Expanding the reach of financial inclusion

In August, American Express sent thousands of personalized emails to its Serve and Bluebird prepaid debit card customers offering them access to their money up to 2 days before payday if they have their paychecks deposited directly to their card account. AmEx has been sending out a steady stream of similar emails to customers since last year, according to Mintel ePerformance/eDataSource, offering them a chance to “get a jump on their next purchase or bill to pay.”  The fact that accelerated cash flow is an appealing benefit, for some consumers, is indicative of the times in which we live when many Americans are struggling to meet their monthly financial obligations and need access to their pay as soon as possible.

Despite a period of sustained economic growth, millions of Americans are experiencing “downward mobility.”

In May, an article in The Atlantic entitled “The Secret Shame of Middle Class Americans” raised eyebrows by drawing attention to a shocking Federal Reserve statistic revealing that nearly half of all Americans would have trouble finding $400 for an emergency. Despite a period of sustained economic growth, millions of Americans are experiencing “downward mobility” — and saying goodbye to the conventions of a middle-class lifestyle — a trend that Mintel has identified as the “Nouveau Poor.” Add these downwardly mobile Americans to the ranks of the so-called “unbanked” and “underbanked” — those operating outside of or on the fringes of main stream financial services —  and you have a sizeable and growing population that is perilously close to financial ruin.

Apart from a handful of companies, such as AmEx, it seems as if the financial services industry is either unaware or turning a blind eye to what should be considered an opportunity to help consumers improve their situations while building profitable customers in the long term. This is no longer a niche segment that can be left to payday lenders or FinTech startups — this is nearly half of the population — and yet most banks don’t know how many of their customers are struggling because they don’t have their full financial picture. There is an opportunity for marketers to address the basic needs of consumers such as managing cash flow, cashing checks, budgeting, sending money to family and more. Forget car loans, investments or the other typical services that are cross-sold to bank customers. In the hierarchy of personal financial objectives, the reality is that many consumers are in “survival mode” and don’t even have an emergency fund let alone savings for a vacation or car.

It is, therefore, no wonder that some consumers see no need to deal with traditional banks at all. The rate of such unbanked consumers varies by factors such as age and income, race and ethnicity, educational attainment and citizenship, as well as geography.

Consider the top 4 reasons why the unbanked don’t have a bank account, according to Mintel research:

1. Don’t need one
2. Prefer to keep cash at home
3. Don’t have enough for the minimum deposit
4. Account fees are too high

While I’m sure a minority may be choosing not to deal with traditional banks, you don’t really need to read between the lines to understand that unbanked consumers just don’t think they have the money or even a regular income that would make a bank account worthwhile, even if it is insured by the FDIC. As a result they turn to payday lenders and check cashing services to make ends meet and are charged significant and often predatory fees in the process.

One bank looking to address this situation is Fifth Third, whose footprint includes some of the highest underbanked markets in the country, including Kentucky, Florida and North Carolina. Last year, Fifth Third launched Express Banking, a product designed for the unbanked that features check cashing, direct deposit, money orders and cashier’s checks, among other services. The more consumers use Express Banking services the more discounts they earn building loyalty to Fifth Third and a path to profitability.

Many FinTech startups have identified financial inclusion as a major opportunity. Unfortunately, they typically don’t have the financial clout or the customer relationships to have a significant impact, which means potential partnerships or joint-venture opportunities for the traditional banks. Some of the best ideas include providing access to real-time wages (Payactiv), a solution for smoothing out uneven income (Even), rewarding responsible financial behaviors with better rates (Ascend) or providing a low cost, transparent remittance service (TransferWise). There are many great innovative solutions being developed that could be integrated into a full suite of services to meet the needs of the millions of Americans who are struggling.

We think banks should…

1. Expand the reach of “financial inclusion” to encompass those who are struggling to meet their monthly commitments.
2. Understand how many of their customers are struggling to meet their monthly commitments and who they are — this may cut across existing segments/products.
3. Develop a suite of “survival money” services to meet customer needs directly — partner/acquire Fintech startups to develop ideas and utilize technology.
4. Market products with sensitivity — this segment does not want to be made to feel “poorer.”

Andrew Davidson is SVP/Chief Insights Officer for Mintel Comperemedia. He is an expert in data-driven cross channel marketing intelligence, consumer behavior and global trends. As a thought leader and expert speaker, Andrew has consistently predicted the evolution of payments marketing for the past 23 years. He speaks at high profile industry events and has presented at conferences in the US, Canada, Australia, New Zealand, Hong Kong and Taiwan. Andrew is passionate about the global role of payments as the first step on the path to financial inclusion.