Study Finds Strong Linkage between Income, Banking Status

Income is a significant factor in determining whether or not consumers use traditional banking and payment services, according to a recent study by researchers at the Federal Reserve Bank of Boston. Seventy-five percent of unbanked customers (those who do not have a checking or savings account) reported having household income of less than $25,000, compared to just 14 percent of fully banked customers and 33 percent of underbanked customers (those who have bank accounts but supplement with alternative financial services).

Cost-related factors, including high fees, high minimum balances and not writing enough checks to justify a checking account were cited by one-third of unbanked customers as reasons they do not have a bank account, while 40 percent said that they “don’t like dealing with banks.” Cash was the preferred payment instrument among unbanked consumers, followed by prepaid cards. Unbanked consumers were also far less likely to use credit cards — just 1.3 percent reported having a card compared with 84.4 percent of fully banked consumers and 60.6 percent of underbanked consumers.

The study also found that the payment behaviors of underbanked customers were relatively similar to those of fully banked customers. Both underbanked and fully banked customers said they make about half of all their payments using methods linked to bank accounts, and both groups reported paying two-thirds of their bills either online or automatically. Among underbanked customers, cash was a more popular way to pay than with fully banked customers. Few in either group reported using prepaid cards.

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