underbanked business definition

1. Of or describing individuals who use few traditional financial services such as credit cards and checking accounts. The underbanked often purchase money orders, utilize check-cashing services, and pay bills in cash.
2. Describing an investment banking firm that is experiencing difficulty attracting other firms to underwrite a new security offering.

Case Study According to one estimate, nearly 40 million individuals living in the United States do not have a transaction account or credit score. An equal number of people have a bank account, but have such a low credit score that they are excluded from nearly all but the most expensive lending sources. The unbanked and underbanked are often immigrants, widows, ethnic minorities, and individuals who have filed for bankruptcy. They buy money orders at convenience stores, cash checks at check-cashing services, and borrow money through payday lending services. In each case they pay very high fees. Or they go to their nearest Wal-Mart, which offers all these services. In an effort to expand its offering of financial services, Wal-Mart applied in Utah for an industrial-bank charter. Approval of the charter would be accompanied by federal deposit insurance and allow the giant retailer to process its own credit-card transactions. Wal-Mart indicated it intended to open limited-service banks within its stores but did not plan to open bank branches if the charter were granted. The application brought heavy opposition from the commercial banking industry, especially from small banks that would face new competition. In March 2007 the firm announced that it had withdrawn its application for a charter.