What Does It Mean to Be Underbanked?

Struggling to open a traditional bank account? You’re not alone. Studies show that up to 38% of startup and emerging businesses fail due to insufficient funds and trouble opening up a bank account. Learn more about what it means to be underbanked here.

Startups and emerging businesses often encounter significant challenges when trying to open traditional bank accounts. Common issues include a lack of financial history, which makes it difficult for banks to assess their stability, and the high risk of failure, as approximately 20% of startups fail in their first year, with 50% failing within five years​​​​. Additionally, many startups lack sufficient collateral to meet bank requirements and struggle with the complex documentation needed to open accounts​​.

The term “underbanked” refers to businesses with limited access to essential banking services, which can severely impact their operations and growth. Underbanked businesses face difficulties in managing cash flow, processing payments, and securing funding, all of which is crucial for day-to-day operations and long-term success. This lack of access can hinder an emerging business’s ability to invest in growth opportunities and achieve sustainability.

To address these challenges, many startups turn to alternative banking solutions that cater specifically to their needs. Fintech companies and specialized banks offer more flexible account opening processes, innovative financial products, and dedicated support to navigate regulatory and operational hurdles. These alternative solutions provide the necessary support for the growth and success of emerging businesses.

“Financial services should be an equal right for all business owners, not a privilege for some.”

Mark Lozzi – CEO Confia Financial 

Underbanked: Defined and Understood

Challenges Faced by Underbanked Businesses

Unbanked businesses often rely on alternative, and sometimes less secure, methods for handling their financial transactions. This can include the use of cash or non-traditional financial services like payday loans, money orders, or check-cashing services, which often come with higher fees and increased risk of theft or fraud. Additionally, without a formal banking relationship, these businesses struggle to build credit histories, which are crucial for securing loans and other forms of financing needed for growth and expansion​ (NerdWallet: Finance smarter)​​ (Investopedia)​.

The struggle to manage finances through less secure and often costly alternatives underscores the vulnerability of underbanked businesses. This reliance on non-traditional financial services hinders their access to essential growth and operational needs. Prominent impacts of being underbanked as an emerging businesses include:

Limited Access to Capital

Difficulty in securing loans and credit lines.

Impact on business growth and sustainability.

Operational Challenges

Cash flow management issues.

Difficulty in handling day-to-day financial transactions.

Growth and Innovation 

Economic inequality, suppressed innovation and economic growth.

What is an Emerging Industry?

Emerging industries are companies or sectors that are in the early stages of developing a business or servicing a need in the market. The companies usually leverage technology, changing consumer preferences, or changing regulatory needs of the market. 

Examples of sectors considered as emerging industries:

• Artificial Intelligence
• Merchant Processing 
• Tribal Lending 
• ATM Operation 
• Legal Cannabis Banking/Operations
• Adult Entertainment

High-Risk / High Opportunity

Emerging industry  companies are usually seen as high risk in the eyes of banks and investors. This is primarily due to the high fail rates associated with startups; as of 2021, 20% failed in the first year, 50% within five years, and 65% within 10 years. 

Companies in emerging industries usually have to overcome numerous challenges to become profitable. The most common challenges faced by emerging industry businesses include: 

Startup Costs

• Initial investment requirements 
• Financial barriers

Market Entry Costs

• Expenses related to entering new markets 
• Establishing a presence

Regulatory Hurdles

• Navigating complex regulatory environments
• Compliance costs and challenges

Benefits of Using Alternative Banking Solution

Streamlined Financial Operations

• • Advanced treasury management and compliance tools.
  • Efficient cash flow management and remote deposit options.

Customized Support

• • Dedicated support teams that understand the specific needs of emerging industries.
  • Resources and tools to help businesses navigate financial challenges.

How to Choose the Right Banking Solution for Your Emerging Business

Assessing Business Needs

• • Identifying specific financial needs and challenges.

Comparing Options

• • Evaluating different banking solutions based on features, costs, and support.

Making an Informed Decision

• • Tips for selecting the most suitable banking partner for your business.

Delivering Confidence for Emerging Industries and the Underbanked

As many industry professionals and business owners are aware, progress on serving the underbanked and unbanked is slow. This issue not only hampers the pace of innovation but also has widespread economic impacts. Addressing these challenges requires continuous efforts from policymakers, financial institutions, and technology innovators. Fostering a more inclusive economy benefits everyone.

At Confia, we believe that financial services should be an equal right for all business owners, not a privilege for some.

We offer a powerful platform and unparalleled customer service to meet the unique needs of emerging industries. Here’s how Confia can help:

Choose Confia for a straightforward, efficient, and cost-effective banking experience that aligns with your business needs.

Delivering Confidence for Emerging Industries and the Underbanked

Control Your Cash Flow

Optimize Cash Flow by Scheduling Vendor Payments: Maximize bank balances and reduce processing times by efficiently scheduling vendor payments.

Automate Customer Payments: Ensure timely and effortless revenue collection with automated customer payments.

Client Support That Understands Your Business

Access Our Reliable and Dedicated Support Team: Confia’s support team is equipped to understand and cater to the specific needs of emerging industries.

Compliant and Efficient Business Banking

Unlock Cash Flow and Profit: Confia integrates advanced treasury management and compliance tools, enhancing efficiency and security for streamlined financial operations.

Banking with Confia

Specialized Banking Needs: Ensure time and effort savings with comprehensive cash management.

Remote Deposits: Simplify deposits from anywhere.

Strict Compliance: Navigate complex regulatory requirements seamlessly with Confia’s compliance solutions.