before, which means the term “underbanked” is rapidly becoming outmoded.
The FDIC began publishing data on unbanked and underbanked households in 2009, after the Great Recession fundamentally shook consumers’ trust in the banking sector, with the aim of maintaining public trust in the U.S. financial system. The Federal Reserve Board has been publishing a similar study on the economic stability and well-being of U.S. households since 2013. The two fiscal policy authorities’ definitions of “underbanked” differ slightly, but neither offers a comprehensive view of the nonbank financial services available to consumers.
To view underbanked adults not as underserved but as serving themselves, it’s important to break down what it means to be underbanked — and for brands to formulate their own definition that helps them better understand their customers and prospects.
If, for example, only those who have household bank accounts and occasionally use money orders were considered underbanked, then 8% of the U.S. adult population would fall under that definition. But this is obviously an incomplete picture, as there are many more alternative financial services than just money orders.
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