The Urban Unbanked in Mexico and the United States

This paper examines the ways in which lower-income households obtain basic financial services in urban communities in the United States (US) and in Mexico. The paper:

• Discusses private sector and government efforts to lower the cost/ improve the quality of those services;
• Summarizes available information;
• Focuses on unbanked households - households that do not have deposit accounts with any regulated deposit taking financial institutions.

The paper asks five questions:

• Who are the unbanked?
• Where do they get basic financial services?
• Why don't they use banks?
• What is the problem with being unbanked?
• What private sector and government initiatives are underway to improve their access to financial services?

The paper finds that:

• In both countries, unbanked households are characterized by low income and education levels;
• They rely on cash transactions and on services provided by commercial outlets;
• The unbanked in Mexico have a high rate of home-ownership;
• The unbanked in Mexico do not use banks because of perceived barriers in the costs and requirements of financial institutions, while in the U.S., the reason is their own lack of savings;
• In both countries, not using formal financial sector services cost them additional transaction fees, time and security.

The paper concludes by analyzing the rationale and challenges facing the strategies that both countries are employing to improve the financial services available to lower-income households.