U.S. ‘underbanked’ population increasingly using mobile banking

With bank branches ubiquitous on urban and suburban street corners, it’s easy to forget that roughly 10 percent of America doesn’t use banks at all.

Another nearly 17 percent of the American population is underbanked, meaning they use a bank account in addition to an alternative financial service like payday lenders or payroll cards. But this population is increasingly turning to another American ubiquity — the mobile phone (87 percent of us have them) — for their financial service needs.

According to a new report from the Federal Reserve Board’s Division of Consumer and Community Affairs, 40 percent of underbanked consumers with mobile phones had done mobile banking in 2013.

Of the unbanked, nearly 70 percent has a mobile phone. Of course, if they don’t have a bank account, these underbanked Americans can’t do any banking on their phone. But, according to the Fed’s report, many of these unbanked people go back and forth between having and not having a bank account. So even if they don’t currently have one, they may have had one several months ago or they may get one within the year, which they’ll access on their mobile phones.

While lack of wealth is certainly a main reason why unbanked Americans don’t have bank accounts, it’s not the only reason.

Courtesy of the Federal Reserve Board's Consumers and Mobile Financial Services 2014  report.

Courtesy of the Federal Reserve Board’s Consumers and Mobile Financial Services 2014 report.

New School professor Lisa Servon, who worked in a check-cashing store for four months for her research, told the NewsHour late last year that having quick access to their money is one big reason low-income people choose not to use traditional banks — despite the additional fees that come with some alternative financial services, whose usage, according to the Fed, is also on the rise. Of course, banks have plenty of hidden fees, too.

Banks aren’t so ubiquitous in many poor communities. The South Bronx has only one bank per 20,000 residents, Servon wrote last year. (These latest findings about mobile banking aside, Servon has pointed out another reason why banks are less popular among low-income populations: there are interpersonal relationships between community members and tellers at check-cashing centers that are no longer found at “depersonalized” banks.)

The tendency among mobile phone owners to engage in mobile banking, according to the Fed, doesn’t seem to correlate with either income or education level.

But the trend overall continues to increase. As of the end of 2013, 33 percent of mobile phone users and 51 percent of smartphone users had used mobile banking within the year. Besides reviewing transactions on their phones, more and more users each year are photographing checks with their smartphones to deposit them on the go.

The percent of American mobile phone users using their devices to make on-the-spot purchases has also increased substantially since the Fed first started issuing this annual report in 2011.

If storing financial information on your phone, however, makes you uncomfortable, you’re not alone. More than half of American mobile phone users don’t like the idea either because they’re skeptical of its benefits or they’re not confident in the security systems guarding their information.

What’s growing more popular is for consumers to pull out their phones to help them make more informed shopping decisions. Should you buy that new blender at Sears or Macy’s? With a smartphone, anyone can find out. In fact, over two-thirds of shoppers who had done some in-store price consulting on their phones said that changed where they ultimately made their purchase.

Consumer research isn’t the first thing that comes to mind when most people think of the Federal Reserve Board, but the Consumer and Community Affairs Division is responsible for implementing consumer protection laws. The CCAD started this research because they thought mobile banking technologies might help “underserved consumers” access and be included in what they call “the mainstream financial system.” The survey upon which their report is based was conducted by GfK, an online consumer research company.