Here's Why Banks on Wheels Are Gaining Traction in the U.S.

A lack of banking options can lead to expensive alternatives.

Imagine that the nearest bank to your home is 10 miles away. Due to the lack of competition, that bank can charge expensive fees for basic services like checking or savings accounts.

If there were more banks located in your neighborhood, they would all have to compete for your business, and you would be free to choose the financial institution that best meets your needs. However, you live in what the Census Bureau refers to as a "bank desert." And that's where mobile banking comes in.

Mobile banks

A mobile bank -- sometimes called a "bank on wheels" -- is nothing new. Mobile banking has long been used to service areas hit by natural disasters, like the places impacted by Hurricane Katrina in 2005. Today, they're used to fill the gaps in banking services.

Mobile banks are typically housed in large vans and offer most of the services offered through a traditional bank or credit union. For example, a bank customer can open a savings or checking account, take out a loan, or stop by for financial advice. Due to security reasons, mobile banks do not come equipped with ATMs, but they do make life easier in other ways.

Say there's a 75-year-old retiree who no longer drives and they live several miles away from their nearest bank branch. If they don't have easy access to their bank, they are far more likely to fall prey to the check cashing and payday loan shops that dot their neighborhood.

If a mobile bank comes to them, they won't have to resort to paying sky-high fees to cash a check or 400% interest to take out a short-term loan.

Closing faster than they open

Nearly 10% of all bank branches in the U.S. shut down between 2017 and 2021. A full one-third of closures were in low- to moderate-income, minority neighborhoods. In 2021 alone, the number of U.S. bank closures hit a record high, leaving neighborhoods across the country either underbanked or unbanked.

When an individual is underbanked or unbanked, they often turn to alternative financial services to meet their basic needs, including check cashing and payday loan stores. These alternative financial services can trap borrowers in a cycle of debt that is nearly impossible to break free from.

The majority of bank closures occur in minority areas, leaving Black and Hispanic communities disproportionately vulnerable. A 2022 Federal Reserve report indicated that 40% of Black adults are unbanked or underbanked. Among Hispanics, the percentage of unbanked or underbanked is 30%, or three out of 10 people.

A long time coming

Despite the fact that more mobile banks took to the roads during the pandemic, minority neighborhoods continue to be underserved. Part of the problem can be traced back to the 20th-century policy of redlining.

The Federal Reserve describes redlining as "the practice of denying a creditworthy applicant a loan for housing in a certain neighborhood even though the applicant may otherwise be eligible for the loan."

In the 1930s, employees with the federal Home Owners' Loan Corporation drew lines on maps and colored some neighborhoods red. These neighborhoods were labeled as "hazardous" for bank lending because of the presence of African Americans or European immigrants, particularly Jews.

While the practice has been outlawed since 1968, that doesn't mean minority households have the same success rates with loans as everyone else. For example, in 2020, 16.1% of all mortgage applications were denied. Of those denials, 27.1% were Black applicants, by far the highest denial rate.

And it's not just mortgage loans; minorities also have a tougher time landing business, auto, and personal loans. That may be due, in part, to the relative lack of generational wealth among minority households. The hope is that banks on wheels can help reverse the trend.

For most of us, financial success begins with learning about things like debt reduction and how to invest, and that requires access to financial tools. While mobile banks may not be fancy, they can still provide underserved communities a place to learn more about how financial matters work and how to make the most of their money.