2021 FDIC National Survey of Unbanked and Underbanked Households

The importance of quickly receiving government payments contributed to decisions by many unbanked consumers to open bank accounts. Focusing on opportunities to connect consumers to safe and affordable bank accounts when they are receiving income and other government payments continues to be a promising economic inclusion strategy. Enhancements to online account opening technology deployed during the pandemic and the increased availability of low-cost accounts in recent years also may facilitate these banking efforts. Disruptions in income had a smaller impact in exits from the banking system than previous survey results might suggest, and further research is needed to explore the reasons for this smaller than expected impact, including strategies banks used to assist low- and moderate-income (LMI) consumers navigate short-term financial shocks. 

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.

A combination of factors may be driving these trends, including reduced demand from changing needs, increased participation in the banking system, or the increasing supply of other, new nonbank products and services, many of which can be found online or through mobile applications. Much remains to be learned about consumer choices and the factors that are motivating them. Additional research into these choices and motivations is vital to ensuring that economic inclusion efforts evolve to address consumers’ changing needs and preferences. 

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.

A combination of factors may be driving these trends, including reduced demand from changing needs, increased participation in the banking system, or the increasing supply of other, new nonbank products and services, many of which can be found online or through mobile applications. Much remains to be learned about consumer choices and the factors that are motivating them. Additional research into these choices and motivations is vital to ensuring that economic inclusion efforts evolve to address consumers’ changing needs and preferences. 

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.

These use cases have different economic inclusion implications but highlight that it is important for all consumers to understand limits and applicability of consumer protections, especially deposit insurance. 

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.