Bank On Battles Financial Exclusion in the United States

> Posted by Julian Sosa
Financial inclusion is gaining momentum with policy makers around the world and there is a good reason why; in the past decade, households surveys conducted in close to 20 developing countries illustrate that on average 74 percent of households do not have a bank account in a formal institution.
However, few are talking about financial exclusion in developed countries, such as the United States. Over 22 million people in the United States do not have a formal bank account, showing that developing countries are not alone in dealing with this problem and that our own country still has a long way to go. And estimates suggest that unbanked families spend approximately five percent of their annual incomes on managing their basic finances alone. Once again the poor pay much more than the average American for poor quality services.
This is why in 2006 the city of San Francisco launched Bank On San Francisco with the goal of reaching out to U.S. families that lack access to mainstream financial institutions. The initiative helps to bring together financial institutions, local governments, and community organizations in creating and implementing a local strategy to extend banking services to individuals on the “fringe” of the U.S. financial system (in other words, those who are excluded by cost barriers or have a poor bank history).  At the core of this program is the provision of special banking benefits to unbanked individuals, including the ability to open a bank account with a minimum balance between US$0 and US$25, no account maintenance fees, and financial education.
By 2009, Bank On had reached more than 40,000 in San Francisco. The campaign has been so successful that more than 60 cities in the US have joined the initiative, including DC in January 2010. Bank On DC has a goal of opening 10,000 new accounts and establishing 10,000 direct deposits by the end of 2010. President Obama plans to set aside US$50 million for the program in 2011.
We at the Center are excited to hear that the private and public sectors are together creating new initiatives to build a more inclusive nation, by providing more affordable and convenient services to populations that are not currently being served.
I am also personally excited to learn about Bank On because, as a Latin American, I witness the struggle that many immigrants face on a daily basis as a result of not being eligible to a full suite of financial services. Bank On DC estimates that over 27 percent of Latino households in DC have no checking or savings account.  This will help create a safer and more inclusive environment for the Latin American communities in the nation allowing greater opportunity for all to engage in and benefit from working and living in the United States.
A question remains, however: how does Bank On scale from benefiting thousands of people today to reaching the rest of millions in the future who can also gain from this initiative? Does the business incentive exist for financial institutions to provide millions of no-frill accounts? Can the public sector sustainably fund the provision of financial literacy to millions of Americans?  As Bank On continues to grow, it will have to find a plan that address these questions and allows it to continue changing the financial inclusion landscape of the United States.
For more information, sign up for updates from the Financial Inclusion 2020 campaign.

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