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New York City residents, pictured, wait in line to have their checks cashed in April. Unbanked consumers often use alternatives, including check cashing services.
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The share of American households that are unbanked, meaning no one has a checking or savings account, hit 5.4% in 2019, the lowest rate since the Federal Deposit Insurance Corporation began studying America’s unbanked population in 2009.
But the pandemic threatens to undo a decade’s worth of progress in getting more Americans to open a bank account and make use of banking services.
Generally, when Americans are unemployed they are more likely to become or remain unbanked. Even when the county’s unemployment rate in 2019 was at its lowest in nearly 50 years, “the unbanked rate among unemployed households was almost four times as high as the unbanked rate among employed households,” according to the FDIC’s 2019 report on the unbanked that was published on Monday.
Furthermore, the rate of Americans who were unbanked rose in the aftermath of the Great Recession from 7.6% in 2009 to 8.2% in 2011.
“ The unbanked rate among unemployed households was almost four times as high as the unbanked rate among employed households in 2019 ”
Accordingly, “the COVID-19 pandemic is likely to contribute to a rise in the rate of unbanked households,” the FDIC’s report predicts.
“Even among people who might still have jobs, their income variability [and] income volatility may also have increased,” said Karyen Chu, who serves as chief of the Banking Research Section at the Center for Financial Research at the FDIC.
“These are factors that have been associated with higher unbanked rates in the past and we expect it will continue to be associated with higher unbanked rates in the future,” she said on a call with reporters on Monday.
Also see: Desperate for a stimulus check, millions of jobless Americans have nearly exhausted their savings
Benefits of being banked
When stimulus checks sent to roughly 7.1 million unbanked U.S. households beginning in April, not only did it take longer to reach them but it also cost them more to cash it at a bank compared to banked individuals.
More than 110 million banked Americans received their stimulus checks via direct deposit, which meant that they did not have to leave their homes to cash it, according to the Internal Revenue Service.
For those reasons, the FDIC made a renewed push to get more Americans banked.
As an alternative to opening a traditional bank account, PayPal PYPL, -2.14%, and Square’s SQ, +0.32%, Cash App, two peer-to-peer payment apps, made it possible for users to obtain a routing and account number, which allows them to get their stimulus checks directly deposited by the IRS.
Related: Venmo’s new credit card has personalized rewards — it could affect perks across the industry
However, the funds that are deposited in PayPal or Cash App accounts are not insured by the FDIC. That is especially important when it comes to fraud, which has been on the rise amid the coronavirus pandemic.
“We’ve already seen anecdotal cases of people impersonating consumers and getting [their stimulus] checks,” said Leonard Chanin, a top advisor to Jelena McWilliams, chairman of the FDIC, told MarketWatch in April.
“ Having access to credit is important for 37% of U.S. adults who said they ‘could not cover an emergency expense of $400 using only cash, savings, or a credit card paid in full on their next statement.’ ”
Establishing a banking relationship is also “a pathway to additional products and services,” Chanin said. “Be it a credit card or car loan or mortgage line.”
Having access to credit is especially important for some 37% of U.S. adults who said they “could not cover an emergency expense of $400 using only cash, savings, or a credit card paid in full on their next statement,” the FDIC reported its study published Monday.
Getting more Americans banked
As part of the FDIC’s efforts to get more Americans banked in order to receive their stimulus checks faster, the agency partnered with the American Bankers Association and BankOn, a nonprofit run by the Cities for Financial Empowerment Fund, to compile a list of banks that would enable them to open up a banking account at home at little or no cost.
The FDIC is also making an effort to communicate the benefits of being banked to Black, Hispanic and working-age disabled households, which are generally unbanked at higher rates compared to non-minority households, by partnering with groups like BankOn, Chanin said.
“We’ll continue to look at ways of trying to better outreach those households to inform them about opportunities, particularly during the pandemic,” he said.
