The pandemic highlighted the need for consumers to quickly respond to economic shocks, particularly to ensure that they
were able
to receive and access relief funds and other benefits. Community organizations, policymakers, and bankers raised awareness
about
Economic Impact Payments and connected consumers to bank accounts. For example, the FDIC launched a national #GetBanked
consumer
education campaign and collaborated with the U.S. Department of the Treasury to help consumers connect to banks that
offered online
opening of safe and affordable accounts so that they could establish a banking relationship and receive stimulus payments
more
quickly and securely.
The 2021 survey provides strong evidence that receipt of income, such as stimulus payments, unemployment benefits, and
employment
income, was an important motivator for account openings. Among recently banked households that received a government
benefit
payment, almost half said that the payment contributed to opening an account. And among recently banked households that
started a
new job, one in three said that the new job contributed to opening an account. These results are consistent with 2013
findings that
showed that the most common reason recently banked households opened an account was to receive direct deposit. Together,
these
findings provide compelling evidence of the effectiveness of focusing on bringing people into the financial mainstream when
they
are receiving funds.
Economic inclusion efforts should continue to focus on connecting consumers with safe and affordable accounts at a variety
of
bankable moments, for example, with receipt of new employment income, tax refunds, and government benefits and transfers.
While
initiatives to bank consumers at opportune moments have existed for some time (e.g., Bank On, Volunteer Income Tax
Assistance site
banking efforts), more options are available today than in the past to connect consumers with safe and affordable bank
accounts. As
of September 2022, over 250 banks and credit unions offer an account that meets Bank On National Account Standards. In
addition,
mobile and online account opening options are more accessible. Restrictions on in-person activities during the pandemic led
many
banks to enhance their digital account opening technologies to make it easier and quicker for consumers to open accounts
remotely
through online and mobile banking. At the same time, consumer comfort and familiarity with financial technology increased
as many
consumers used online and mobile methods for shopping or handling their finances. Public awareness campaigns timed with
bankable
moments highlighting account opening options could be helpful for bringing consumers into banking.
In addition to expanding access to banking, maintaining sustainable banking relations is a key economic inclusion
consideration.
The pandemic tested the sustainability of banking relationships when labor market disruptions reduced or curtailed many
household
income streams. In 2021, about one in five recently unbanked households (21.1 percent) reported that losing or quitting a
job,
being furloughed, having reduced hours, or having a significant loss of income contributed to closing a bank account in the
prior
15 months. As sizeable as this share is, it is much lower than results reported in a past FDIC survey. Although not
directly
comparable, in 2013, one-third (33.9 percent) of recently unbanked households experienced a significant income loss or a
job loss
that they said contributed to the household becoming unbanked. Government aid and financial system flexibilities during the
pandemic likely played a role in mitigating consumer financial distress, particularly in helping consumers meet their
credit
obligations. But it would be beneficial to identify lessons learned regarding communication strategies, staff training, or
bank
policies that were particularly effective in helping consumers and financial institutions navigate financial disruptions.
For
example, at the start of the pandemic, regulators
encouraged financial institutions to work with consumers, especially LMI consumers, and to consider measures to reduce
the
financial impact of
the pandemic, such as waiving early withdrawal penalties for time deposits or ATM fees. It is important to explore whether
these or other efforts were effective and could be continued to help LMI consumers cope with short-term financial shocks
without
becoming unbanked.
An example of how consumer use of financial providers has been shifting over time is the long-term trend of declining use
of the
nonbank financial products and services covered by the survey. For the most commonly used nonbank financial transaction
services,
usage has fallen significantly. In 2021, the share of households that used nonbank money orders and nonbank check cashing
in the
past year was half of what it had been in 2011. Check cashing use fell from 7.9 percent in 2011 to 3.2 percent in 2021,
while money
order use fell from 18.8 percent to 9.7 percent.
These declines have persisted across bank account ownership and demographic groups. Significant drops have been seen among
both the
highest- and lowest-income households. For example, the use of nonbank money orders among households with less than $15,000
in
income dropped from 30.8 percent to 19.4 percent between 2011 and 2021, while it fell from 10.2 percent to 5.1 percent
among
households with income of $75,000 or more. Among some groups, use of nonbank financial services declined considerably
between 2019
and 2021; for example, unbanked households’ use of nonbank check cashing fell from 39.9 percent in 2011 to 31.9 in 2019,
and
dropped to 21.8 percent in 2021. Impacts from the pandemic may have played a role in accelerating changes in consumer
financial
services choices.
Similarly, nonbank credit use has also declined. In 2013, 7.5 percent of households used at least one of the nonbank credit
products tracked by the survey at that time: rent-to-own services and payday, pawn shop, tax refund anticipation, and auto
title
loans. But in 2021, the share of households using those same products fell by 40 percent to 4.4 percent. The decline was
particularly pronounced among unbanked households; nearly one in five unbanked households (18.2 percent) used at least one
of these
nonbank credit products in 2013, but fewer than one in ten (9.5 percent) did so in 2021.
