The Obama administration is launching a new push to boost access to financial services for the millions of Americans without bank accounts in a bid to close the gap with other OECD countries.
Like many advanced economies, the US has been a cheerleader for efforts to expand access to financial services in places like Africa that have yielded major results. The World Bank estimates that more than 700m people left the ranks of the “unbanked” globally over the past three years, although some 2bn people around the world still remain without bank accounts.
But in an interview with the Financial Times, Treasury secretary Jack Lew said that the US was also facing challenges at home where surveys show that more than 7 per cent of households — representing some 25m adults — do not have access to traditional bank accounts.
“We would like to have more of the millions of people who don’t have bank accounts part of the formal financial system,” said Mr Lew. “Part of the challenge is that old, traditional bank products started to become too expensive for people of limited means.”
While 93 per cent of adults in the US do have access to traditional bank accounts, that figure lags behind OECD countries such as Canada and the UK where 99 per cent of adults have bank accounts.
Mr Lew said that although the 2008 financial crisis had led to new financial stresses for many people, the problem of access to banking predated the crisis. He said poorer people were deterred from opening back accounts because of high minimum balance requirements and fees that were too expensive, which drove people to use high-fee options like cheque-cashing outlets instead.
In an effort to address that gap Mr Lew is hosting a conference beginning Tuesday in Washington that will produce recommendations on how to overcome the three obstacles to financial inclusion, which Mr Lew said were affordability, simplicity and safety. The Treasury secretary is expected to unveil specific measures in January.
“Why is it that millions of Americans aren’t saving when clearly it is in their best interests to start early? You look at the structures of the services and the products that are available. If you are going to put $5 a week away, it is pretty hard to find a commercial IRA that is really available to you.”
Among the possible solutions for the US, Mr Lew said, was looking at better ways to employ technology to offer banking services. Many of the gains in access to banking in developing countries, for example, have come as a result of the growing use of mobile phones and mobile payments.
“Finance has some similarities to telecoms where countries that were behind skipped a generation of technology and went right to either smartphones or smart cards,” said Mr Lew. “What we are seeing in the US now is that some of our more innovative and then some of our more traditional players in the financial community are adopting some of these practices.”
Part of the challenge is that old, traditional bank products started to become too expensive for people of limited means
– Jack Lew, Treasury secretary
Mr Lew said these practices included things like exploring how to better use technologies such as smart cards, or pre-paid debit cards, to expand access to financial services.
But a big part of the problem came down to fees, Mr Lew said, and the administration was working with the financial services industry to find ways to address that. Surveys have shown that those without access to bank accounts are among the most vulnerable in the US.
An FDIC survey last year found that the unbanked were concentrated in non-Asian minority and lower income households. Almost 58 per cent of unbanked households reported not having enough money to keep in an account to meet a minimum balance requirement while almost a third said high or unpredictable fees were the main reason not having an account.