November 5th came and went, along with much of the Bank Transfer Day buzz. By most accounts, the holiday was a success, drawing an average of 20,000 new members to credit unions nationwide every day through October, and doubling that number on November 5th.
But while Bank Transfer Day effectively inspired big bank accountholders to move their money to CUs, it may not have reached the unbanked: those who have no bank account at all and receive no services from any financial institution. Also left behind were the underbanked, a group that has some traditional bank accounts, but still uses the services of check cashers, payday lenders, and pawnbrokers.
In the US, about 21 million households are underbanked, while a full 9 million are unbanked. Being without a savings or checking account has serious implications, leading to high check-cashing fees, lack of access to loans, and an inability to save for the future.
So while Bank Transfer Day did a great job of educating people on their banking options and inspiring them to move their money away from the high fees associated with big name banks, the holiday largely left behind people who had no bank to begin with. But it doesn’t have to be that way.
Credit unions vs retailers for the unbanked
Credit unions, with their generally lower (or nonexistent) fees and barely-there minimum balance requirements, are a great option for unbanked people who have often been driven from banking institutions by sky-high fees and minimum balance requirements that exclude them. Community Development Credit Unions (CDCUs) go a step further by specifically targeting their services to low and moderate income populations, the same group that makes up the bulk of unbanked people. Around 70 percent of the unbanked make under $30,000 per year.
Instead of turning to credit unions for financial security, many low income people are going instead to big retailers like Walmart and Best Buy to cash paychecks, pay bills, and buy prepaid debit cards. Is this a good thing? In the big picture, the answer is a resounding no. But from a more limited perspective, these big retailers do provide people with a more financially sound option than street-corner check cashing services that generally charge a fee of between two percent and four percent of the transaction. By contrast, Walmart’s flat rate of $3 to cash a check saves most people some money.
Cashing your check at a retail store also means that you’ll be more likely to spend that money right away instead of putting some of it into savings, and Walmart is counting on this. By utilizing the services provided through credit unions, unbanked people could save money on fees and interest, gaining financial security and increasing their savings.
Perhaps the most critical factor at play is the general distrust that people feel for financial institutions. Cashing your check at Walmart comes along with one straightforward fee, while banking at a traditional financial institution often carries hidden or surprising fees down the line. Credit unions have their work cut out for them to help the unbanked and underbanked realize that CUs are different from the big name banks, and that many of the services they offer aren’t available at Walmart.