A significant number of low-income Americans lack access to banking services.

• According to Federal Reserve data, in 2023, 6% of Americans did not have a bank account.
• Black and Hispanic adults are disproportionately unbanked, according to the Fed.
• The absence of physical banks in communities of color has intensified the problem, according to experts.

Despite the growing trend of going cashless in America, some individuals are unable to make that choice.

In 2023, approximately 6% of Americans lacked access to traditional financial services, including savings accounts, credit cards, and personal checks, as per data from the Federal Reserve.

Financial experts warn that the unbanked are more susceptible to predatory lending practices, putting their cash at greater risk. This issue disproportionately affects Black and Hispanic adults, according to Fed data, making it crucial for financial institutions and local organizations to establish trust within marginalized communities.

Wole Coaxum, CEO of MoCaFi, stated that the most vulnerable individuals, who require resources the most efficiently, often struggle to obtain access.

Young adults, people of color are more often unbanked

According to the Fed, white and Asian adults are the least likely to be unbanked, with rates of 4%, while Black and Hispanic adults are 14% and 11% more likely to be unbanked, respectively.

A lack of banks in their neighborhoods is a significant contributor to the disconnect between financial institutions and communities of color, according to him.

"Lugo stated that there is a subliminal message being conveyed to the community from generation to generation. When they do not see a financial institution or a bank, they tend to say, "There's no avenue for me this way. If I had a dream to start a business or buy a home, that's not for me because they don't exist here.""

Rural regions in the U.S. often experience banking deserts due to low population density, as stated by Darrin Williams, CEO of Southern Bancorp, Inc., which serves rural and minority communities in the mid-South.

""We are the only bank in many of the markets we serve, with competition often coming from payday lenders or predatory capital providers," Williams stated."

Younger adults are also more likely to be unbanked.

Harris emphasizes the importance of increasing the middle class as a defining objective. The government is sending out emails to millions regarding student-loan forgiveness. The rising temperatures are causing higher home cooling costs, putting some individuals at risk.

Winnie Sun, co-founder and managing director of Irvine, California-based Sun Group Wealth Partners and a member of the CNBC Advisor Council, stated that Generation Z's mindset toward banking is different from previous generations.

"Sun, a mother of a Gen Zer, stated that her children feel banking is outdated and not suitable for them. However, it presents an opportunity for us to discuss the importance of banking and help them find an account that fits their needs."

'They're getting preyed upon'

The Federal Deposit Insurance Corporation states that it is not always clear which fintech services provide FDIC deposit insurance coverage, and they did not respond to a request for comment from the American Fintech Council.

Putting money in an inexpensive or free checking account can help build credit and establish good habits, Sun advised.

Building a savings pattern, even in small amounts, can help you save for the future and achieve other financial goals, as she advised.

If individuals do not have bank accounts, they may resort to check cashing services or payday loans, particularly if these are the only available financial services in their area. However, these options come with risks, including high interest rates and no federal insurance, as stated by Preston Duppins, a senior partner and financial advisor at Vilardi Wealth Management in Florida.

He remarked that they lack the influence to modify payday loan legislation in Congress.

The payday lenders' representative, the Community Financial Services Association of America, did not respond to a request for comment.

Building trust

Local leaders and banks must meet people where they are to gain the trust of the unbanked, said Lugo with J^3 Creations.

Lugo, co-founder of the Hispanic Chamber of Commerce of Pinellas County, stated that marginalized individuals are often hesitant to leave their neighborhoods. However, he believes that some financial institutions are beginning to understand this issue.

He stated that they were going out into the community, promoting their services, and creating programs specifically for the community.

Coaxum revealed that MoCaFi initially believed that people without bank accounts or those with limited access to banking services would easily adopt their free bank account and ATM services. However, the company's "sophistication bias" hindered their ability to attract customers.

The company evolved to collaborate with governments to provide benefits such as universal basic income programs, thereby motivating recipients to utilize the platform.

Coaxum explained how we shifted our strategy by providing them with a benefit and using the resulting conversation to persuade them to open a demand deposit account with us.

Experts suggest that trust can also be established through education and representation. As a Black financial advisor, Duppins notes that he doesn't see many people who share his background in his field.

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