For many, access to the banking system is an important component of upward mobility. Loans, savings accounts, credit cards–these are all part of a financial system that, when used strategically, can help establish financial stability or undergird entrepreneurial activity. But there are barriers to accessing the banking system for those on society’s margins, including in some immigrant communities, where many are unbanked or underbanked. To explore these issues, we speak with Dr. Jay Zagorsky, clinical associate professor of markets, public policy, and law at Boston University’s Questrom School of Business and Dr. Dina Refki, executive director of the Institute on Immigrant Integration Research and Policy. The conversation details the challenges and consequences of being unbanked and underbanked as an immigrant and highlights potential policy solutions for improving the financial options available to these communities.


  • Jay Zagorsky, Associate Professor of Markets, Public Policy, and Law, Questrom School of Business, Boston University
  • Dina Refki, Executive Director, Institute on Immigrant Integration Research and Policy
  • Transcript

    Transcript was generated using AI software and may contain errors.

    Joel Tirado  00:04

    Welcome to Policy Outsider presented by the Rockefeller Institute of Government. I’m Joel Tirado. For many access to the banking system is an important component of upward mobility. Loans, savings accounts, credit cards, these are all part of a financial system that when used strategically can help establish financial stability or undergird entrepreneurial activity. But there are barriers to accessing the banking system for those on society’s margins, including in some immigrant communities, where many are unbanked or underbanked. To explore these issues, we speak with Dr. Jay Zagorsky, clinical associate professor of markets, public policy, and law at Boston University’s Questrom School of Business. And Dr. Dina Refki, executive director of the Institute on Immigrant Integration Research and Policy. The conversation details the challenges and consequences of being unbanked and underbanked as an immigrant, and highlights potential policy solutions for improving the financial options available to these communities. That conversation is up next. Jay, Dina, thank you both for being here.

    Dina Refki  01:32

    Thanks for having us.

    Jay Zagorsky  01:33

    Look forward to the conversation.

    Joel Tirado  01:36

    So Jay, I want to start off with you and just have you do some level setting here and define a couple of terms. So we’re going to be talking about unbanked and underbanked immigrant communities. But what is meant by those terms, unbanked and underbanked more broadly? Because I’m sure they apply not just to immigrant communities.

    Jay Zagorsky  02:01

    They certainly don’t. Every couple of years, the FDIC, the Federal Deposit Insurance Corporation, runs a survey. And the survey asks people, do they have any connection to banking? And do you have a checking account? Do you have a savings account? And what we see in the latest data is about 6 million people basically say they live in households that have no formal connections to the US banking system. And about 19 million households are underbanked. What’s underbanked? That means that they have only tenuous connections, for example, maybe their paycheck shows up in their bank account, but that’s about all they use it for. Their paycheck shows up in the bank account, they take the money out in cash, and they don’t really use banking for much other things. Instead, they use things like check cashing services, or they use other alternative measures, instead of going to their local bank for financial services.

    Joel Tirado  03:01

    So, you know, how do folks then manage their finances more broadly, if they’re underbanked or unbanked? So how do they approach you know, like, what do you do if you are trying to get a mortgage? Or what are some of the ways that you manage your finances when you’re not using the banking system?

    Jay Zagorsky  03:26

    Many of the listeners right now have plenty of credit cards, debit cards in your wallet or purses. But there’s a large segment of the US economy that uses cash, that they don’t get mortgages, or if they do, they tend to live in relatively low cost areas where they can pay cash for, say, a trailer to live on, or they’re renting. And they pay cash every week, or every two weeks to get a place to live. And I think this might be quite strange for some people who are listening to this podcast, or at least to my typical audiences. People don’t have credit cards? They don’t have debit cards? How do they do things? But there are a number of people, especially among immigrants community, who are still using cash and using cash quite a bit. Why do they use cash? Because banks are actually quite expensive. If you have a large amount of money in a bank, the bank allows you to basically have a free account. If you happen to get direct deposit, the bank gives you free accounts. But for those people who don’t have a lot of money, or don’t have things like direct deposit, because they’re in tenuous job situations, banks charge $10 to $20 per month, just to have a bank account. And if you’re living close to the financial edge, $10 to $20 a month to have access to say an ATM can be quite expensive. It might mean the difference between having an extra meal or not, just paying those fees.

    Joel Tirado  05:04

    So that kind of leads naturally to my next question, you know, you mentioned these associated fees, and how that can present a challenge, you know, a hard decision for folks to make. So what are the some of the other reasons why accessing the banking system is particularly a challenge for for immigrant communities.

