underbanked

Underbanked is a term used in financial inclusion discussions to describe individuals or households that have some access to formal financial services but rely on non-bank or informal providers for a substantial portion of their financial needs. The definition is not standardized; organizations differ in criteria. Commonly, it refers to people who have a bank account or debit card but also use check cashers, payday lenders, money orders, prepaid cards, or other non‑bank services, and who do not fully participate in mainstream banking.

By contrast, the unbanked lack access to any bank account or formal financial services. The underbanked category highlights remaining barriers even among those who are financially connected, such as gaps in product availability, price, or usability.

Causes include geography (limited branches or branches far away), cost (fees and minimum balances), irregular income or weak credit history, digital or language barriers, and distrust of institutions. Structural factors and historical inequalities can also leave people dependent on cash and nonbank credit sources.

Consequences often include higher transaction costs, limited savings and credit options, and greater financial instability. This can hinder household resilience, wage and benefit access, and the ability to build credit, start or grow small businesses, or weather economic shocks.

Policy and community responses emphasize expanding access to affordable mainstream services, supporting mobile or agent banking, reducing remaining barriers to account use, and safeguarding consumers from predatory lenders. Collaboration among banks, credit unions, fintechs, and nonprofits aims to provide inclusive, low-cost financial products.

See also: financial inclusion, unbanked, payday lending, fintech, banking deserts.