Some major downsides of being unbanked include:
- High costs and fees: Unbanked people often rely on costly alternative financial services like check cashing (which can charge between 4-8 dollars or up to 5% of the check amount), money orders, payday loans with extremely high interest rates (sometimes 300-400% APR), and buy-here-pay-here loans with high interest, which significantly erode limited incomes.
- Limited financial inclusion and credit building: Without bank accounts, individuals cannot easily build credit histories, making it harder to access loans, mortgages, or credit cards. This lack of creditworthiness also impacts housing applications and employment.
- Inconvenience and inefficiency: Unbanked individuals face longer wait times to access funds, pay bills manually with less convenience, lack mobile banking, and cannot use direct deposit easily. They may also have to carry cash, risking theft or loss.
- No opportunity to save securely or earn interest: Without bank accounts, savings may be kept as cash, which is vulnerable and does not accumulate interest. This reduces opportunities to grow wealth and have emergency funds.
- Exclusion from the digital economy: Increasing reliance on digital payments, online shopping, gig economy platforms, and electronic bill pay means the unbanked are marginalized from many financial services and economic opportunities.
- Economic and social consequences: Being unbanked contributes to ongoing poverty, reduced access to healthcare, education, and entrepreneurship opportunities. Social stigma from cash-only transactions can limit social and economic integration.
In summary, being unbanked leads to high costs, financial exclusion, insecurity, inconvenience, and long-term economic disadvantages in a rapidly digitalizing economy.
