Financial Services and the Underbanked

SUMMARY

For many Americans, to use or not use a bank is never a major consideration. As we come of age, we open a checking account, learn about savings, enroll in multiple credit card programs, and expand financial relationships with banks with educational, car, mortgage, and small business loans. This is "mainstream" America, which tends to be heavily credit leveraged through a complicated web of relationships with many types of financial institutions.

Meanwhile, there is a huge sector of Americans who have infrequent or nonexistent relations with financial institutions. This group of "unbanked" Americans comprises more than 13 percent of the 105 million households in the United States. The unbanked are typically immigrants, ethnic minorities, the youth, widows, divorcées without credit histories in their own names, and people who have filed for bankruptcy and are re-building their credit-worthiness.

At first glance, the unbanked may seem like an unattractive market, and banks until the last few years have for the most part ignored them, leaving them to rely on alternative financial service providers, such as check-cashing outlets.

Banks are now paying attention to the huge opportunity that the unbanked market represents. The "mainstream" already-banked market is thoroughly saturated with financial products and services, so much so that mailboxes have become filled with credit card offers, and various loyalty programs by financial vendors to retain and add-value to existing customers. Financial institutions are looking for a new frontier of customers, and they are easily finding it in the unbanked.

This study focuses on unbanked immigrants and ethnic minorities, whose spending on financial products and services will increase by 94 percent in next 4 years. It describes the unbanked as a market segment and explores the reasons why this segment has been reluctant to develop relationships with banks. The rise of immigrant and ethnic banking in the last decade will be explored, as well as innovations in credit-scoring models that can include the unbanked in FICO scoring, allowing them to build credit. A wide range of financial services and products targeting the unbanked are identified, as well as how they are marketed. The research concludes with recommendations about how financial institutions can increase the effectiveness of marketing to the unbanked, as well as how to measure that marketing investment.

TABLE OF CONTENTS

I. EXECUTIVE SUMMARY, KEY FINDINGS, METHODOLOGY

• 1.1 EXECUTIVE SUMMARY
• 1.2 KEY FINDINGS
• 1.3 METHODOLOGY

II. THE UNDERBANKED: A MARKET SEGMENT DEFINED

• 2.1 WHO ARE THE UNDERBANKED?-
• 2.2 INDUSTRY CONTEXT: FINANCIAL INSTITUTIONS LOOKING FOR NEW MARKETS
  • 2.2.1 Ethnic and Immigrant Banking
  • 2.2.2 Long term strategy: a remittance customer today could be a small business borrower tomorrow
• 2.3 CREDIT-SCORING MODELS
  • 2.3.1 Fair Isaac Corporation's Traditional FICO Score
• 2.3.2 Alternative Scoring Models
• 2.4 PUBLIC POLICY AND LEGISLATION TARGETING THE UNDERBANKED
  • 2.4.1 "Bank on New York" Campaign

III. PRODUCTS AND SERVICES TARGETING THE UNBANKED

• 3.1 TRADITIONAL REMITTANCE/MONEY TRANSFER COMPANIES
• 3.2 BANKS OFFERING MONEY TRANSFERS BY ATM
• 3.3 STORED-VALUE CARDS AND PREPAID CARDS
• 3.4 PAYROLL CARDS
• 3.5 NEW PRODUCT AND SERVICE INNOVATIONS TARGETING THE UNBANKED

IV. MARKETING TO THE UNBANKED

• 4.1 PERCEPTIONS ABOUT THE UNBANKED
• 4.2 WHY DO PEOPLE REMAIN UNBANKED?
• 4.3 MARKETING MIX FOR REACHING THE UNBANKED

V. CONCLUSIONS, RECOMMENDATIONS, AND PREDICTIONS

VI. PROFILES OF SELECT COMPANIES PROVIDING FINANCIAL SERVICES AND PRODUCTS TO THE UNBANKED AND UNDERBANKED

• 6.1 WESTERN UNION
• 6.2 MONEYGRAM
• 6.3 BANK OF AMERICA
• 6.4 LABE BANK
• 6.5 CITIBANK
• ABOUT GLOBAL ADVERTISING STRATEGIES
• DISCLAIMER