    Jay Zagorsky  05:31

    For immigrant communities, one of the big problems is that banks are required to know your customer. They’re called KYC rules. And they’re in the Code of Federal Regulations. But not only here in the United States, but know your customer rules are pretty much an all other major company countries around the world and know your customer means I have to have a valid address, I have to be able to prove my date of birth, and I need a tax identification number, a tax identification number. And it’s not just people who are immigrants who have to do this. I have been with my bank for almost 30 years. I was interested in creating one more account about two weeks ago. And they said, No problem, sir, we’ll have to create another account. We did it all online. And then they mailed me a letter saying I had to sign it to prove that that was actually my address, that I got the letter, and that I could bring it back to them. If I’m an immigrant, or just somebody who’s moving around a lot, it’s very hard to provide a valid address. This country, we saw about 3 million people arrive illegally. They need a tax ID number. To get a tax ID number is relatively difficult in this country. If you know you come in legally, you have to basically file a Form W7 with the IRS. And W7 for the IRS says I’m not entitled to a social security number. But I would like a tax ID number. And the form is pretty straightforward. What’s your name? What’s your address, what kind of documentation it could be a foreign passport, could be foreign birth certificates, all kinds of things. And at the very end, when you sign it, it says the IRS requires you to fill in a federal tax form and send it to the IRS. So wait a second, I just came in illegally over the border one of the 3 million people. And I have to fill in a form that says I’m going to fill in a tax form with the government. With the IRS. Many of those people probably don’t want to get a tax ID number. Right now, we’re recording this pretty close to April 15. It’s pretty hard for me as a business school professor to fill in my 1040 form. Imagine someone who doesn’t speak English, being told you want to open a bank account, you need to get a tax ID number and you have to fill in a federal form even if you don’t owe any taxes.

    Dina Refki  08:00

    You know, I would add to that to Joel and Jay, that immigrants in general can be more vulnerable to being unbanked or underbanked, than their native born counterparts. Because there’s also information inequality, right, there is a lack of familiarity with the US financial systems, which may be very, very different from the financial systems that they are used to in their home countries. Jay also mentioned low English proficiency, it’s really difficult to read through 80 pages of regulations or rules that the banks put out. And there’s also a distrust of institutions that we can’t under account here. There’s a trust issue, there are privacy issues. And there’s also, you know, generational norms. So the notion that we’ve always done it this way, so why change. So these are all factors that maybe may account for the poor access to financial services for immigrants.

    Jay Zagorsky  09:05

    I think one of the things you mentioned is that when immigrants come from a country where they’ve not had banking services, a whole concept of Wait, I have to go through this intermediary is really strange to them. If I’m living in a rural area and a relatively poor country, and I migrate to the United States, I might have never really come in contact with a bank. Because in many poor rural areas, there just is no banking system right now in many parts of the world. So in the, if I’m used to call it, you know, in the rural area, we’ll call it the old country, if I’m used to in the old country dealing cash, I see how much money I have. someone pays me directly in cash. And then I come to this new country, the United States where everything’s done electronically. I never actually see it. I have to trust this banking system. I’m not sure I would, especially if I come from a country where the banking system is controlled by the government, and if I’m coming from the old country where the banking system is controlled by the government, and that’s part of the way they’ve been controlling me, or they’ve been controlling people, it’s very hard to have faith in walking into a New York City bank and saying, Oh, I trust Chase. I trust you know, who are they just have to trust them. They’ve been around for hundreds of years.

    Joel Tirado  10:27

    Yeah, yeah, definitely. So, you know, before we get into talking about how different groups, nonprofits and other groups that provides support, the immigrants are sort of helping in this area. And we’ve touched on this a little bit. But what are some of the consequences then of not having access to the banking system?

    Jay Zagorsky  10:52

    There’s two problems. The first problem is what we’re seeing is a rise across the country in stores, and restaurants, that do not accept cash. I spent a fair amount of time in Seattle. And in the neighborhood that I spend my time in Seattle, I would say roughly 50% of the stores have signs in their window that says no cash accepted. Which means that I need either a debit card or a credit card. And the debit card could be preloaded with cash, there are places in the neighborhood to buy debit cards with cash. But unless I have one of these methods of doing electronic transactions, I can’t even buy a cup of coffee. My favorite coffee and bagel shop in the neighborhood that I spend a lot of time in, has never the owner says I never accept cash. And it’s a simple way, he says of ensuring he doesn’t get robbed, and he doesn’t have to worry about any problems in his store. But when I point out to him, that the poor people in the neighborhood can’t buy things because they don’t have a credit or debit card. He goes well, they’re not my target audience.

