Not so long ago, banking relationships were a staple of American life. Local banks and credit unions were a critical component of local communities, where tellers and customers or members often knew one another by name. Banks and credit unions fueled the American Dream by helping fund everything from new homes and automobiles to college tuition and vacation funds. These high-touch relationships were an integral part of the American economy and something that citizens relied upon for their financial well-being.

With the deregulation of the banking system and the digitization of everything from cash withdrawals to check deposits, banking relationships are not what they once were. Customers and members can get away with rarely setting foot inside a brick and mortar location. They may seldom (or never) interact with the employees at their branch locations. And there are many Americans who cannot afford the cost of having banking relationships at all. These people are often referred to as the “unbanked” or “underbanked”.

The numbers 

The FDIC publishes a biennial report that explores the reality of people who are unbanked or underbanked. Here are some key findings from the most recent 2015 study:

Why choose AFS over traditional checking and savings accounts?

Choosing AFS over traditional checking and savings accounts can be attributed to many factors, the most pressing being the minimum balances associated with traditional banking accounts. In the FDIC study, not having enough money to maintain an account was the most often cited reason (57.4%) for not having one. Many banks require high minimum balances to get the most basic services for free or at a low cost. If customers are being charged for basic services, these deductions can add up quickly and leave them with less money in their accounts than they might expect.

High account fees were also cited frequently at 27.7%. The fees associated with bounced checks and overdraft protection can be of particular concern. If a banking customer does not have sufficient funds to cover a check, they may be slammed with an average overdraft fee of $34. The Consumer Protection Financial Bureau (CPFB) reported in 2016 that US customers paid fees totaling $15 billion for bounced checks or overdrafts. For many customers, these fees and the uncertainty that comes with them is simply too much for their budgets to handle.

Option 1: Prepaid debit cards

Prepaid debit cards give customers the option to make card payments without traditional banking accounts or credit cards. They simply buy the prepaid card, load money on to that card, pay the associated fees, and use it like a traditional debit or credit card. It provides them the user experience of a traditional credit or debit card – including the ability to make payments online – without maintaining an underlying account.

Option 2: Cash

Despite the growing buzz around moving toward a cashless society, cash remains a go-to method for the unbanked and underbanked to pay their bills. This is where walk-in services and kiosks can be invaluable for businesses with customers that require a cash option to pay their bills.

Option 3: Check cashing

Check cashers do just that – they deposit endorsed checks into their business bank account in return for immediate cash to the customer, less a transaction fee. They can also provide other financial services including bill payments, money transfers, and money orders. Thanks to the highly transparent fee structure for these services, in addition to the immediate receipt of money, check cashing can be a viable alternative for people without traditional bank accounts.

The Bottom Line: Not every American has, or wants, a traditional banking relationship. That’s why it’s so important to offer a variety of payment methods (including cash and prepaid debit cards) and payment channels (including walk-in and kiosk options for cash transactions) that serve the diverse needs of all consumers.