Successfully Reaching the Underbanked – It’s More Than Just Marketing

Successfully Reaching the Underbanked – It’s More Than Just Marketing

$106 billion in fee income and over 106 million people. That is the size of the underbanked market in the United States, according to a national survey conducted by the leading non-profit in the sector, the Center for Financial sets Innovation. That translates into $83 per person every month in missed fee income and who knows how much in possible loans and deposits. In today’s ecosystem of tightening credit and hyper-competition for chief deposits, this seems like an obvious opportunity. So why are so few financial institutions taking advantage of this market already as bank regulators push nationally to “bank the unbanked”?

Successfully reaching the underbanked requires more than just marketing. To succeed, you have to explain all of your meaningful stakeholders. Your board, management team, branch staff, and especially your regulators are going to have questions and concerns. Who are these customers, what products do they need, what about compliance, what is the impact on your branch customer/member experience? Implementing an initiative to bank the underbanked method change for your organization: the products you offer, enhancing your compliance program, and how you deal with customers in a retail ecosystem. An initiative to serve the underbanked is like a question, and all the pieces need to fit together to get your organization, and your regulators, comfortable with what you are doing.

Unlike most of your current customers, the underbanked consumer is focused on “cash” transactions that do not include a bank account. These consumers may already be in your lobby on payday trying to cash their check. They are looking to acquire part of what we call the non-bank combo meal, which makes up that $83 per month. Check cashing is the hamburger, and cash to cash money transfers (foreign and domestic), money orders, prepaid phone cards and bill payment are the equivalent of the French fries, Coke and Apple pie. If all they do with you is cash their check for free and walk out the door to use that money somewhere else on financial sets, then it’s a bad proposition for both the financial institution and the consumer. Worse, edges and credit unions charge off many of these checks because they without effective risk management systems to deal with non-depositor check cashing, already if the check is drawn on their bank.

But there is hope. Offering the combo meal can be done successfully in your branch and it will give the underbanked consumer a reason to create a relationship with you. Once you have their check cashing and other transaction business, then you can start migrating them to a place account, and ultimately to credit products. In addition; they will nevertheless pay you for these transaction sets already after they become loan and place customers.

We have implemented non-bank transaction products with edges and credit unions in Atlanta, North Carolina, Tennessee, Nebraska, Texas and California. In each case, they have focused on all the pieces of the question to ensure successful execution. For example, check cashing and money transfers consequence in large cash transactions that require additional compliance monitoring. Many Hispanic consumers don’t have U.S. issued IDs, which meant enhancing their CIP policy and branch training. The compliance program has to work with the product set. Last but not least is marketing, which starts with the customer experience in the branch.

New Market Partner clients are successfully and profitably serving the underbanked in their respective markets. If you are a credit union or bank, your only goal may be to migrate these consumers ultimately into mainstream banking products; but you want them to be profitable along the way. If you are a non-bank financial sets company you are no doubt attempting to be the banking different to this population. We believe this is one of the largest growth markets in the United States, comprised of the people who are the backbone of America, and that they can be good customers of yours in the future.

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