Tuesday, February 12, 2013

Getting a Handle on America's Underbanked

According to the 2011 National Survey of Unbanked and Underbanked Households on in 12 American households, representing at least 51 million adults, is underbanked. (Click here for previous coverage of the survey.) But some experts warn the FDIC's data may overstate the problem.

The Center for American Progress (CAP), a progressive think tank, for example, has asked the agency to reconsider using prepaid cards as a sole indicator of a household being underbanked.

Joe Valenti, Director of Asset Building at CAP, argues in a letter to the FDIC that the agency's survey doesn't discern which households are using prepaid debit as substitutes for bank accounts, as opposed to other reasons (such convenience, safety and budgeting). He also argues that payroll cards are bank account equivalents, so folks who are given prepaid cards for accepting Direct Deposits of payroll are effectively banked.

Valenti and CAP are not alone. I have heard this complaint from several quarters, especially given the rapid pace of growth in prepaid debit (especially network branded cards - think Visa and MasterCard).

The Boston-based consultancy Aite Group, which follows the prepaid space, predicts the U.S. market for prepaid debit cards (including payroll cards) will grow at a compounded annual rate of 19.9% through 2016 when the market is expected to top $168 billion. In 2011, prepaid debit was a $70 billion market. And those predictions preceded announcements last year that Visa would soon support mobile check deposits to prepaid cards, and that American Express was teaming up with Walmart to offer Bluebird, a branded prepaid card that's being marketed as an alternative to bank accounts.

Heck, even I have used a network-branded prepaid card, and I'm by no means underbanked. So, maybe it is time to refine that definition.

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