Serving the Underbanked

Serving the Underbanked

Sep 07

Shifting population characteristics are leading to significant change among consumer market segments. Many of these changes are the result of the increasing number of minority consumers — especially Hispanics.  As a fast growing market segment, Hispanics may be a new source of growth for financial institutions. However, like many minority consumers, a large percentage of Hispanics do not use banks. Instead, these “underbanked” consumers typically obtain financial services from informal sources.

By all accounts, millions of consumers in the U.S. are unbanked.  These unbanked consumers are disproportionately represented by ethnic minorities and immigrants. For example, almost one-half of all African American consumers and more than one-third of U.S.-born Hispanic residents are unbanked. 

What are the barriers for entry?  While many indicate that they maintain some type of deposit account with a financial institution, others cite factors such as lack of necessary identification documents, language barriers, distrust of financial institutions, financial literacy issues, and a preference for non-traditional financial services such as checking cashing.  Interesting, there are some common threads among underbanked consumers that financial institutions need to consider if they want to establish relationships with them.   The Center for Financial Services Information outlines several that I think are key.

1.  Underbanked consumers are generally comfortable with their informal financial relationships.  More formal relationships often confuse them.

2.  Respect of paramount.  Financial institutions  can show respect through convenient locations and hours and clear communications around charges and fees.

3.  Physical surroundings.  Many people are uncomfortable in an institutions setting and would prefer a less formal environment. 

4.  Underbanked consumer may not be served by traditional products.  Banks may need to think about how to offer checking cashing, money orders and low cost remittances.

5.  Underbanked consumer are interested in learning about financial matters but my not have the time for traditional classes.  Experiential leading, online courses and peer coaching might be good alternatives.

By understanding who these consumers are and how they make decisions, financial institutions can develop appropriate services for them and develop lasting relationships.  These strategies can be effective in overcoming the barriers ethnic consumers face.  In addition, the experience of these financial institutions may serve as a useful example for others interested in tapping opportunities in Hispanic and African American markets.