Underbanked Households Embrace Crypto: FDIC Report

The Federal Deposit Insurance Corporation (FDIC) recently released a report revealing that 'underbanked' households, those lacking full access to traditional banking services, are more likely to own cryptocurrencies. This trend highlights the growing appeal of crypto as an alternative financial tool for those marginalized by the traditional banking system. Let's delve into the reasons behind this shift and explore the implications for financial inclusion.

The FDIC report found that 4.8% of U.S. households owned or used cryptocurrencies in 2023, with a significant majority (92.6%) using them as an investment. This figure is even higher among underbanked households, indicating a growing interest in crypto as a means to store and transfer value. Several factors contribute to this trend:

1. **Cost, Speed, and Accessibility**: Cryptocurrencies offer lower transaction costs, faster processing times, and greater accessibility compared to traditional financial services. For instance, Bitcoin transaction fees average $1.64, compared to $25 for a wire transfer, and transactions can be completed in minutes rather than days (Coinbase, 2023). Additionally, cryptocurrencies can be accessed via mobile phones, eliminating the need for physical bank branches.
2. **Wealth Preservation and Growth**: Cryptocurrencies, particularly stablecoins like USDT and USDC, provide a hedge against currency devaluation and high inflation rates. In countries like Argentina and Turkey, people convert paychecks into stablecoins to protect wealth from peso and lira devaluation (FT, 2023). Moreover, cryptocurrencies facilitate international payments and remittances, making them an attractive alternative for underbanked individuals.
3. **Financial Inclusion**: Cryptocurrencies enable cross-border payments and empower individuals financially, promoting economic growth and financial inclusion. In areas where conventional banking is rare, these innovations position cryptocurrencies as a more attractive alternative. Mobile adoption and blockchain technology further facilitate financial inclusion, with Kenya's M-pesa and China's Alipay serving as successful examples (WeForum, 2021).



Regulatory environments and digital literacy levels also impact cryptocurrency adoption among underbanked households. A study in Lebanon found that cryptocurrency adoption positively influenced financial inclusion, user satisfaction, trust in financial institutions, and perceived economic empowerment (MDPI, 2024). However, regulatory clarity and digital literacy are crucial for wider adoption. In countries like Venezuela and Argentina, where cryptocurrency adoption is high due to economic instability, regulatory uncertainty and low digital literacy may limit broader adoption.

In conclusion, the FDIC report underscores the growing appeal of cryptocurrencies among underbanked households. As these individuals seek alternative means to store and transfer value, cryptocurrencies offer lower fees, faster transactions, and greater accessibility. Moreover, stablecoins provide a hedge against inflation and facilitate international payments, making them an attractive option for underbanked individuals. However, regulatory environments and digital literacy levels must be addressed to foster wider adoption and promote financial inclusion. As the underbanked embrace crypto, it is crucial for policymakers and financial institutions to adapt and create an enabling environment for this growing trend.