If you ask the average worker in America if he or she gets a physical paycheck – you know, those paper slips that people used to use to deposit funds in their bank accounts – the answer would be know. Since the advent of direct deposit, the majority of employees skip out on getting an actual paper check, and instead have their wages put directly into a checking or savings account. However, there is about 1/5 of the working population that is unbanked. This means that they do not have actual bank accounts, and need to get paper checks from their employers. Some companies utilize loadable pay cards that allow them to pay employees without access to traditional bank accounts.
For some time, the unbanked people of this country were typically those who made relatively low wages and who might have issues with transportation. That seems to be changing now, as an increasing number of Millennials have chosen to purposefully go without using a mainstream, traditional bank for financial services or products.
Those who support the increase in the number of employees who shun direct deposit believe that pay cards can allow retailers and fast food restaurants a simple, affordable way to pay their employees who do not use bank accounts. They also say that the cards help employees to forego costly fees associated with cashing paper checks. Financial experts expect that as more Millennials enter the workforce that pay cards will become more common and desired option. Critics of the cards, however, say that there are hidden fees that add up quickly and that the pay cards actually increase other costs for retailers due to the fact that there are fees associated with nearly every time these cards are swiped for transactions.
Official data reveals that about 82 percent of U.S. employees get paid via direct deposit. Data also shows that about 20 percent of U.S. households are underbanked. This means that these folks may have bank accounts, but they also get financial services/products from alternative providers of financial services and products. About 57 percent of underbanked respondents to one survey said that they were unable to keep enough money in their bank accounts to avoid fees or to keep the accounts current. And 34 percent said they didn’t like financial institutions. Add to that about 30 percent saying they stayed unbanked because of high bank fees and charges, and you can see why the face of consumer banking is rapidly changing.
Here is a statement that should have bankers rethinking the way that they run their businesses: About 5 million Millennials avoid opening or keeping checking accounts. About half of those people say that they don’t use traditional bank accounts because of a “distrust for banks.”
Millennials have been well known as being a generation that tries to blaze a new path. As such, the fact that they are avoiding the traditional bank accounts that they saw cause so many problems for their parents really does make sense. For these folks, pay cards offer them a method to get paid, experience freedom with their hard earned money and to avoid the types of financial institutions that they simply do not care for.
And with mobile payment processing and other financial technologies on the rise, you can bet that Millennials will be adopting these new platforms with increasing fervor as they become more established in the American workforce. The landscape is changing, and big banks seem a bit slow on the uptake. As Baby Boomers begin to retire, and Gen X begins to age, the banks are going to have to find ways to better service this generation, or they may begin to see even more employees choosing alternative methods to manage their personal finances.
Latest posts by Calleta (see all)
- With CFPB Director Suggesting New cash advance Restrictions, If Approved, Americans May End up without Any Access to Credits - November 14, 2017
- CFPB’s Fight Against Payday Lenders and Cash Advance – A Fair Fight? - October 3, 2017
- Are E Payday Loans the Future of Alternative Lending? - June 20, 2017