Here’s what it takes to create a product that actually helps the unbanked


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There’s no point in creating a product or service targeting the unbanked  — unless it’s designed with their specific needs in mind.

Data recently in October by the Federal Deposit Insurance Corp. indicates that 6.5 percent of U.S. households are unbanked, down from 8.2 percent in 2011 and 7.6 percent in 2009. In 8.4 million homes, no one has a checking or savings account.

There’s no shortage of businesses and entrepreneurs trying to support the unbanked. But whether they’re successful depends on their approach to addressing the unique challenges this population faces daily.

Companies helping the unbanked

PayPal is one company that has vowed to help the unbanked. Customers who visit a Walmart store can now withdraw cash from their PayPal accounts for a small fee ($3). PayPal customers can also deposit cash and paychecks into their accounts. And through partnerships with some smaller banks, PayPal wants to offer new products for the unbanked, including debit cards and mobile check deposit.

Other startups have solutions designed to help the unbanked, too.

While apps like Venmo and Zelle aren’t accessible to those without bank accounts, Vments has made it easy for the unbanked to transfer money. Through their platform, both the banked and the unbanked will be able to exchange digital cash for actual cash, even when there’s no Wi-Fi or cellphone signal.

“The current options for the unbanked and underbanked tend to be much higher than for many banked customers today who enjoy free checking, free debit and credit cards, cash back and loyalty point accounts, free cash and check deposits, free account transfers, free cash withdrawals, etc.,” says Steven Wasserman, Vments CEO and founder. “Vments’ platform and ecosystem design and network of both banks and alternative financial services firms levels the playing field for the unbanked, underbanked and banked customers.”

Banks are also making an effort to help the unbanked, as the new FDIC chair mentioned in a recent op-ed for American Banker.  A number of them — including U.S. Bank, Bank of America and KeyBank — offer checking accounts without checks or overdraft fees and low monthly service fees.

Products and features that the unbanked need

Developing financial products for the unbanked requires some creativity. But the most effective products for people without bank accounts have some things in common.

For one thing, products targeting the unbanked should account for the fact that unbanked families and individuals may live in communities that don’t have access to consistent or reliable internet access, says Caroline Ratcliffe, a senior fellow at the Urban Institute.

How much products and services cost matters, too.

“One of the primary reasons each year that people say that they’re not banked is because it costs too much to be banked or that they perceive that it costs too much to be banked,” says David Rothstein, head of the Bank On initiative that has created standards for providing safe bank accounts for everyone, including people outside of the mainstream financial system.

Accounts that meet this criteria have a fee structure that’s “not a la carte,” Rothstein says. Charges associated with checking accounts are transparent and predictable. They can either be waived or are $5 or less.

Some experts, however, argue that accounts offered to the unbanked shouldn’t have any fees at all.

“Banks should have alternative products that are really for unbanked individuals who are oftentimes low- to moderate-income or people of color, and it should have zero fees,” says Rawan Elhalaby, economic equity program manager at the Greenlining Institute.

Loans should have flexible terms and underwriting criteria based on the fact that unbanked applicants often don’t have credit scores, Elhalaby says. They should also allow for quick underwriting and quick access to financing. That way, the unbanked can use the funds they need right away.

Where the unbanked can turn for support

In addition to the new solutions being developed for them, the unbanked have a variety of alternative financial services to choose from, including payday loans, title loans and check cashing centers, all of which can be costly.

“They’re all equally bad, and what’s best is really secure mainstream products or products coming out of community development finance institutions or maybe even non-traditional banks, like credit unions or maybe even state-chartered banks,” Elhalaby says.

For the unbanked, choosing the right financial products involves reading the fine print and being realistic about how much one might have to pay in terms of fees and monthly charges, says Ratcliffe from the Urban Institute. Luckily, the unbanked can turn to a nonprofit or financial coaching program for guidance. And the best support they’ll receive will likely come from a local organization, like a community development financial institution that can easily be found in a database.

“I would defer to a community-based organization that has an intimate relationship with those communities and knows what’s best for them,” Elhalaby says. “I think financial education is also not-one-size-fits-all. It really has to do with the socioeconomic status of the individual but also what’s happening in their neighborhood.”