MDIs: Building Trust to Bridge the Banking Gap

Banking is key to financial freedom. Access to banking services allows people to grow their money, establish credit, and invest in their future – providing the freedom to build better lives for themselves and their families. Not all Americans regularly use a bank though, as newly released data from the FDIC shows. 

The national unbanked rate has fallen by approximately half since measuring began in 2009. In the most recent survey, 4.2% of households (or an estimated 5.6 million households) were unbanked, meaning no one in the household had a checking or savings account at a bank or credit union. An additional 14.2% (an estimated 19 million households) were underbanked, meaning that the household had an account at a bank or credit union but had used at least one nonbank financial service, such as check cashing or payday loans.  

Decomposing the national unbanked rate by race and ethnicity reveals stark differences. While unbanked rates among Black, Hispanic, and Native American households have followed the national trend and declined by half, significant banking gaps remain. 

Figure 1:  Unbanked Rates by Race and Ethnicity

Over the last two surveys, unbanked rates for Black and Hispanic households were roughly the same, and unbanked rates for Native American households doubled – although for statistical reasons data on Native American households varies more from year to year. 

Minority households – at all income levels – are more likely to be unbanked, lack mainstream credit, and use alternative financial services.  

Figure 2:  Unbanked and Underbanked Rates, 2023 

Figure 3:  Lack of Mainstream Credit and Use of Alternative Financial Services, 2023 

Of unbanked households, 70.9% say they are not interested in having a bank account. Insufficient funds to meet minimum balance requirements was the most common reason for being unbanked. High and unpredictable fees were also mentioned frequently. Research exposing the higher costs of opening and maintaining bank accounts in minority communities supports these criticisms.  

Notably though, the second and third most common explanations people gave for being unbanked is that they don’t trust banks and that avoiding a bank gives more privacy. 

This mirrors the overall decline in trust across our institutions. Recent polls suggest that only a third or less of Americans have confidence in banks or believe banks have a positive effect on society.  

Undoubtedly, people of color have reason to distrust traditional financial institutions, as they repeatedly face discrimination from banks and other financial actors – in historical redlining, subprime mortgage lending, small business and farm lending, and even access to basic banking services.  

Yet fully participating in society requires engaging with traditional financial institutions, and federally insured banks provide important consumer protections without the predatory terms typical of many alternative financial services.   

Minority banks are perfectly situated to reach the unbanked and underbanked.  

Sovereign Bank, based in Oklahoma, is one of the largest tribally-owned banks, and offers both fee-free checking accounts and a deeply-rooted commitment to community. One United Bank, based in Boston, has a similar bank account product called Black Wall Street Checking that celebrates and empowers generational wealth building. East West Bank, based in Los Angeles, is active in its local neighborhoods, with a special focus on supporting the disadvantaged. And at Ponce Bank, based in the Bronx, 80% of every dollar deposited is reinvested as community financing.   

Minority depository institutions’ (MDIs) impact isn’t just anecdotal. Research has found that banking with MDIs is linked to an increased likelihood of homeownership and that communities with an MDI nearby have better credit health than demographically similar communities without an MDI presence.  

The National Bankers Association is the only trade association that exclusively represents MDIs. In the year ahead, we will be working to strengthen the balance sheet of these vital community lenders, while increasing their ability to reach more underserved communities and households. Click here to learn more about our public policy agenda for 2025. And to explore opportunities to join us in this important work, including as a strategic partner on financial wellness and inclusion, please visit our website.