Decreasing use of these nonbank services, especially through a period of declining unbanked rates, could imply that a
growing
number of households is fulfilling financial services needs within the banking system and benefiting from the consumer
protections
and opportunities that the system provides. However, to understand whether the decline in observed use of nonbank financial
services correlates with greater inclusion in banking, more information is needed about whether and how households have
replaced
nonbank products and services like money orders and check cashing. It is also important to think about household attitudes,
characteristics, and usage patterns when assessing how and why financial habits are changing. For example, while it may be
reasonable to consider that unbanked households that were using nonbank services but were very interested in having a bank
account
may have curtailed their use of nonbanks in favor of banks, a significant portion of unbanked households do not trust
banks, and it
is less likely that these households are shifting from nonbanks to banks.
The declines in observed nonbank financial service use may also reflect a change in demand among consumers driven by
changing
needs. In some cases, consumers may simply no longer need a service. For example, the overall decline in the use of paper
checks
has been well documented and could explain why some households no longer use check cashing services. Potential drivers of
the
long-term decline in demand for nonbank credit are less clear, but it is likely that changes in economic conditions, policy
changes, and shifts in prevailing attitudes about the nonbank credit products mentioned in the survey affected demand.
On the supply side, the rapidly changing marketplace has led to a proliferation of new nonbank financial products, and some
households may be turning to these new products as they become available. Providers like nonbank fintechs and online
payment
services offer new ways to conduct core financial transactions such as receiving income (e.g., new ways to cash checks
virtually),
while emerging credit options such as buy now, pay later products provide new alternatives to existing credit offerings
inside and
outside of the banking system. To the extent that households have replaced existing nonbank financial services with new
nonbank
products, there may be consumer protection concerns. Also, banks may need to better target their economic inclusion
strategies to
align with changes in consumer behavior.
Learning more about how households use new and existing bank and nonbank services will help clarify the true extent to
which
consumers are transacting within or outside of the banking system. As the diversity of options available in the marketplace
grows,
financial services are becoming more disaggregated as banked and unbanked households alike may increasingly turn to
separate
providers to meet different needs. As households combine bank and nonbank products in new ways, banks may need to work
harder to
distinguish themselves from nonbank providers and demonstrate the unique value and protections they offer consumers. The
research
community, including the FDIC National Survey of Unbanked and Underbanked Households, should strive to ensure adequate
coverage of
emerging products and to better understand how consumers are evaluating their options. Knowing more about the full range of
services that households are using and the reasons motivating their choices will also allow economic inclusion stakeholders
to
better gauge the status of their efforts to develop, promote, and connect consumers to appealing banking products and can
inform
ways to evolve this work going forward.
Nonbank online payment services have quickly become a common tool for many households, particularly younger households, to
conduct
financial transactions. Nearly half of all households (46.4 percent) used nonbank online payment services in 2021,
including
two-thirds of households aged 34 or younger. A similar (although not directly comparable and somewhat narrower) result from
the
2019 survey found that less than one-third of households (31.1 percent) were using nonbank person-to-person (P2P) payment
services
at that time.
Unlike some of the other nonbank services included in the survey, nonbank online payment services are not
disproportionately used
by unbanked households. Nearly half of banked households (47.7 percent) used nonbank online payment services in 2021,
compared with
less than one in five unbanked households (18.1 percent). User characteristics differ greatly from those of households that
use
other nonbank financial services; in general, households that use nonbank online payment services tend to be higher income
and more
educated than households that do not use these services.
Banked households appear to use nonbank online payment services in conjunction with banking products by linking them to
credit
cards or bank accounts, and they use them for a limited set of transactions. Most banked households that use nonbank online
payment
services use them to make purchases online and to send money to or receive money from family or friends. Banked households
do not
commonly use nonbank online payment services for core financial transactions; fewer than one in five (18.7 percent) used
them to
receive income, and 27.2 percent used them to pay bills. These findings suggest that banked households might be
disaggregating
their use of financial services and that they are turning to other providers to meet some needs while continuing to rely on
bank
products for core transactions.
Unbanked households use nonbank online payment services quite differently than banked households. Unbanked users frequently
use
them to conduct both core and secondary types of transactions, and the majority of unbanked households use them as
stand-alone
services not linked to a prepaid card or other type of account. These findings suggest that some unbanked households are
using
nonbank online payment services in place of bank accounts, consistent with prior qualitative research.
Focus groups conducted by the
FDIC in 2015
highlighted that some unbanked households felt that nonbank P2P payment services could function like bank accounts
and were effective substitutes.
Banked and unbanked households’ different use cases prompt different economic inclusion considerations. Among unbanked
households,
those using nonbank online payment services are demonstrating that they need ways to conduct core financial transactions.
But their
choice to use nonbank services implies that they do not view banks or banking products as appropriate for their needs, so
inclusion
efforts responsive to these use cases might be helpful. Banked households, which have not commonly used nonbank financial
services
such as nonbank money orders, check cashing, or money transfer services, are often not the main focus of inclusion efforts.
Yet
banked households may not understand the implications of including a nonbank provider in the transaction process.
Consequently,
both banked and unbanked households may benefit from public awareness and education efforts to clarify consumer protections
and the
applicability of deposit insurance, distinguish between types of providers, and demonstrate the benefits and opportunities
afforded
by the banking system.
