Consumers today have more payment options than ever, ranging from traditional methods like checks and cash to prepaid cards and online payment service providers such as PayPal, Venmo, and Cash App. Some might assume that consumers who rely solely on alternative payment methods would conduct most of their transactions digitally. However, it turns out that fully banked individuals account for a much higher share of digital payment transactions than those using only alternative methods.
A study from the Atlanta Fed looks at the share of digital payments by value across different consumer groups. The highest share is seen among high-income, fully banked consumers, defined as those with annual household income over $50,000. This cohort uses digital payments for more than 85% of the value of their transactions. However, for consumers who rely solely on alternative accounts or credit cards, that figure drops to 57%.
So, what do unbanked or underbanked consumers use instead? Roughly a third of their transactions are conducted with paper-based instruments—such as cash, checks or money orders. In contrast, high-income consumers use these methods for just 13% of their payments. Additionally, underbanked consumers are much more likely to use debit cards, which account for 35% of their transactions, compared to just 13% for the high-income group.
An earlier report from the Atlanta Fed discussed another option that may benefit this group: instant payments, which have the potential to extend financial advantages to those without full access to the banking system. In an essay published earlier this year, Lali Shaffer, a payments risk expert at the Atlanta Fed, identified two specific barriers that instant payments can help address: high and unpredictable fees, and delays in funds availability.
Limiting Features
This recent research dug deeper into the reasons why some households have limited access to full banking services. A key factor is their inability to fulfill the requirements for obtaining a transaction account. Unlike depository institutions, nonbank transaction account providers often don’t require a minimum balance, an initial deposit, or even full identification to open an account.
But consumers may not be aware of the availability of the availability of these alternative transaction account options or the benefits of account ownership. Many unbanked households continue to cite a lack of sufficient funds or proper identification as a hindrance to opening an account, unaware of services like Bank On, a nonprofit that offers traditional banking accounts with a minimum deposit of just $25.