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July Special Report:
'Unbanked' Potential:
Underserved Population Presents Major Opportunity
by Michael Scheibach
More than 44 million Americans currently fall into the “underbanked” category — people not fully served by their banking relationship. Another 28 million have absolutely no banking relationship. They are, rather simply, “unbanked.” Together, the underbanked and unbanked represent a potential market of 40 million households with little if any relationship with a recognized financial institution.
This underserved — and untapped — population earns $1.1 trillion in annual income. More important, according to the Center for Financial Services Innovation (CFSI), is the fact that these 40 million households spend nearly $1 billion on alternative financial transactions at check-cashing centers, money-wiring operations and payday-loan outlets.
The millions of Americans being left out of the financial mainstream is “a critical obstacle to opportunity,” says FDIC Vice Chairman Martin Gruenberg. In his words, “We’re having parallel economic systems developing in the United States.”
Although the underserved cross racial and ethnic lines, the unfortunate reality is that they are disproportionately represented by African Americans (46 percent) and Hispanics born in this country (34 percent). Only 14 percent of whites are underserved. Among immigrant groups, 53 percent of Mexicans and 37 percent of other Latin American immigrants remain unbanked.
When you add it all up, you have a significant population group with a sizable annual income in need of quality, rather than exploitative, financial services. The question from a community banker’s perspective is twofold: Is this a market I want to explore? And if it is, what is my next step?
Last November, the FDIC took a significant step forward by forming the Advisory Committee on Economic Inclusion. This committee provides advice and recommendations on initiatives focused on expanding access to banking services by underserved populations. Among the initiatives being considered are such basic retail financial services as check cashing, money orders, remittances, stored value cards, short-term loans, savings accounts, and other services that promote asset accumulation and financial security.
Earlier this year, the FDIC took another step by forming broad-based, diverse coalitions to promote its mission in regional markets across the country, including Atlanta, Boston, Chicago, Dallas, Kansas City, Memphis, New York and San Francisco. Each regional coalition is, in turn, forming working groups to identify barriers and opportunities and to develop products and marketing strategies to reach the underserved population.
Some banks are moving ahead already. In February, Bank of America announced its ambitious program to offer credit cards without requiring Social Security numbers — targeting largely undocumented Hispanics. Cleveland-based KeyBank N.A. recently introduced KeyBank Plus, a program open to non-customers that offers payroll check cashing for 1 percent of the check value and free money orders. SEFCU, an Albany, New York-based credit union, offers its Check Advantage program that charges $1 per money order and 1 percent of check value. And Microfinance International Corp., Washington, D.C., is expanding with Alante Financial, a network of wholly owned and operated microfinance service centers designed to serve communities that banks typically do not reach, according to Daniel Weiss, senior vice president.
This month, BankNews.com takes an in-depth look at the unbanked and underbanked market. The links below will take you to articles and reports, facts and figures, and online resources. You'll also find a variety of articles on the new Wal-Mart reloadable, prepaid debit card, which is aimed at capturing this market.
TheJennifer Tescher, CSFI director, said, “The unbanked are really one of the last untapped markets. It’s 40 million households at a time when banks are desperately trying to find new sources of deposits.”
We hope this Special Report will help you learn more about this burgeoning market and how your bank can seize a great opportunity while providing a much-needed service.