) -- A quarter of U.S. households don't use banks or do so sparingly, bypassing financial institutions in favor of such alternatives as check-cashing stores,


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MoneyCenters and pawn shops, a Federal Deposit Insurance Corp. study showed.

Of the households surveyed, 7.7% were "unbanked," which translates to 9 million households and 17 million adults. An additional 17.9% of households, or 43 million adults, were "underbanked," meaning they have checking or savings accounts but rely on alternative financial services, such as money orders, check-cashing services, payday loans and rent-to-own agreements.

The underbanked and large retail banks such as


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Bank of America

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don't need, or want, each other, it seems. Americans who use alternative banking balk at high fees at mainstream financial institutions, while banks earn more money on customers with larger accounts.

There are about 13,000 check-cashing sites patronized by more than 30 million customers a year, according to Financial Service Centers of America, a trade association. A recent comparison of those storefronts and traditional banks by

The Boston Globe

illustrate hefty cost savings. Money orders that cost 39 cents at a check-cashing site compared with $3 to $7 at local bank branches. The fee to transfer $100 via

Western Union

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to Haiti was $9 at a check casher and $45 at a brand-name bank. When overdraft fees and charges for failing to maintain a minimum balance are considered, the advantages of a mainstream bank diminish for many.

"Banks, regulators and consumer advocates who view checking accounts as the holy grail of personal finance need to face the hard facts," says Gwenn Bezard, a research director with Boston-based Aite Group. "The unbanked and underbanked are primarily so for practical reasons rather than attitudinal ones. Greater education and marketing wizardry will never succeed to stuff more checking-account relationships down their throats. The only way for banks to seriously compete is simply to deliver a better product and value proposition."

An Aite Group study said prepaid debit cards represent a competitive threat to banks' checking accounts. It concluded that the cards could offer savings of at least $350 and as much as $1,800 per customer for about 14% of those who already have checking accounts.

Although it's true that the majority of those who rely on "shadow banking" tend to earn a lower income than the general population, the Aite Group survey found that 13% reported a household income between $45,000 and $69,000. Nearly 7% claimed an income of $70,000 or higher.

Where banks fail to gain traction, credit-card companies are eager to join the fray.

With a more global approach,


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last month announced the introduction of its Mobile Payments Gateway, a payments-processing platform for financial institutions. The service has already been launched in Brazil and could be expanded to the U.S.

With marketing materials that mention the unbanked,


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has stepped up promotional efforts for its reloadable prepaid debit cards in recent months.

According to research firm IBISWorld, the prepaid debit card market could reach $160 billion by the end of this year.

-- Reported by Joe Mont in Boston.

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