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To Bank or Not to Bank (We Have Questions) Part 1

to bank

North Philadelphia, Born and Raised…

The term unbanked is described informally by the FDIC (Federal Deposit Insurance Corporation) as individuals who do not use banks or banking institutions in any capacity. They generally pay for things in cash, by money orders, or prepaid debit cards.

Being underbanked means an individual may have a bank account but still relies on other financial services. These services are money orders, check cashing services, and payday loans to manage their finances and purchases.

I was born and raised in Philadelphia, PA. I still keep up with the news even though I live in North Carolina. The Center City section of Philly is vibrant and still has the majority of independent businesses. For almost two centuries, the city council has strictly limited chains and franchises that could hurt the mom and pop stores. The vast array of these independent businesses and the expression of beauty and culture are the backdrop of the life of every Philadelphian. The kosher delis, Italian bakeries, Soul food, and Chinese takeout. The Greek buffets, bagel noshes, and hundreds of cheesesteak shops. They all boast about being the best in the city.  It’s safe to say that most of the transactions at these businesses are in cash.

A few years ago, there was a lot of backdoor lobbying by online giants. They wanted a slice of the city’s retail pie. They also wanted to be completely cashless, and that was the rub. The pushback was that it would hurt those who are unbanked or underbanked. It would ultimately hurt independent businesses that transact mainly in cash. I know this might seem like a history lesson, but stay with me because it’s a case study of where retail is going, or actually has already arrived and how it will affect those without bank accounts.

Payday Marathon

Let me run through what a typical payday might look like for an unbanked person who makes $500/week.

  • An issuing bank of the paycheck will charge $8-$10 to cash it. Some big-box retailers will charge less than $5.00. Smaller neighborhood check cashing stores (and pawn shops) are largely unregulated in most states and can charge whatever they please. That can range from 2%-12% of the amount of the paycheck.
  • Paying utilities generally involves buying a money order ($1-$2 each) and mailing it or getting transportation to a place that accepts utility payments.
  • To make online purchases, an unbanked person would have to buy a preloaded debit card or a gift card. On top of the amount loaded onto the card, there is usually an activation fee (averaging $5.00), a monthly fee (averaging $9.00), and a re-loading fee ($3.95-$4.95) for each re-loading transaction.
  • Money wire transfer fees vary depending on destination, method of payment, and how/where the money is being received. If the money is going into a bank account, one would have to pay for the transfer as well as whatever fees the bank charges to accept the transfer. That usually ranges from $25.00 to $99.00.
  • At the start of the lockdown, some stores ran out of coins. Those who paid by cash found themselves being shorted (often just by less than a dollar) unless they had exact change. (I take umbrage at not getting my change back. It’s not how much it is, but whose it is. Even if it’s only fifty cents, I want my money. Rant over.)

Where Are The Unbanked Going?

The previous bullet points are not a comprehensive list,  but they do give some insight into the costs associated with being unbanked. What does the future hold regarding spending, shopping, and cash payments? Will it be possible to remain unbanked?

In my next two blogs, I’ll tell more about how the city of Philadelphia addressed the issue of businesses going cashless, possible reasons for people being unbanked, and solutions to becoming re-banked. At CESI, we offer varied kinds of help and support to empower you and strengthen your financial future. Whatever you’re going through, you don’t have to go through it alone. Please reach out, we’re here.

Consumer Education Services, Inc. (CESI) is a non-profit committed to empowering and inspiring consumers nationwide to make wise financial decisions and live debt-free. Speak with a certified counselor for a free debt analysis today.


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