Is Retail Banking Missing an Opportunity with the Underbanked?
With stricter regulations in place, finding new revenue streams for retail banks has become more challenging. Could there be a revenue opportunity that is easily accessible, but simply overlooked?
Every two years the FDIC conducts surveys to determine the effectiveness of our current banking system. Its most recent study, published in September 2012, provides some interesting statistics and information for the financial industry.
The sizable underbanked population
Participants in the survey are categorized into three sections: the unbanked, the underbanked and the fully banked. The unbanked are defined as those who said they did not have any checking or savings accounts with a bank or credit union. The underbanked are those who have one or more of these types of accounts, but they also use non-bank financial services such as non-bank money orders, check-cashing services, pawnshops and other, similar services outside the traditional bank system. The fully banked are those who rarely, if ever, use non-bank financial services.
According to the 2012 FDIC survey, 20.1 percent of the households surveyed belong to the underbanked category, where the totally unbanked percentage was only 8.2 percent. The underbanked percentage represents 24.2 million households in the United States — a significant portion of the population — whereas the unbanked percentage represents almost another 10 million households. This demonstrates the magnitude of opportunities available to those retail banks that are willing to develop strategies to reach this population.
Use of non-bank services
To forge stronger relationships with the underbanked, the banking community first needs to listen to these consumers’ reasons for using non-bank services. The underbanked frequently report going to outside companies for the purchase of money orders, for example. Close to half of underbanked households had used non-bank money orders within the last year, and 34 percent of those had done so within the last 30 days.
Surprisingly, fewer than 25 percent of those money orders were purchased through the post office. When asked for their reasons for using non-bank money orders versus those provided through their bank, the No. 1 reason was convenience and the second reason was lower fees.
Strategic use of data
The data collected through the FDIC survey provides those in the retail banking sector some serious food for thought. The proper analysis of big data collection provides solid information — and when used strategically, these insights can be a boon to any bank with the smarts to use them.
The underbanked, as well as the unbanked, have made a statement to the banking industry through their persistent use of non-bank transactions. Still, it remains to be seen whether or not banks and credit unions respond to the message and find a means to turn the data into an increase in their revenue stream.
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