Recognizing and embracing an emerging market segment can provide a unique opportunity for credit unions to grow their member base. Today, a group of consumers known as the "underserved" – both unbanked and underbanked – is gaining attention among financial institutions.
Credit unions, with their traditional focus on and reputation for more personalized service, are especially well positioned to serve these customers. Understanding the reasons behind their financial decisions and what they look for from a business are key first steps to tapping into this previously overlooked market.
So who are the un- and underbanked?
While unbanked individuals are those who do not have accounts with financial institutions, underbanked consumers may have accounts but also choose to use money orders, check cashing services, payday loans, prepaid cards and other financial service offerings through retail outlets rather than through a traditional bank or credit union.
Both of these groups fall into a broader category known as the "underserved." According to the FDIC's "2011 National Survey of Unbanked and Underbanked Households," which was released in October 2012, 60 million adults are either un- or underbanked.
It appears, however, that there are common misconceptions when it comes to why people are un- or underbanked. In reality, there are a number of different reasons that lead to their financial management decisions – and some of these reasons highlight a particular opportunity for credit unions.
In interviews with un- and underbanked households for a recent First Data report, researchers found that these consumers are very in tune with their finances and demand complete control. The research revealed that the un- and underbanked are often employed and work hard to be financially responsible. Paying bills, paying their children's education expenses, and saving money are of highest priority.
They want to know exactly how much they have spent and how much they have available. Many prefer to use cash because they feel that credit cards make it easier to overspend beyond the funds they have available. Demographically, these groups vary in background, age and education level, and they work in diverse occupations.
Many consumers in this market feel that financial institutions cannot help them manage their money effectively or achieve their financial goals. They are often unclear on financial institution offerings and fees, which can lead them to avoid financial institutions all together. Some have developed negative perceptions based on what they have heard from their peers, or they personally may have experienced unexpected fees or trouble meeting strict guidelines on minimum balance requirements.
Another deciding factor that has driven them away from financial institutions is poor customer service. While they want to be in complete control of their finances, this group is open to receiving counsel and guidance. However, in First Data's interviews, consumers stated that they often "felt like a number" to their financial institutions and did not get clear, helpful, or consistent information from the employees with whom they spoke.
Creating a better experience
Credit unions have a unique opportunity to win over this consumer segment, by offering them the customer care and personal service they felt was lacking among financial institutions. They may have turned to alternative financial service providers for control over their money because they found them convenient and transparent. Credit unions can offer these same benefits for the un- and underbanked if they position themselves in the right way. Here are some tips for appealing to this market:
- Consider presenting an alternative to traditional credit and debit cards by offering prepaid cards that provide the ability to pay bills by phone or online, but do not allow consumers to spend more money than they have loaded.
- Provide demonstrations on how your online banking system provides members with real-time access to account balances, pending payments and pending deposits, as well as the ability to receive alerts and notifications. Many consumers may simply not know how much control they can have over their accounts or may be unfamiliar with how online banking works. The un- and underbanked may not have reliable Internet access but frequently have smartphones — so credit unions need to make sure their online banking system is mobile-friendly.
- Be as transparent as possible. In addition to the legal documents provided about account fees, consider providing a simple, one-page account overview that clearly and simply outlines the parameters of the account and all of the fees.
Make sure your customer experience is as positive as possible, and above all, make sure these consumers know that they are not just another number in the crowd. Keeping communication lines open and taking the time to understand who the un- and underbanked are will prove essential in demonstrating to this group that credit unions can offer them a mutually beneficial relationship.
Bryan Kratz is senior vice president for community financial institutions at First Data in Atlanta.
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