    Dina Refki  12:04

    I want to add also that there are a lot of literature that talks about how unbanking is really has an incredibly adverse impact on people, and how and I think that Jay and I would perhaps disagree here. But there’s a lot of agreement of that when you don’t, when you’re unbanked or underbanked or unbanked in particular, you don’t have a secure place to keep your money. And you cannot access money when you need it, you cannot save, you cannot have access to loans to either create, have capital to create a new business or expand your business small business. So this financial exclusion really is it’s detrimental often and and in a country like the US access to financial services is really critical to economic mobility and the ability to accumulate wealth, the ability to reduce the wealth gap. And it really is transformative when so when you’re excluded from that system and not cannot access it, you’re perhaps destined to a life of poverty and limitation, life of exclusions.

    Jay Zagorsky  13:18

    Well, as he said, I’m not 100% Sure I completely agree with everything you said. A number of people who are recent immigrants come from country where debt bondage is a big problem. And they have seen relatives, they have seen friends and they might even themselves have been subjected to debt bondage. And the idea that you come to this new country, you sign up with a bank to get a car loan or a business loan. You’re just not sure because the banking system can subject you to also long term amounts of payment. And we can switch from immigrants to the current problem we have with student loans. Right? The current administration is trying to cancel billions of dollars of student loans because people went to college, legally signed the documents that they would pay off these student loans, but 20 30 40 years later, they’re still paying off just the interest, nevermind the principal on their debts. So I’m not sure that giving people access to loans always makes people better off. Does that make some people better off? Of course.

    Dina Refki  14:28

    Oh, absolutely. Nothing is ideal for everybody. But you know, when you’re talking about people who have intrapreneurial aspirations, and they don’t have access to capital, and they go to a bank to access capital, and the two things that the bank asked them for is credit score and collateral and they may not have either of those. So it becomes really a crushing blow to their aspirations to become intrapreneurs in this country, which is recognized this is really a way out of poverty as well. But also there are a number of social benefits to having a bank account, especially to women. There are tremendous social benefits. So women who are vulnerable immigrant women, from some parts of the world who who are maybe subordinated in relationships, domestic violence, and, and there is research that tells us that women who have a bank account are less likely to be victims of violence. So it’s not income that matters here, but access to a bank account, which provides women’s to, with an escape to out of poverty of out of violence, rather violent relationships. So it really is a ticket to independence, economic independence. And, and so again, it’s it’s not for everybody, but there are strong agreements with the idea that when you are excluded from financial services, you do not have the same level playing field to economic mobility.

    Jay Zagorsky  16:15

    We have to be very careful about confusing causation with correlation. Being people that have bank accounts, having lower levels of violence against them does not necessarily mean the bank account is causing that. But instead, it could be that people have more access to services, they have more access to knowledge, they also have more access to understanding how the system works.

    Dina Refki  16:40

    Oh yeah, it’s not causation at all, it’s really access to an escape route. We know that immigrant women who are victims of domestic violence are really in a much more vulnerable situation than their native born counterpart because of that financial subordination. So when they are dependent on their, on their abuser, and that’s, that’s really a tangent from our discussion here. But just to refer to the social benefits of having that account. So obviously, the lack of access is not a causation. But when you have access to bank accounts, you’re much less likely to, you’re much more likely to be able to escape violence, because you have that independence. While you know, access to just the check out an income may also not guarantee you a life of a an escape from exploitation from from violence, or but just this was in reference to the social impacts that our most vulnerable population sometimes experience.

    Jay Zagorsky  17:57

    I would say that if I had to summarize what a large number of nonprofits and government agencies are trying to do with immigrants, is that they’re trying to provide knowledge and give them access to bank accounts. Let me say that I’m a little skeptical of this idea. There’s been a very large push to get the unbanked to become banked in this country and others, large numbers of financial technology companies, Fin tech companies, which are saying we have these great, great high tech solutions. And my advocacy, however, is a little different. Instead of pushing everybody into the banking system, which has, quote unquote, benefits that I am, and I put quotes around that a little uncertain about, I would like to ensure that we continue to have a cash economy that flourishes. That immigrants and nonimmigrants can continue to use cash, that people when they walk into stores could pull out a $20 bill and pay for their cup of coffee and their lunch, their dinner. Instead of being forced to use the banking system for a couple of reasons. The first reason is that the banking system, as I mentioned before, is actually quite expensive. Every time you pull out your credit card, that store owner is paying about three percentage points. Sometimes it’s two, sometimes it’s two and a half. If it’s a very, very large store, like Costco, it might be a little bit less than 2%. But businesses are not charity. And because they’re not charities, they’re boosting prices. And 3% might not sound like much to you, but we once again when you’re on the financial edge paying 3% more for everything in life becomes quite expensive quite quickly. The second is that when we go the financial technology route when we go the banking route, everything we do every financial move you make is recorded on a database. That database is, trust us, you can trust us because we will make sure your financial records are never used against you. And I’m just not certain that trusting us, especially for immigrants is something that people believe in. That there are governments around the world that have broken that trust, that have used people’s financial records against them. By using cash. Yes, it’s a little bit more anonymous, or maybe a lot more anonymous. But you don’t have to worry about your government coming back and saying, you know, you did this. We’re not happy about it.

