New Market Partners participated as a speaker in the Underbanked Solutions Exchange (a working group of mid-size financial institutions), and moderated a round table discussion on the “Future of Depositories.”

The 5th Annual Underbanked Financial Services Forum was extremely well attended and demonstrates the dramatic shift in perspective on the underbanked coming from all corners of the financial services industry.

Attendees included large banks, national retailers, community banks, credit unions, check cashers, payday lendors, and a host of vendors and industry innovators.  We highly recommend this conference for anyone seriously considering an initiative to serve their underbanked customers.

Customer Profile:

• 26 year old college graduate
• Recreation director at the YMCA
• Checking account in national bank

Cash Banking behavior:

1. Uses check cashing store on payday.
2. Bill pay service for overdue cell phone bill.
3. Visits bank to make cash deposit for rent.
4. Needs $150 advance for car repairs.

Customers that would have been considered mainstream “banked” deposit customers have been revealed as Alternative Financial Services (AFS) users.  AFS can represent $38,441 per branch per month in revenue enhancement with existing deposit customers even while providing cost savings to the consumer.

Click here to download the white paper.

Successfully reaching the underbanked requires more than just marketing. To succeed, you have to account for all of your key 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 means change for your organization: the products you offer, enhancing your compliance program, and how you deal with customers in a retail environment. An initiative to serve the underbanked is like a puzzle, 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 involve 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 spend that money somewhere else on financial services, then it’s a bad proposition for both the financial institution and the consumer. Worse, banks and credit unions charge off many of these checks because they lack effective risk management systems to deal with non-depositor check cashing, even 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 deposit account, and ultimately to credit products. In addition; they will still pay you for these transaction services even after they become loan and deposit customers.
We have implemented non-bank transaction products with banks and credit unions in Atlanta, North Carolina, Tennessee, Nebraska, Texas and California. In each case, they have focused on all the pieces of the puzzle to ensure successful execution. For example, check cashing and money transfers result 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 eventually into mainstream banking products; but you want them to be profitable along the way. If you are a non-bank financial services company you are no doubt attempting to be the banking alternative 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.

By: George Hodges
Director, New Market Partners