Banks Trying Innovative Strategies to Target Unbanked Consumers
Some banks are beginning to test alternative financial services (AFS) products and reevaluate their product offerings in order to reach the population of underbanked and unbanked Americans, according to "Underbanked and Unbanked Consumers in the U.S.: Successfully Targeting Consumers of Alternative Financial Services," by market research publisher Packaged Facts. Partly driving this trend is the fact that the often substantial fees associated with checking accounts linked to overdraft protection have increased the reluctance of some prospective, current or former customers to bank with traditional financial services institutions.
One product that is attractive to unbanked consumers and that financial institutions can leverage is the general purpose reload (GPR) prepaid card, for consumers willing to direct deposit their paychecks to a card account. By promoting access to bank branches and the bank's ATM network, banks can acquire customers who are skittish about becoming overly dependent on a bank or possibly opening themselves up to overdraft fees they can't afford. BB&T became the first large U.S. bank to offer a prepaid debit card linked to a full bank branch and ATM network. In February 2011, the Winston-Salem, NC-headquartered bank introduced its MoneyAccount GPR card which can be refilled either through direct deposit with BB&T, at a bank branch, a BB&T ATM, or at one of Visa's 50,000 ReadyLink retailer locations.
The Federal Deposit Insurance Corporation (FDIC) has found that nine million households are unbanked (8% of all U.S. households) and have no checking or savings account with a financial institution. These are households that may buy money orders, or remit funds to families abroad or even use a payroll card, but they use financial services marketers sparingly and resist efforts to deepen their relationships with traditional banks. That resistance is partly rooted in their poverty: almost half of all unbanked households earn less than $15,000 a year.
For underbanked consumers, the lead product banks can offer is the savings account. While some banks are attempting to capitalize on the profitability of payday lending by offering comparable products or low-cost, short-term credit alternatives to payday loans, other banks are trying innovative strategies to encourage lower-income Americans to create their own savings alternative to the payday loan.
"The existential challenge confronting bankers interested in establishing relationships with the unbanked or in capturing incremental financial transactions from underbanked households is balancing the need to drive additional revenue into the retail banking business with the need to create customer relationships built on mutual benefit and on trust and transparency," says David Sprinkle, publisher of Packaged Facts.[Source: "Underbanked and Unbanked Consumers in the U.S.: Successfully Targeting Consumers of Alternative Financial Services." Packaged Facts. 22 July 2011. Web. 11 Aug. 2011.]