The unbanked hit a new low with covid-19

When the pandemic-related lockdown forced banks to close or reduce branch services, it fueled a substantial shift in banking by pushing the industry to rely more on digital channels, so customers could access accounts. and borrow money.

Technological innovations and increased digitalization have had significant implications for the banking sector, including the creation of new loan programs, changes in consumer preferences, and changes in depositor behavior.

There was another significant shift over the same period – this one in an entirely different direction. Unbanked Arkansans — those without bank accounts — followed a national trend and opened new accounts in record numbers.

Arkansas’ unbanked households have essentially halved over the past five years, falling to a new low of 3.4% in 2021, according to the Federal Deposit Insurance Corp. This was below the national average of 4.5%.

“I’ve been watching the number of unbanked and underbanked people for years…and last year was the biggest drop I’ve ever seen,” said Darrin Williams, chief executive of Southern Bancorp Inc., based in Arkansas, which focuses on providing banking services to disadvantaged and underserved communities in the Mississippi Delta region.

There have been steady improvements in Arkansas and the United States since 2017.

Central Arkansas and the Little Rock metro area had 2.8% unbanked households last year, down from 7.2% in 2017 and 5.1% in 2019. FDIC releases data every two years.

Northwest Arkansas and the Fayetteville metro area were first reported last year with 3.5% unbanked households.

“During the pandemic, consumers opened bank accounts to quickly and securely access relief funds and other benefits,” Acting FDIC Chairman Martin J. Gruenberg said in a statement. . “Safe and affordable bank accounts provide a way to draw more Americans into the banking system and will continue to play an important role in promoting economic inclusion for all Americans.”

Indeed, federal stimulus payments have led many consumers to open bank accounts to get checks out of the way faster, according to Williams, who said bank customers are getting their money much faster than those waiting for checks. paper.

Although not all are attributable to pandemic stimulus checks, Southern opened 7,000 new accounts in 2021.

Progress, however, has been slower, reaching the underbanked or households that have a functioning bank account but are not fully and effectively using the services available to them.

Just over 14%, or 18 million US households, underused their bank accounts last year. Arkansas recorded even lower numbers, with 15.1% of households in the state recorded by the FDIC as underbanked.

“For the people we’re focused on, you can’t really plant a victory flag,” said Charity Hallman, senior vice president of community and economic development in Arkansas for Hope Credit Union. “It’s great that the state is improving, it’s good to see Arkansas moving forward, but there’s work to be done.”

Hope, based in Jackson, Mississippi, focuses on providing banking and lending services to women and people of color. These demographics are always left behind, according to Hallman.

Minority communities and low-income people, those earning less than $30,000 a year, experience greater banking problems than their white counterparts, according to FDIC data.

Unbanked and underbanked rates remain higher among minorities. Last year, 2.1% of white households were unbanked, compared to 11.3% of black households and 9.3% of Hispanic households.

“While this gap is considerable, it is significantly smaller than just two years ago, when the 2019 unbanked rate among white households was 2.5% compared to 13.8% and 12.2% among black and Hispanic households,” the FDIC report said.

In 2021, 9.3% of white households were underbanked compared to 24.7% of black households and 24.1% of Hispanic households.

Minorities and residents of rural communities “still use predatory alternative tools” like money orders to pay bills or rely on payday lenders to cash a check, Williams said.

“Getting people to use the resource properly is another step and there was a disconnect,” he added. “There are still people who pay higher interest and fees because they don’t use their account properly, which is really an education issue.”

At Hope, Hallman notes that more education is needed, but the problem goes deeper still as lenders continue to offer higher, more crippling loan rates and products in poorer areas. More so, she says, many banks require a minimum deposit to open an account, a practice that limits minority participation.

“It makes it harder for them to build a credit history, it makes them more vulnerable to scams, and they’re not set up for long-term success,” she said. “The best way for black businesses to grow is to give them access to credit.”

Hope and Southern Bancorp have used investments from the US Treasury Department to expand their local branch networks and create more access points in minority and disadvantaged communities.

Hope, for example, plans to leverage $92.6 million in Treasury funding to raise $1 billion to invest in Arkansas, Alabama, Louisiana, Mississippi and Tennessee to support more 150,000 home buyers, businesses and families. The long-term strategy would put more branches in communities that traditional lenders don’t reach.

“We are opening branches in places where the black community is in the majority and we are adapting our products to meet their needs,” Hallman said. “We build thoughtful projects that meet the economic needs of this community.”

In Southern, the bank is preparing to open a branch in the Little Rock Police Department’s 12th Street substation, which provides space for retail operations and community services. It will be the only bank branch several miles away serving downtown neighborhoods and businesses. Southern received about $250 million in Treasury funds to better serve this type of community in the bank’s service area, Williams said.

“The number of accounts we are opening every year is growing and that’s because of our expansion into areas that have not traditionally been served by banks and our mission is really to target the unbanked and underbanked” , added Williams.

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