    Dina Refki  20:37

    Right. Right. I have a follow up question for you, Jay. So you mentioned that the banks fees are expensive and costly. But what about the alternative financial systems that are not traditional. So the underbanked have to navigate the challenges of being not having access to, to banking by going to the checking cashiers, the check cashers rather, who are really have sprouted in many poor neighborhoods that to address that gap in service for underserved communities. And they cash the check for a fee, actually, in its ranges nationwide from 4%, to one point some percent in New York. And there are two sides of this issue, one that says that the services are exploitive, predatory, and takes advantage of the poor, and one that sends the banks too our profit making and are not transparent about the fees that are levied. And these services provide immediate access to cash rather than waiting for a check to clear, obviously, the privacy issues are huge. But we also have this alternative system that is very many agree it’s very exploitative. There’s also another service called pay day loan that has very high interest rates, incredibly exploitative. But if you have a check and you have to cash it, you have no choice and no option but to go to some one of those cashiers services that are equally expensive.

    Jay Zagorsky  22:21

    I completely agree. And in no way am I saying that check cashing or payday loan people are actually providing a cheaper service. What I’m saying is that if we do things as a cash economy, if I pay you by cash, instead of giving you a check, then we don’t have to deal with payday loans. We don’t have to deal with cash checking services. Some of those cash checking services, the larger chain, some of them are actually owned by large financial institutions. So in some ways, it’s the same banking system, just segmenting the market and taking advantage of people. But I will say that many immigrants are quite smart, and they can figure out whether a local bank has more fees than check cashing. And when we look at the FDIC survey data, the FDIC was what I talked about at the top of the show the Federal Deposit Insurance Corporation which asks people are they banked or unbanked? Many people actually say that one of the reasons that I’m either unbanked or underbanked, is that I just don’t get that many checks. And yes, there might be four or 5%. But if I’m only getting a check a quarter, or only one or two checks a year, it’s probably worth it to me to pay a higher one time fee or two time fee per year than being involved with a banking system every single month.

    Joel Tirado  23:48

    Yeah. And so if I could just jump in, it seems like there are, you know, at least two schools of thought here. One is that we should thoughtfully develop a policy to allow for a cash economy that doesn’t take considerable advantage of immigrant communities or other folks who are unbanked or underbanked. And another school of thought that is we should continue to make access to the banking system simpler for all groups of people. And yet, so reduce those barriers to access. Jay if I’m understanding what you’re saying, which I think I am, you’re saying that, you know, a cash economy is one that we should continue to have and to develop. And so if that’s the case, then what sort of policies or regulatory changes should we see that can improve financial inclusion, let’s say for immigrant and underbanked communities?

    Jay Zagorsky  25:06

    Let me say that was a wonderful summary and one I am all in for of making banking easier and lowering fees. But since I don’t see that is a simple path, I am advocating for continued uses in the cash economy. And there’s two public policies. The first public policy is laws, which have been done in some states and some cities that require businesses to take cash, that you cannot exclude people who have cash from buying things. Here in Massachusetts, we’ve had a law since the 1970s that say retail establishments have to accept cash. The problem with retail establishments is that for immigrants and poor people, that doesn’t say restaurants have to accept cash, it doesn’t say transportation services after accept cash, it doesn’t say doctors and hospitals have to accept cash. And I don’t know about you, but it’s there’s more to life than just buying clothes and buying toothpaste I like to eat, I like to see my doctor I like to get around. So having rules that say just retail establishments excludes a lot of services that poor people and immigrants. The second problem is that we have rules in the United States to prevent money laundering. In particular, all cash transactions, over $10,000 have to be reported to the IRS to an organization called FinCEN, which is part of the Department of the Treasury, which is trying to track illegal movements of money, that $10,000 limit has not been adjusted for inflation in decades. So when it was put in, relatively few people were impacted, you could have bought a car under when it first was put in, and it would not have triggered the FinCEN document, because cars at that time were under $10,000 trying to buy a car today for under $10,000, you’re probably gonna get a clunker that’s not going to work very well. So the second idea is that we need to inflation adjust the levels that we need to be looking at for reporting cash transactions. Those are the two big ideas I have.

