Bank On and Its Impact in the Eighth Federal Reserve District

Accessing basic banking services—such as having your paycheck direct-deposited, using a debit card or withdrawing cash from a savings account—is something many may take for granted. Having this access is an essential component to building wealth and achieving economic stability (PDF) for individuals and households. However, an estimated 4.5% of U.S. households—or approximately 5.9 million—were unbanked in 2021 (PDF), according to a recent report from the Federal Deposit Insurance Corp. This means these households did not have a checking or savings account at a traditional bank or credit union.

Bank On, which started as a local initiative, has now become a national movement to connect low- to moderate-income households to products and services in the financial mainstream. Active coalitions are working across the Eighth Federal Reserve District, including in Louisville (Ky.), Memphis (Tenn.) and St. Louis, and throughout Arkansas.The Eighth District includes all of Arkansas, eastern Missouri, southern Illinois, southern Indiana, western Kentucky, western Tennessee and northern Mississippi. Bank On coalitions in conjunction with financial institutions, local and state government agencies and community-based organizations have developed low-cost products to meet the needs of unbanked customers.The primary reason individuals stated for being unbanked or underbanked in 2021 relates to not having enough money to meet minimum balance requirements. See the report 2021 FDIC National Survey of Unbanked and Underbanked Households (PDF).

Without a bank account, families may incur higher financial costs—such as for cashing a check or accessing short-term credit—while saving less. In 2018, financially underserved consumers in the U.S. spent $189 billion in fees and interest (PDF) on financial products. The unbanked may lack a safe place to keep their money, and in the event of a disaster like a fire or a tornado, families could have no way to access money remotely. Not having a bank relationship can make it more difficult to establish credit for such items as a car loan, small business loan or home mortgage.

Collecting National Bank On Data

The Bank On initiative is an ongoing project, with banks gradually incorporating more Bank On-certified products. However, the challenge of data collection is common among many Bank On coalitions.

In 2017, the Federal Reserve Bank of St. Louis, in conjunction with the Cities for Financial Empowerment (CFE) Fund, conducted a pilot project to test how a consistent and centralized method of Bank On data collection could operate. This was the launch of the Bank On National Data (BOND) Hub. During the pilot year, only four financial institutions reported their metrics, but for the 2021 reporting cycle, 28 financial institutions submitted data. This includes large banks involved in the initiative—such as Wells Fargo, Citibank, JPMorgan Chase, Bank of America and U.S. Bank—as well as smaller financial institutions.

Across the U.S., more than 14 million Bank On-certified accounts have been opened since the start of nationwide data collection. In 2021, Bank On products were accessible to almost 95% of low- to moderate-income households across 85% of U.S. ZIP codes.The American Bankers Association defines proximity as being within a two-mile radius of the geographic center of urban census tracts and within a 10-mile radius of the geographic center of rural or mixed tracts.

Bank On accounts appear to have significant appeal. In 2021, more than 5.8 million accounts were open and active across the country, with approximately $82 billion deposited into them. Most Bank On account holders use account features such as debits, deposits and withdrawals, and are digitally active.

Findings from Bank On Data for the Eighth District

FDIC data show that the shares of unbanked households in Eighth District states range from 3.4% in Arkansas to 11.1% in Mississippi. Underbanked rates range from 10.1% of households in Illinois to 21.4% in Mississippi. These percentages are higher among lower-income households and less-educated, rural and African American households.

In the Eighth District, more than 1.3 million accounts have been opened since data collection began. More than 450,000 accounts were open and active as of Dec. 31, 2021. (See the table above.) This represents a total of more than $6 million in deposits in the region in 2021.

The number of newly opened accounts in 2021 was almost 280,000, with 81% of these accounts bringing new customers to financial institutions. In other words, more than 220,000 individuals opened a new Bank On account in Eighth District states. Nevertheless, the attrition rate—the percentage of accounts closed—in the Eighth District is high (39%). All states in the Eighth District have higher attrition rates than the national average (24%), particularly Mississippi and Kentucky, which have attrition rates above 70%. In some cases, the reason for closing a Bank On product could be related to transferring to another type of account at the same financial institution, or in other cases, account holders might close their accounts when they lose their employment.About 1 in 5 (21.1%) recently unbanked households reported that losing or quitting a job, being furloughed, having reduced hours or having a significant loss of income contributed to closing a bank account since March 2020. Understanding the causes of such closure rates could be a fruitful area for further study.

Digital Banking in the Eighth District

Account holders in the Eighth District (and nationwide) use Bank On-certified accounts for everyday transactions—making deposits, debits and withdrawals—suggesting that they value and largely rely on these accounts’ features for regular banking. Nevertheless, digital banking activity in the Eighth District shows some variation across states (see the figure below): Almost 90% of Tennessee account holders are digitally active versus 74% of those in Kentucky, 76% in Indiana and 77% in Mississippi.

Digital Banking Activity among Bank On Account Holders in the Eighth District

SOURCES: Bank On National Data Hub and authors’ calculations.

NOTE: The bars represent the share of digitally active account holders as a percentage of active Bank On-certified accounts, nationwide and in the Eighth District, in 2021. The black vertical bars represent the 95% confidence interval for each estimate.

According to the 2021 FDIC National Survey of Unbanked and Underbanked Households (PDF), mobile banking has increased substantially among bank account users and has remained the most prevalent primary method of account access. While the use of a bank teller declined considerably, it remained widespread among certain segments of the population, including lower-income households, less-educated households, older households and households outside a metropolitan area. Analyzing digital banking activity in the Eighth District is important given the region’s large rural population. While distance to a bank branch may reduce overall usage of a bank account, digital banking could connect more people to the financial system. However, a lack of high-speed internet access in rural areas could hinder this possibility.

The Role of Data in Sustaining Bank On Momentum

The BOND Hub continues to allow all financial institutions with accounts that meet the Bank On national account standards to submit their data and helps ensure that the reporting process is consistent, accurate and secure. These data are critical to sustaining the momentum of the Bank On movement and, importantly, the availability of safe and affordable banking products. Bringing the unbanked and underbanked into the financial mainstream continues to be a key priority of the Bank On initiative.

For additional information about Bank On-certified accounts or data reporting to the BOND Hub, please contact Lisa Locke at lisa.locke@stls.frb.org.

Notes and References

1. The Eighth District includes all of Arkansas, eastern Missouri, southern Illinois, southern Indiana, western Kentucky, western Tennessee and northern Mississippi.
2. The primary reason individuals stated for being unbanked or underbanked in 2021 relates to not having enough money to meet minimum balance requirements. See the report 2021 FDIC National Survey of Unbanked and Underbanked Households (PDF).
3. The American Bankers Association defines proximity as being within a two-mile radius of the geographic center of urban census tracts and within a 10-mile radius of the geographic center of rural or mixed tracts.
4. About 1 in 5 (21.1%) recently unbanked households reported that losing or quitting a job, being furloughed, having reduced hours or having a significant loss of income contributed to closing a bank account since March 2020.