For most modern consumers, accessing a local bank is easy.
Those living in major cities can simply walk to a bank branch within a few minutes, while those in suburbs are usually just a short drive away.
And yet, while many people take their local banks for granted, millions of others are not so fortunate.
Though access to a local bank should be considered a basic human right in 2022, many people around the world are denied that luxury. In fact, the nearest bank may be well over an hour away.
These areas are known as “banking deserts,” and they are becoming increasingly common in rural areas across America and the world at large.
This trend has forced countless people to live without access to the financial services, products, and guidance they need.
In this brief article, we will explore the breadth of banking deserts, examine the challenges they present, and introduce several dynamic ways we can overcome them.
What Are Banking Deserts?
Generally speaking, a banking desert constitutes any geographic area without a local bank branch. As expected, there is a range of definitions for banking deserts across the financial and legislative realms.
For example, the Federal Reserve Bank of New York considers a banking desert any area that “has no bank branches within it or within ten miles of its center.”
Conversely, the Hope Policy Institute states that “bank deserts are defined as ZIP Codes with zero or one bank branch.”
Despite these slight definitional differences, the statistics surrounding banking deserts—as well as their instigators—are not up for debate.
Banking deserts are caused for myriad reasons, including bank failures, branch closures, population losses, and most recently, an increased demand for digital and online-only banking.
This problem has been well documented over the last decade.
Following the 2010 census, researchers identified 1,214 banking desert tracts across the continental United States. While a majority of these areas were noted in the West—particularly in many rural and arid regions—nearly 25% of banking deserts were found in metropolitan areas.
No area, however densely populated it may be, is fully immune from banking deserts.
Since 2010 (and the global recession that preceded it), banking deserts have only increased. Worse yet: between 2013 and 2020, the share of the U.S. population residing in a banking desert grew from 5.6% to 6.3%.
Unfortunately, the pandemic only helped accelerate this distressing trend.
In 2021, US banks closed nearly 3,000 branches, further widening the breadth of banking deserts.
While these studies focus on American banking trends, branch closures are an equally international phenomenon.
In the United Kingdom, scores of bank branches have shuttered in recent months. In Nigeria, a major lender is closing over half of its branches in favor of digital banking. And in southeast Asia, over 11,000 branch closures are expected in the coming decades.
With all of these closures, experts and consumers alike are asking an essential question:
what are the practical effects of a world with fewer banks and more banking deserts?
Key Challenges of Banking Deserts
Banking is a recurring transaction between a lender and a consumer.
As such, banks must be readily accessible to their customers. When they’re not, consumers suffer in a number of ways.
For starters, banking deserts cost consumers the most prized possession of all: their time.
When banks aren’t conveniently located, its customers are forced to travel significant distances to handle their financial needs, whether they need to make a deposit, obtain a mortgage, or simply get a new sheet of checks.
Yes, digital banking presents a compelling alternative, but many customers lack the digital literacy to confidently bank online. Indeed, many eldelry customers have spent their entire lives relying on personable bank tellers to manage their money, rather than using a laptop, smartphone, or tablet.
While convenience is often the first casualty of banking deserts, fraying financial habits follow closely behind. After all, when people can’t visit a physical bank branch, they may lose their access to resources that help promote financial literacy and freedom.
As a result, banking deserts are often responsible for causing a drop in consumer credit scores.
This is especially apparent in Native American reservations, where the nearest banks are sometimes over 30 miles away.
In fact, research shows that those who grew up in Native American bank deserts “had worse financial literacy…were less trusting of bankers…[and] developed worse credit histories, a disadvantage that lasts a lifetime.”
Such problems are equally pervasive among entrepreneurs, who rely on banks to access loans.
According to James Angel, professor of finance at Georgetown University, banking deserts make it harder “for the struggling small businesses in the area to do their banking. Whether it’s getting change in cash for their customers or getting a small-business loan to finance their inventory, it’s basically making it harder for small-town America to thrive.”
Ultimately, banking deserts are a drain on the financial interests of consumers at every level.
How We Can Overcome Banking Deserts
While banking deserts show no sign of dissipating, modern technology can help unbanked and underbanked consumers access the products and guidance they need most.
These three strategies can help consumers overcome the financial deficits inflicted by banking deserts:
1. Prioritize Financial Literacy
Though many consumers may not have access to a bank branch, they can still receive the tools they need to handle their money with confidence.
While financial education is a lifelong endeavor, it’s best to initiate the learning process early.
As Professor Tony Cookson writes in the Elsevier’s Journal of Financial Economics, “finance is a thing you learn by doing. People who grow up with finance are likely to learn the things you learn from interacting with a bank.”
As we move forward, the underbanked and immigrant communities must be given the financial resources and training they need to succeed —irrespective of their nearest bank branch.
These subjects can focus on everything from budgeting and borrowing, to credit reports and investing. Blogs and newsletters can be great, efficient ways to distribute this information.
The rise of fintechs and community-driven digital banks will also play a vital role in this fight, especially as many bank branches are expected to disappear over the next decade.
2. Endorse Prepaid Cards
Let’s face it: banking can be intimidating, especially if you aren’t familiar with the financial world and its rather expansive lexicon.
Plus, many consumers don’t trust traditional banks and are put off by the fine print often involved in opening and managing an account.
This is often accentuated in banking deserts, where people don’t even have a traditional bank nearby that they can learn from or even (mis)trust.
Fortunately, prepaid cards make it easier than ever for consumers to handle their money.
For example, the uLinkcard Prepaid Mastercard® requires no credit check3 and no checking account to get started.
3. Promote Remittance Platforms
Remittances are the lifeblood of global aid flow.
According to Gilbert F. Houngbo, President of the International Fund for Agricultural Development (IFAD):
“The small amounts of $200 or $300 that each migrant sends home make up about 60 percent of the family’s household income. This makes an enormous difference in their lives and the communities in which they live.”
While helping put food on the table, global remittances are also instrumental in providing access to health care, to building more sanitary living conditions, and even to promoting educational opportunities for children.
From an economic perspective, remittances are a powerful engine of growth. In fact, they comprise more than 5 percent of the gross domestic product (GDP) in 54 countries and over 30% of the GDP in nations like Lebanon and Gambia.
Global remittance platforms like uLink provide a reliable, affordable, and convenient way to send money overseas.
uLink not only provides the competitive exchange rates (and a secure platform), but it also provides the option for cash pickup, account credit, deposits to digital wallets, and home delivery. Better yet, with over 156,000 locations across 67 countries, you’re sure to reach even regions that are labeled as banking deserts.
Every time consumers utilize remittances, they help close the gap caused by banking deserts.
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