Bringing the Unbanked
into the Banking Community

In a recent issue of the Chicago Fed Letter, Doug Tillett and Liz Handlin outline public and private initiatives being undertaken to prepare and encourage the "unbanked" (those who do not use mainstream financial services) to partake of the account services now being offered. A November conference at the Federal Reserve Bank of Chicago brought together representatives from the public and private sectors to discuss these initiatives.

Over 10 million unbanked people in the U.S. now are recognized by banks as potential customers who may graduate from basic accounts to more sophisticated financial products and services. Recent immigrants to the U.S. comprise a large portion of the unbanked. In an effort to attract these potential customers, banks have improved accessibility by accepting alternate forms of personal identification, employed nontraditional marketing practices by approaching people through faith-based groups, and offered tailored products to limit the expenses associated with transferring money such as a "dual ATM card" which permits the sender and recipient to access funds. Other examples of nontraditional marketing and products include the establishment of a bank branch in a school that is operated by students, the payment of employees by debit card, and an electronic transfer account program that establishes accounts for the unbanked.

The participants in the Conference agreed that the key ingredient for success in these initiatives is education. The success of such ventures depends upon individuals understanding how financial institutions work, the value of having accounts and establishing relationships with financial institutions, and how to use the accounts once established. Public organizations can support private initiatives by helping to educate consumers. For example, in addition to conducting research into the varied reasons that people do not use traditional financial services, the Chicago Fed collects and disseminates information on basic bank accounts offered by all of the financial institutions in its district. It also helps organizations to spread information about financial products and services as well as directs consumers to resources that show them how to manage and better understand their finances.

Tillett and Handlin conclude that successful partnerships established between private and public sector institutions will incorporate financial education into the innovative products that will be offered to bring financial services to the unbanked.