Over 5 million households — 4.2% of Americans — are unbanked, meaning they do not have access to a bank account. Relying on alternative financial services can impede the ability to build wealth, but the lack of trust in the banking system can make it seem like the best option for some.
Not having a credit score or solid payment history can also severely reduce your ability to get a mortgage to buy a home, apply for student loans to further your education, or even start a business—all of which act as gateways to building wealth.
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This issue affects consumers of all races but disproportionately impacts minority households. Increasing trust in financial institutions is among the most effective ways to improve banking services among diverse communities.
The number of unbanked households has steadily declined since the FDIC first started tracking the figure in 2009, but the problem persists.
In order to achieve economic mobility, Americans must generate wealth. To effectively build wealth, households need access to financial guidance and traditional bank accounts.
We spoke with Michael Martino, Head of Wells Fargo’s Inclusive Banking Initiative, to discuss how to address the racial wealth gap and best serve unbanked Americans.
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Bank accounts help underserved communities build credit and reach financial goals
Lower-income Americans and minority groups have historically faced discriminatory practices within financial services.
Predatory lending, excessive overdraft fees, and being shut out from products that could improve financial standing have eroded trust in banks, especially large commercial banks. This distrust is pervasive throughout communities and feeds back into a negative perception of the mainstream banking system through negative experiences and word of mouth.
Martino notes that this disparity is due to decades of system barriers, and negative experiences can have implications for household wealth in the long term.
“Without access to affordable banking, it's really difficult for underserved communities to build credit, save for emergencies, or achieve other financial goals such as buying a home or getting a college education,” he said.
“I think what's really interesting is that the Black African American community, along with Hispanic Community, Native American, and Alaskan native is disproportionately affected by being unbanked and underbanked, and so that contributes to what we like to call this widening financial disparity.”
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The FDIC’s 2023 National Survey of Unbanked and Underbanked Households found that although the number of unbanked Americans is decreasing, the lack of accessibility affects minority households unequally.
Even when making the same salary, black and Hispanic Americans are unbanked at a higher rate than White Americans. In 2023, 0.8% of white households making $50,000-75,000 per year were unbanked, as opposed to 3.5% of black and 4.5% of Hispanic households.
To address this issue at the community level, Martino suggests banks must work to bust myths about the financial system, provide information on the tangible benefits of having a bank account, and offer clear directions on opening and maintaining an account.
“Unbanked individuals feel like mainstream banking just doesn't meet their needs, so they tend to go with what they would consider reliable,” he explained. “They know it's going to cost $40 to cash a check at nonbanks or go to a payday loan servicer, but they know that's $40, and it's easy to understand.”
“We want to be able to make sure people understand necessary documentation and the financial stability that comes from opening an account,” he said. “We want to make it really easy for them because they perceive it as very difficult right now. If we do all these things right, we will begin closing the racial wealth gap.”
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How the wealth gap impacts homeownership rates
Utilizing third-party services for cashing checks or getting payday loans is staggeringly expensive: payday loans can have annualized interest rates between 300% and 600%, which keeps unbanked Americans trapped in a cycle of borrowing and then needing quick access to money in order to make payments on the loans.
Uneven access to capital and banking services for consumers and business owners has typically been based on race and economic standing. In 2021, the average net worth of white households reached $250,000, compared with $48,700 for Hispanic households and $27,000 for black households.
Homeownership is one of the universal ways to accumulate wealth, but minorities have historically been blocked from the process or fallen victim to predatory lending that creates crippling debt cycles.
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Black Americans were subject to the majority of subprime mortgages that caused the 2008 housing market crash. As a result, 30% of homes owned by black families went into foreclosure, compared with 11% of white households.
The Federal Reserve Bank of St. Louis found that as of Q3 2024, 74% of white Americans owned their home, versus 46% of black Americans and 49% of Hispanic Americans. The disproportionate housing gap was created by decades of systemic barriers and must be addressed to increase economic mobility.
Wells Fargo’s Inclusive Banking Initiative aims to reduce the racial wealth gap by addressing the nuances and concerns of historically underserved communities.
“We accelerate access to mainstream banking by offering a low-cost banking product,” Martino said.
“We show individuals practical ways to raise their credit score and lower their debt, which builds trust,” he explained. “We provide early paydays, low-cost loans, and clear access to checking accounts. Sharing information and providing transparent, helpful products with tangible benefits helps bring down the number of unbanked households in diverse communities.”
Martino notes that avoiding excessive fees from nonbanks can help households save tens of thousands of dollars, which can translate into investment gains or even a down payment on a home.
“We believe that if we can eradicate barriers and get them into mainstream banking, they can save $40,000 in fees throughout their lifetime. Just imagine if you take that and invest it. Then you're talking about generational wealth opportunities — the last dollar figure we saw was $360,000 in generational wealth that they could build.”
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