One of The Biggest Problems with The Banking Industry Today

Unbanked Americans

According to the FDIC, approximately 14.2% of Americans are unbanked (approximately 19 million households). Being one of Americans’ unbanked consumers is not easy. You have to wait in line at a cash checking location and pay excessive fees to cash your paycheck. You miss out on the safety and security of being able to seamlessly and cheaply transfer/send funds and are unable to make standard ACH transfers or Zelle payments to friends and family. Without a bank account you cannot receive a direct deposit from your employer. You also cannot effectively build your credit and again you typically have to pay fees just to have your paychecks cashed. It can also be more difficult to establish savings if your only option is to have to store physical cash within your home. With so many businesses pushing to move to a more a cashless society, you would think that there would be less unbanked Americans in the world. All of the above, creates an unnecessary barrier to entry to standard financial services for Americans that are unbanked. Many are left in dark without access to many services you might take for granted. Unbanked Americans also typically do not have access to borrowing and are unable to establish credit. This is why those that are unbanked are at such a disadvantage.

Some Issues with the Current Banking System

One of the main issues with the banking industry today is that nearly all banks require consumers to maintain a minimum deposit balance in order to not get charged a monthly fee for account maintenance. At the end of the day that $12 monthly fee is being taken from Americans that are struggling the most. Many of these consumers have low account balances because they are not financially well off so they tend to feel the impact of these fees much more than others might. Banks need to remove these fees as it is hitting Americans that really need that money the most. There was previously a CFPB law in place that would’ve capped overdraft fees and limited monthly banking fees that many consumer banks charged however this appears to have been regressed and shot down in the house of representatives. Some banks had previously tried to move ahead of this ruling and have voluntarily lowered some of the fees associated with these activities, although not all are on board and many banks still charge a monthly fees and overdraft fees. Monthly fees are typically charged to consumers that do not maintain a set minimum balance in their account or do not have direct deposit setup. Again, these are typically lower income consumers that need that money the most.

Can Internet Banking Fill the Gap?

There are many differences between different types of banks and there has recently arisen the emergence of internet banks. Many internet banking institutions have stepped up to try and fill the gap that many unbanked consumers need filled. Although many internet banking companies are a breath of fresh air, many lack the infrastructure in place to make them more appeasing to a wider audience and more traditional banking members. However, they still appear to be doing quite well with younger generations and could potentially help fill this gap. Many of these organizations have eliminated many of the old guard fees that can be a turnoff to many unbanked Americans and do not charge monthly fees or overdraft fees.

Big Banks Still Have a Sizeable Lead but They Need to Adjust

Big Banks should strive their utmost to fill the gap of unbanked Americans. America is a leader in financial services globally and banks needs to be more appeasing to fill this market gap. Consumers shouldn’t be paying exorbitant fees just to cash their paycheck if they are eligible for banking services. The banking system already allows for substantial profits via it’s fractional reserve system that is ever prevalent in money and banking. It’s possible that Chexsystems could help give more second chances to consumers that have had previous banking issues as well. All the above could potentially help fill the gap but one thing is for sure, in a country with as much wealth as America, there should be fewer unbanked citizens.