Terminology
Banked
Owns a bank account and mostly uses mainstream financial services.
Underbanked
Owns a bank account but goes outside of their bank for financial services.
Unbanked
Does not own a bank account and solely uses alternative financial services.
Why people remain unbanked...
- Insufficient funds to open and maintain an account
- Lack of trust in banks
- Banks do not offer the services they need
- Cannot access financial institutions
- Do not need an account
- Less privacy when using a bank
- Bank fees are too high and unpredictable
- Lack of necessary documentation
Types of banking
Mainstream
Financial systems regulated by government entities.
- Commercial/Retail banks
- Credit unions
- Mutual banks
Alternative/Fringe
Financial services not regulated by government entities.
- Check cashing
- Payday loans
- Pawn shops
Pros
- Safe and secure
- Avg. interest rate on loans = 6%-36%
- Many financial options
Cons
- Wide range of fees
- Need good credit for loan
- Inconvenient hours and locations
Pros
- Receive paychecks early
- Quick and easy short-term loans
- Offer loans to those with no/bad credit
Cons
- Avg. interest rate on loans = 300% - 600%
- $4 -$8 check cashing fee
- Uses personal items as collateral