Financial Services for the Underserved – Part 1: The Challenge

Blog: financial instrumentsThis three-part series will discuss the underserved, a population of Americans whose financial needs are not entirely being met by mainstream financial services institutions-

Earlier this year, NPR posted an article (1) about the US Postal Service, which, in the absence of growing mail volumes and associated revenues, is exploring new revenue channels. According to its own recent study (2), the Postal Service is ‘well positioned to provide non-bank financial services to those whose needs are not being met by the traditional financial sector’. This is mostly due to its far-reaching physical network and its position as one of the most trusted institutions in the US.

Two significant takeaways emerge from these articles:

  • Financial institutions are suffering from a ‘trust gap’ with consumers on the heels of the Recession;
  • Financial institutions are not servicing a huge part of the population. According to the USPS study, nearly 68 million consumers – or more than a quarter of adult Americans – are currently underserved.

These facts should serve as a call to financial institutions to reestablish relationships with the American public – and, to offer a suite of products and services for this population

Traditionally, the underserved were considered ‘subprime’ and a high credit risk: low-income households with ‘thin’ credit files. In fact, the underserved population today comprises many types of consumers, including:

  • Millennials who have not yet established extensive credit histories;
  • Widowed Boomers whose deceased spouses were the focus of their households’ financial activity;
  • Middle-class workers whose households were particularly hard-hit by the Recession and are still struggling;
  • Recent immigrants to the US.

In addition, there is a growing trend for consumers with the means for traditional banking services to ‘debank’ and use Alternate Financial Services (AFS). An FDIC survey from 2012 (3) cites non-bank money orders and check cashing services as the most commonly-used AFS vehicles. AFS products are also widely available through many retail stores, online sites, and mobile apps.

Each of these populations is routinely missed in the traditional credit screening process, as many financial services’ institutions use summarized credit statistics to pre-qualify prospective customers. As a result, they are routinely overlooked, under-marketed…and represent a great opportunity for financial services’ institutions.

(read more in the next installment: Defining Underserved)

Reference articles:
1) Post Office Could Rack Up Billions by Offering Money Services
2) USPS: Providing Non-Bank Financial Services for the Underserved
3) 2012 FDIC National Survey of Unbanked and Underbanked Households