The FDIC is asking the wrong questions about the 'unbanked'

For more than a decade, the Federal Deposit Insurance Corp. survey of unbanked and underbanked households has been the "go to" reference for measuring whether our financial system is serving all Americans. Its premise is simple: if you have a checking or savings account at a "normal" bank, you're in good shape. If you're relying on a "nonbank," you're not.

Even by this measure, the news is positive. In 2021, the number of "unbanked" U.S. households fell to 4.5%, its lowest level yet.

We think the good news is better than the FDIC says, but the bad news is much worse.

Why? Because the FDIC's definitions are out of step with the realities of modern banking.

If we ran the FDIC, we'd reassess whether there really is an "unbanked" problem. We'd dig deep into the frustrations people feel, and why. And, most importantly, we'd focus on whether people are "saved" — not just "banked" — as a more meaningful measure of financial health.

This is an essential survey. We'd love to see it brought up to date to focus attention on the most important issues affecting Americans' financial lives.

The FDIC says about 4.5% of (or 5.9 million) U.S. households were "unbanked" in 2021. But the FDIC defines a household as "unbanked" if it doesn't have a checking or savings account at a bank or credit union. It treats prepaid cards and "nonbank online payment services" (like PayPal, Venmo or CashApp) as distinct offerings.

Historically, that may have made sense, since at least some of these products didn't offer the full functionality and consumer protections that consumers deserve. But it doesn't make sense today, since neobank and nonbank debit cards are issued by banks and have the full array of protections.

Fully counting all bank-issued accounts could cut the number of unbanked households in half. And according to the FDIC, half of the unbanked are unbanked by choice.

If the data support our hypothesis, we may be able to declare victory on what we've historically called the "unbanked" problem.

But that's not the end; it's just the beginning.

Even if the "unbanked" problem is solved, many Americans believe they're not getting what they need. That needs exploring.

Why do 40.1% of unbanked households say they can't meet minimum balance requirements, when many providers don't have them?

Why do 13.6% cite problems with past banking or credit history, when many providers don't run credit checks?

Why are people still struggling with high, unpredictable fees and a dearth of bank branches, when many accounts offer a low- or no-fee option, have made fees more predictable and have added mobile banking options?

Why do so many people not trust traditional banks — and do they trust the newer entrants?

Why do a third of unbanked households using a prepaid card want a bank account, when prepaid cards offer virtually identical functionality?

Something is going on. It may be an information gap. It may be that the survey questions are confusing, too narrow or don't offer respondents appropriate answers. Or it may be real. But whatever it is, if we ran the FDIC, we'd switch from counting the "unbanked" to trying to understand why, in today's America, there are people who want a full-service transaction (checking) account, but don't have one.

In addition, we'd focus on whether consumers understand the new world of banking well enough to make good choices. Many modern accounts offer a debit card alongside investing, crypto and/or peer-to-peer payment products. That's fine, as long as people understand the difference between holding money in an insured deposit account versus a (possibly) uninsured peer-to-peer account or a fully at-risk investment in stocks or crypto.

In addition, even if people have bank accounts, we're facing a savings crisis. The FDIC should start looking as intensely at savings as it has looked at checking.

The personal savings rate in America has plummeted. An astounding 63% of Americans are living paycheck to paycheck, near an all-time high; even among those earning more than $100,000, almost half (47%) are living paycheck to paycheck. Credit card balances are surging, delinquency rates are rising, 401(k) "hardship" withdrawals are hitting record highs and more than half of all American workers are stressed about their finances.

To some extent, the savings crisis is about individual choices. But to a significant extent, it's structural. For example, almost half of all U.S. private sector employees don't even have a chance to save for retirement at work.

To get a real picture of Americans' financial health, we need to focus on who's "saved" instead of who's "banked."  And we need to understand what's happening across different time horizons: from short-term emergency savings to long-term savings and retirement savings.

The FDIC's survey could add important insights into whether our financial system is doing its part to offer meaningful solutions that fix the structural issues affecting savings. Ideally, it would focus beyond banks to measure the work recordkeepers, asset managers, states, employers and others are doing to expand access to and use of a full array of savings solutions. But even within the world of banking, there are questions worth asking.

For example, why do some banks still cap the number of monthly savings transfers?  Could other banks replicate and scale the promising prize-linked emergency savings product tested by the nonprofit Commonwealth in partnership with Truist Financial?  Can traditional banks match the savings inducements offered by newer entrants, such as purchase roundups to fund savings, automatic transfers into savings from each paycheck, and a 2% annual percentage yield on savings balances?

The FDIC's survey is one of the most comprehensive and trusted barometers of whether our financial system is serving all Americans. It's time for an update so it measures what matters and guides us toward solutions that meet our current challenges.