Unbanking – you may have heard the term before, but what does it actually mean? On Monday’s St. Louis on the Air, we discussed “The Unbanking of America” with author Lisa Servon, who researches why a growing number of people in the United States are turning to alternatives other than traditional banks.
About 20 percent of Americans are “underbanked,” in that they use a bank but also use alternative financial services, like prepaid debit cards and payday lenders. Another eight percent of Americans are unbanked totally. Some 138 million Americans are financially unhealthy, struggling to make ends meet and fulfill financial duties.
Even people in the middle class are giving up on traditional banks and relying on, Servon, a professor of city and regional planning at the University of Pennsylvania, has found. The stereotype is that it is low-income people who use such alternative services, but that’s not only the case.
“More and more we’re finding it is people who have a decent job, making $50-75,000 a year, people who’ve gone to college, people who own their homes are struggling,” Servon said. “Seventy-five percent of Americans are living paycheck-to-paycheck.”
Joining Servon for the discussion were Ray Boshara, the director of the Center for Household Financial Stability at the Federal Reserve Bank of St. Louis and a senior fellow with the Aspen Institute, and Veta Jeffery, co-chair of the St. Louis Regional Unbanked Task Force and St. Louis Area Manager of Community Economic Partnerships with the Missouri Department of Economic Development.
Joining Servon for the discussion were Ray Boshara, the director of the Center for Household Financial Stability at the Federal Reserve Bank of St. Louis and a senior fellow with the Aspen Institute, as well as Veta Jeffery, co-chair of the St. Louis Regional Unbanked Task Force and community development specialist with the State of Missouri Office of Community.
More Americans are feeling dissatisfied with the services they get from their banks, Servon said, with few people reporting they have high trust in them. A lot of this has to do with the rise in the number of banking fees assigned to accounts, which are not considered transparent.
This lack of trust is a problem, because banks still matter in terms of wealth accumulation.
“Without a healthy banking relationship, it will be hard to build wealth and move forward,” Boshara said. “When you don’t have the right access point, it is hard to build wealth and security.”
Jeffery said that, locally, banks are starting to come together to have an answer for this issue, but are struggling as a whole to compete with national banks that have been deregulated over the years.
“We now have a situation where the four biggest banks are holding more than half of all consumer deposits and they are some of the ones not doing well by people,” Servon said. “It’s the smaller banks that have dwindled in number that are more likely to serve people, but they are struggling.”
Many Americans don’t go inside a bank, largely thanks to technological advances, which are convenient but also lead to a lack of relationship building. That relationship building is important in the case of loan-making.
“We have some local bankers that are absolutely trying to get it right, to open more locations in the community,” Jeffery said. “They’re looking at doing the training from the top down. If we don’t have the buy-in from the bank owners and presidents, then we won’t get the change. We have banks here that are showing they have products, services and community relationships we need to move the needle.”
Sevron said that large banks’ business models have changed, relying more on fees and less on the small savings of the average, everyday consumer. She’s not confident that the model will change any time soon.
“Unfortunately, information for consumers about where to bank is not that clear,” Servon said. “Credit unions generally charge less, people overall pay fewer fees per year at a credit union rather than a bank. Smaller banks are generally better but consumers need information to ask several questions about practices.”
What: Federal Reserve Bank of St. Louis Presents The Banking and Unbanking of America: A Local Conversation with Author Lisa Servon
When: Tuesday, June 20 from 9 – 11 a.m.
Where: St. Louis Public Library, 1301 Olive St., St. Louis, MO 63103
St. Louis on the Air brings you the stories of St. Louis and the people who live, work and create in our region. St. Louis on the Air host Don Marsh and producers Mary Edwards, Alex Heuer and Kelly Moffitt give you the information you need to make informed decisions and stay in touch with our diverse and vibrant St. Louis region.