Arkansas’ unbanked population hits historic 9.7% low in 2015

The unbanked population in Arkansas dropped to 9.7% of households last year, the lowest ever, according to a new report from the Federal Deposit Insurance Corp.

Arkansas’ unbanked household rate is down from 12.3% in 2013, thanks in part to mobile banking and other electronic forms of bill pay which can be accomplished by smartphone apps. Nationally the unbanked rate of 7% was also the lowest on record, according to FDIC Chairman Martin Gruenberg.

“The decline in the share of households who do not having a banking relationship is a positive development … approximately half of the decline in the unbanked rate from 2013 to 2015 can be attributed to improvements in the socioeconomic circumstances of U.S. households,” he said in the report.

Arkansas Bankers Chair Tim Yeager told Talk Business & Politics he was surprised by the low rate for Arkansas. He said the ease of mobile banking and the proliferation of smartphones could have something to do with more households using some bank services.

“If you think about convenience and access, mobile is a way for many households who might not have a home computer or internet connection to still be able to utilize online services,” Yeager said.

He doesn’t see the unbanked rate going much lower if factoring in that prepaid cards have become better substitutes and are a way consumers can pay electronically. He said the fees also more approximate bank account fees.

The use of prepaid cards grew to 25.3% among the unbanked in Arkansas. In 2013, 17.7% of the unbanked in the Natural State used prepaid cards. While one-in-four of the local unbanked households use prepaid cards, the rate of use is higher nationwide at 27.1%. The report also shows prepaid card use doubling from 2013 among the fully-banked household across the state. In 2015, 12.8% of the fully banked households said they also use prepaid card compared to just 6.9% of fully banked U.S. households.

More than half (55.4%) of Arkansas households use online banking, while two-thirds use ATM and kiosk services as their primary methods of banking. With electronic forms of banking are growing in popularity, still 84.4% of households said they still use bank tellers services on occasion.

Arkansas’ unbanked households are slightly higher than the national average of 7%, but the banking methods used by consumers are largely the same the proportion regardless of state or nation.

The biggest reason consumers gave for not using bank services is because they did not have enough money to keep in an account. Nearly 58% of the unbanked households gave this reason. Another 28.5% cited privacy concerns and 28% don’t trust banks. Yeager agreed the privacy issue will always be there because undocumented workers do not have the necessary paperwork to open a checking or savings account. He says that isn’t likely to change.

The FDIC found the following groups were the most app to be unbanked: Lower-income and less educated households; Hispanic and black households; very young households; and those with working-age disabled members.

The study also looked at income levels relative to the unbanked. More than one in five U.S. households had income that “varied somewhat from month to month” or “varied a lot from month to month” over the past 12 months. Unbanked and underbanked rates were higher among these households, the FDIC said. In Arkansas, nearly 13% of unbanked households said their income varied a lot from month to month and 8.7% reported slight variation in monthly income. Even 4.1% of higher income households ($50,000 to $75,000) indicated they were unbanked because they had volatile levels of income.

Yeager said part of the appeal of checking accounts comes with the ease of automatic bill payments and deposits. Households who don’t receive regular income aren’t likely set up and automatic bill pay plan.

The report also looked at rates of savings of those households that are unbanked, underbanked and fully banked. Half of Arkansas households report saving money for emergencies and unexpected expenses. 57.9% of underbanked households (57.9%) those that don’t use all bank services such as loans were slightly better at saving for emergencies than the fully banked at 52.7%.

A troubling aspect of the savings data was that unbanked Arkansas households had virtually had no rainy day savings, whereas nationally one in five unbanked households reported saving for emergencies. Another area of concern in the report is that unbanked households in Arkansas (38.1%) have no credit and 6.6% use only non-bank credit, which can be more costly and unregulated. The unbanked no credit households totaled 28.8% nationally, with 4.1% relying only on non-bank credit.