    Dina Refki  27:28

    Jay, thank you for these policy recommendations, I kind of agree with you, that we need to do both actually. So reform, how credit is is provided or how the termination of credit worthiness is done. So that we can provide more access to immigrant communities to, to capital and banking. In and there are wonderful and innovative ideas and programs going on in their communities where, you know, credit scores are determined based on character based on purchasing history and in social media activities even. And we also need to really counteract that cash is bad movement but there I wondered if if it’s really one or the other, but it’s both that we need to, to do at the same time, and kind of really thinking about how many observers are now saying that traditional banking is dead. And as much as you know, you are in disagreement about the era of FinTech and the power of FinTech of sweeping the traditional banking system. And it really is a transformation of the banking system. And everybody has a mobile phone now. Everybody has access to the internet. And so I’m wondering if the the tsunami of FinTech is just too powerful to counteract with a cash movement. But we really need to do both to reform how traditional banking work for underserved communities and there is a lot of programs as Joel mentioned, nonprofit programs, community based organizations that are doing just that. There is an a wonderful program called on bank and it’s a program that provides free checking account and address many of the barriers are facing immigrants in unbanked and underbanked communities. But also, you know, do some of the of the the intiatives or the policies, recommendations that that really also in the short term and the mid term serve underserved communities and does not lead to further exclusion while we reform access to banking and financial services.

    Jay Zagorsky  30:18

    Some wonderful ideas, but I think what I’d really like people to leave the program hearing is that, right now, there’s a general feeling that people use cash are doing something illegal, that people who use cash are, you know, criminals, and that the real idea is that people who use cash, are people just like you and I, the difference is that they tend to come from a background where cash usage in a country where cash is just was the norm, or they tend to have relatively low amounts of income, and they just can’t afford a credit card. They don’t have a FICO score.

    Dina Refki  30:59


    Jay Zagorsky  31:00

    And that people who use cash are not evil. Instead, using cash is a wonderful way of ensuring economic equality instead of economic inequality.

    Dina Refki  31:13

    Absolutely, absolutely. I’m in total agreement, I just wonder if the digital banking is just taking over. And there’s no going back. And I agree with you, we hear many quarters that cash those are using cash that are villainized for or criminalized, because there’s that assumption that they’re doing something wrong, or using cash to purchase products that are illegal. And that is not the case in many communities, for sure.

    Jay Zagorsky  31:47

    Is the digital tsunami going to wipe this out? It might, I’m certainly going to try my best through interviews, writing a book, and doing other things to ensure that the digital economy doesn’t wipe out cash. But we do have an example. And that example is vinyl records, vinyl records a few years ago, basically sales went to zero. And in the last few years, vinyl records have come back once people after they went on a pure digital form said, Whoa, you know, we’re missing something. And I think the idea of the digital economy is that after a little bit of time, people suddenly realize that digital economy isn’t all light. There actually some dark sides.

    Dina Refki  32:33

    Oh, absolutely.

    Jay Zagorsky  32:35

    Is it hurts immigrants?

    Dina Refki  32:37

    Yeah, one of the things we didn’t talk about is that the data that has been collected that you refer to Jay, and brings up privacy issues and how this data is being used. And there were a lot of and I wonder, what have you thought about that? A lot of observers are saying, What if people individuals own their own data, and find a way to monetize this data and use it, you know, productively in financial services. And so yeah, so that’s one of the things that we really didn’t tackle here, but wonderful ideas that perhaps are left for the future to determine.

    Joel Tirado  33:26

    Thanks again to Doctors Jay Zagorsky and Dina Refki for highlighting the challenges that unbanked and underbanked immigrants face in our society. Thanks also to Guillermo Martinez, deputy director at the Institute on Immigrant Integration Research and Policy for his contributions to this episode. I’m Joel Tirado, until next time. Policy Outsider is presented by the Rockefeller Institute of Government, the public policy research arm of the State University of New York. The Institute conducts cutting edge nonpartisan public policy research and analysis to inform lasting solutions to the challenges facing New York State and the nation. Learn more at or by following RockefellerInst. Have a question, comment, or idea? Email us at [email protected].

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Policy Outsider” from the Rockefeller Institute of Government takes you outside the halls of power to understand how decisions of law and policy shape our everyday lives.

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