Accessing the Underbanked

With the recent media focus on how the underpinnings of the financial services industry have been shaken, it might seem strange to hear that an organization is focusing on increasing credit products and services to "underbanked" consumers.

However, underbanked consumers are not the type of people recent news stories are talking about. The "underbanked consumer" is actually the very customer that some savvy organizations are seeking out these days: low- to moderate-income consumers who have limited access to reasonably priced financial services to help them with their financial needs. They are often very good risks or have the potential to be; they just need innovative financial products to help them start building assets and credit to achieve long-term prosperity.

The idea involves nonprofit organizations that have entered the banking industry in an effort to create a broad range of affordable asset-building products and services. The long-term trust earned by these nonprofits from those in the underbanked market is at the core of the concept's ability to attract consumers who are otherwise leery of dealing with the banking industry.

It's a smart move: The underbanked market opportunity consists of about 40 million people who spend about $13 billion annually. Typically, however, this market tends to spend cash rather than saving or borrowing funds. As these nonprofits enter the market, they are partnering with for-profit banking institutions to produce benefits for both bankers and consumers in many ways.

The Center for Financial Services Innovation (CFSI), for example, works toward creation of solutions in three categories: consumer products and pathways; risk-management tools or programs; and marketing and distribution methods. Working with two nonprofit affiliates of Southern Bancorp, CFSI was able to respond to recent payday lending restrictions in Arkansas by creating a payday loan alternative distributed through Southern Bancorp branches.

In Kentucky, an emergency loan product called the Save It! Loan was created by the Mountain Association for Community Economic Development (MACED) and the Appalachian Federal Credit Union. Employees at participating businesses can apply online for the $500 loan, which requires that a funded savings account be created as the loan is paid back over a 10-month timeframe.

Other partnerships have produced car loans for single working mothers, financial education for borrowers, products that target specific immigrant groups, and small business loans. By thinking holistically and addressing the overall consumer experience, nonprofits and banks are serving a broader range of financial service needs than ever before.

Are your IT skills up to the challenges of the financial industry? To find out, contact Sheri Breitstein, vice president for client development at The Connors Group, at 201-537-0030 or by email at sheri@theconnorsgroup.com.