Having grown up in a lower-middle class neighborhood and lived among people who the OP was speaking about, I can assure you that they were not "unbanked" or "underbanked" because of any sort of risk profile attached to banking.
They didn't have checking accounts because they were generally unable to attain one.
I don't know what a "lower middle class neighborhood" is like but when I worked at McD's quite a few of my coworkers expressed "I don't trust banks" sentiment.
I know that people get their kicks by pretending like Americans have a nightly ritual of peeling the toenails off the nearest poor person and grinding them up for use as seasoning, but we're stretching the limits of believability here.
Check writing became popular in the late 80s and early 90s. Checking accounts were widely available by the mid 90s. I personally know several welfare recipients who wrote checks in this era.
In present day, checking accounts are practically free (but not literally free, so it's not good enough for some people). Some institutions even pay interest on them. I've never had my credit pulled when trying to open one. Banking is a fairly competitive business here, even though there are strict federal and local regulations, but it's getting worse since the dominance of electronic payments is making bank/credit products an increasingly indispensable convenience.
And let me add that it's not just McDonald's employees who are distrustful of banks. Bitcoin was invented to help address classes of problems arising from strong centralized control of the money supply, including the government but also the [potential] chokehold from large banks. One of bitcoin's price spikes was caused by the Greek government's 2015 stoppage on withdrawals, which left millions of Greeks without the ability to access their money for weeks. [0]
While it probably makes a lot of yuppies feel better to believe otherwise, getting mired in every financial instrument that the bank promises is good for you, trusting that the government will never issue an errant levy (as a result of identity theft, for example), opening yourself to the imposition of arbitrary fees, etc., does not automatically make you an intelligent person.
"I don't trust banks" is a setiment that actually makes sense when you only have $200 total to your name. Not to mention you are at constant risk of overdraft....
If you are at need of quick liquid capital I totally understand why you'd want to be cash only than risk stupid ATM fees, overdraft fees, whatever. It makes sense.
Nobody has ever said to me, ever, "I would really like a bank account, but I don't have access to one." It's always "I want to keep my money, I don't trust banks to keep it for me."
It's also complicates things, more than strictly necessary,that it.
Participating in the banking industry becomes a higher stakes venture than keeping your cash under a mattress.
It's a hard thing to get your average HN reader to understand unless you've 'been there, done that...'
"I don't trust banks" can be an euphemism for a number of things beyond the actual dislike of the US banking system (which, as you correctly pointed out, is irrational).
Prevalence of cash-based compensation, under-reporting income for various tax and benefits purposes, outstanding child support, unpaid debts, fines, outstanding collections (or disputes with collection agencies) - a variety of reasons that all lead to a feeling of control with cash in hand vs. feeling of loss of that control when an electronic number is suddenly eaten up by various ACH pulls and garnishments.
Many people "don't trust banks" not because they think there are elaborate conspiracies going on behind the scenes but merely because they think that the minute they slip up the banks are going to take advantage of them as much as they can. And they are almost exactly correct in that matter.
NSF fees are basically the equivalent of high-interest short-term loans. In some ways they are worse because the interest is assessed instantly and reducing your cash flow. Let's say you screw up and end up $5 off on your budgeting. OK, no big deal, maybe you take $5 out of your cash emergency savings (which might be, oh, $10 or $20) or you borrow $5 from a friend or family member until payday and you make things work. But if you have a bank account and you're off by $5 then you get hit with an NSF fee instantly. Now your bank account isn't just $5 in the hole, it's maybe $35 negative. So now you can't use it for anything until you come up with that extra $35, which is going to be more stressful to deal with. And then once you get things squared away after payday you're out that $30 for no perceptible real value. And that's assuming you don't get a cascade effect happening, which can easily happen if you're in a temporary money crunch.
If you're living close to the margins you can't afford to risk that sort of expenditure for no return happening every once in a while. Some people simply can't afford to live that way, it's easier to live on a cash basis. You cash your paychecks at the bank they were issues or you go to a walmart and you pay a bit of overhead. You pay your bills in cash or via money order or cashier's check. It'll cost a bit to live that way, a lot more than $30 a year generally, but it's predictable and it's under your control.
I'm from a similar background and this doesn't make any sense, but since I know it's going to devolve into an argument of "Well, they don't speak the primary language in the area, so they can't communicate with the tellers", "they're too old so they can't drive anymore", or "they're illiterate [either literally or financially] and their caretaker doesn't like taking them to the bank", I'm not going to go there.
I'm not saying people with unique issues shouldn't be accommodated, but their problems are more basic than something that a change in bank policy/regulation will adequately improve. The issue is not about being "underbanked", it's about improving accessibility to the environment.
It is true that at a time in the past, checking accounts were guarded more carefully, as the bank was fronting that money on your behalf and would have to be reasonably confident that it'd be in your checking account when they went to get reimbursed. That's not unreasonable, but checking accounts weren't the only type of account offered at the bank, and they absolutely were in wide use, even among unfortunate people, at least until they bounced too many checks.
This has mostly gone away with debit cards, because the bank can now tell whether you have the money in the account or not before they approve the transaction. Last time I got a checking account, the process was a formality, and there were no eligibility requirements in excess of the documentation legally required to open an account and the (small) minimum deposit.
The other thing is there's an implication here that banking is a human necessity. There's another commenter who laments that people in Nepal don't have a Mastercard.
People do not have a right to banking. It's a private service, and in many ways (described above), it's not a desirable one. Banks no longer pay an appreciable amount of interest, which was most of their value proposition to the consumer before they were able to shoehorn in as the keepers of electronic payment systems.
I'm just going to call a spade a spade here, and say that the reason there's a sudden interest in the "unbanked" is that they have a harder time participating in online commerce, and the government is anxious to hop on board that train because money in banks is money under their control.
Some founder of an irrelevant SaaS app is lamenting that a Nepalese person may not find it convenient to pay him $10 / mo to email the local air pollution index or something. That's a pretty silly thing to try to cause a moral panic over.
If we want to talk about how it's cool that Amazon has devised an electronic payment system that circumvents banking, that's great, I think it's awesome. But I'm not on board with the terms "un[der]banked" in the first place, as they imply that banking is a default, and then if we accept that, I'm still not on board with acting as if they are signals of some meaningful social malignancy.
I'm not really sure what you are arguing for or against or whose point you're addressing because the things you bring up are tangential to my original comment, which I still stand by and don't believe has been refuted.
"Last time I got a checking account, the process was a formality, and there were no eligibility requirements in excess of the documentation legally required to open an account and the (small) minimum deposit."
There were many eligibility requirements - you just happened to pass all of them.
Most underbanked/unbanked people don't have bank accounts because they do not meet those eligibility requirements.
- A small deposit to open an account is for many on the lower socioeconomic ladder not feasible.
- Others cannot pass a soft pull credit check
- Many cannot pass the ChexSystem verification because they have delinquent/unsettled accounts at other banks
- Some cannot procure a government ID or verify an address
- Others can't pass criminal background checks
I've seen it, and I've lived it, and I'm certain that they would much rather keep the 3-5% of their check that gets pocketed when they try to cash it outside the mainstream banking system, but they don't have any other options.
They didn't have checking accounts because they were generally unable to attain one.