It seems counterintuitive to suggest that a key area for banks to grow revenue is with the lowest income segment in the population. The underbanked demographic is made up of people who may have a bank account but rely heavily on other financial services such as payday loans, who do not have credit, and do not typically have any kind of savings or equity. They represent a staggering 20% of the U.S. population, and that number alone should be an indication of why we feel they should be a key focus as banks look to the future.
Underbanked consumers are wary of financial institutions. They are unable to maintain bank account balances at levels that waive fees, and see fees as an exorbitant, usurious money-grab targeting the most financially insecure. They do not qualify for conventional loans or credit cards, and many are young and feel trapped when it comes to their financial futures. And yet, given the opportunity, the majority of this segment indicates they would like to have better control of their finances to build wealth and credit. Ignored by large banks, this demographic has been quick to turn to alternatives, and if big banks don’t pay attention, they could lose these potential clients for good. But why go after a demographic many of whom may never own a home or finance a car?
The first thing to consider is that they are over 60 million strong and growing. Secondly, many of this demographic would be able to improve their financial circumstances given the means. A bank that steps in with a micro-loan program might find a lot of loyal customers who are starting their own small businesses or finished school. Banks benefit when their own consumers become financially more secure, so this is a win-win. Thirdly, if banks don’t step in and offer relevant services to this demographic, someone else will.
Mitigating the risk of offering credit to un-tested customers is of course a factor, but given the sheer volume of the underbanked in the United States, finding strategies to manage that risk is well worth the effort. In this white paper we discuss what this demographic is looking for, and how banks can offer them the solutions they need with a minimum of risk.