Underbanked and Unbanked Consumers in the U.S.: Successfully Targeting Consumers of Alternative Financial Services

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  • 1. Get more info on this report!Underbanked and Unbanked Consumers in the U.S.: SuccessfullyTargeting Consumers of Alternative Financial ServicesJuly 1, 2011Underbanked and Unbanked Consumers in the U.S. provides market size, industryand product revenue forecasts and analyzes the legislative and regulatory challengesdriving the growth of alternative financial services (AFS). Increasingly, these productsare seen as a viable alternative to banks by the 26% of U.S. households that areunderbanked or unbanked.This report analyzes the retail financial services activities and the macro and microeconomic trends that have resulted in the percentage of households that are unbankedto rise for the first time since the Federal government began tracking consumer bankingrelationships. It also provides detailed demographic portraits of both underbanked andunbanked consumers while diving deeply into their financial behaviors and consumerpsychographics. These consumers, buffeted by both the economy and the profitmaximization strategies of retail banks, have been prime targets of non-traditionalfinancial services providers offering transparent pricing, convenient retail locations andbespoke products that can be used according to the consumers’ needs andpreferences.The report examines the efforts of banks and non-banks to market to underbanked andunbanked consumers and provides analysis of AFS pure-play and retailer productintroductions, feature enhancements and pricing strategies.The report also delves deeply into AFS initiatives in international markets and focuseson the technologies, new products, marketing and branch-level strategies realizingsuccess abroad and transforming vendors and institutions into must-knowns to U.S.bank executives, AFS strategists and industry regulators.Underbanked and Unbanked Consumers in the U.S. presents historical data and 5-year revenue forecasts for the alternative financial services market and each major AFSproduct: Prepaid cards, remittances, money orders, check cashing and payday lending.We anticipate those revenues increasing from $338 billion in 2010 to $520 billion in2015.About the Author: Elizabeth Rowe was the Group Director of Banking Advisory Services
  • 2. at Mercator Advisory Group, a banking and payments consultancy. Previously, she wasthe senior banking consultant at Guideline, Inc., a consultancy/business advisory firm.For the past 17 years, she has worked with the nations largest banks, retailers andsolutions providers as they assess emerging consumer, technological, regulatory andcompetitive challenges, trends and opportunities. She has taught at the ABA School ofBank Card Management and frequently speaks at industry, federal regulator and clientconferences. She has been widely quoted in the financial press including TheEconomist, The Wall Street Journal, American Banker, Forbes, Independent Bankerand CNN.More United States Mortgages & Financing ReportsReal Estate Loans & Collateralized Debt in the US - Industry Market Research Reportby IBISWorldReal Estate Loans & Collateralized Debt in the US Crediting after the crunch Sellingmortgages and debt instruments on the secondary market drove industry growth in the...Real Estate Loans & Collateralized Debt in the US - Industry Risk Rating Report byIBISWorldIBISWORLD INDUSTRY RISK RATINGS REPORT This is the replacement forIBISWorlds April 2011 edition of Real Estate Loans & Collateralized Debt in the USIndustry Risk ...Green Marketing in Finance - US by Mintel International Group Ltd.While the green movement has been around at least since the first Earth Day(celebrated in 1970), it has had an increasing influence in recent ...Mortgage Banking by First Research, Inc.Brief Excerpt from Industry Overview Chapter: The US mortgage banking industryincludes about 16,000 companies with combined annual revenue of $60 billion. Majorcompanies include units ...Financial Services Report United States February 2011 by Economist Intelligence UnitFinancial Services Forecasts are based on the latest data and in-depth analysis ofsectoral trends. As with all the Economist Intelligence Units analysis, they select ...See all reports like this >>More United States ReportsD&B Country RiskLine Report: The United States of America by Dun & Bradstreet Inc.This D&B Country RiskLine Report will help you analyze the risks, opportunities andlikely payment delays when doing business in this country. It includes ...
  • 3. Drywall Installers in the US - Industry Risk Rating Report by IBISWorldIBISWORLD INDUSTRY RISK RATINGS REPORT This is the replacement forIBISWorlds January 2011 edition of Drywall Installers in the US Industry Risk RatingsReport. Industry Risk Ratings ...D&B Country Report: The United States of America by Dun & Bradstreet Inc.D&B Country Report. Comprehensive information for evaluating risks and opportunitieswhen trading or investing in this country. Providing critical information and analysis on ...Country Report United States January 2011 by Economist Intelligence UnitCountry Reports analyse political and economic trends in featured countries. They showyou exactly how national, regional and global events will affect your business in ...Country Report United States December 2010 by Economist Intelligence UnitCountry Reports analyse political and economic trends in featured countries. They showyou exactly how national, regional and global events will affect your business in ...TABLE OF CONTENTSChapter 1: Executive Summary Scope and Methodology Report Methodology Characteristics of Underbanked and Unbanked Consumers Who Are the Unbanked? Which Unbanked Households Can Become Banked? Why Don’t Unbanked Have a Bank Account? The Growing Ranks of the Unbanked Who Are the Underbanked? Spotting the Underbanked Baby Boomers and Seniors Heavily Represented Among Underbanked Alternative Financial Services Products Used by Underbanked Banking Industry Trends Drove the Growth in the Number of Underbanked Households? State of the Economy Is Growing the Ranks of the Underbanked
  • 4. Economic Pressures on Working Americans Have IncreasedLong-Term UnemploymentHealth Insurance Costs Are RisingBankruptcyForeclosuresDeclining Real IncomesNumber of Americans Living Paycheck-to-Paycheck Increases 53%The Overall U.S. Economy - 2011 and BeyondBanks Targeting the Underbanked/UnbankedProducts Banks Can Market to Underbanked and Unbanked ConsumersBB&T Links Its Physical Footprint With Prepaid CardLarge U.S. Retail Banks Offer More Locations than RetailersBanks Tackle Small Dollar LoansEven in Programs Targeting Underbanked or Unbanked, Bankers Determined toBuild Traditional Banking Relationships with ParticipantsServing Underbanked Consumer While Hitting Fee Income Generation TargetsRegulatory Changes Increase Banks’ Pressure on Fee IncomeHow Banks Became Dependent on Fee Income From Retail CustomersOverdraft Fee Income - Yesterday’s Cash CowGrowth of Overdraft Fee Income Spurred Consumer Dissatisfaction With Banksand Banking IndustryBank of America Adds High Checking Account Service Charges and Fees to UseBank TellersChase Bank Adds Service Charges for Low-Income Customers and Those WhoAre Not Active Debit Card UsersCitibank Keeps Free Checking for Customers Who Perform 5 Types ofTransactions a MonthConsumers Are Opting Out of Overdraft ProtectionDebit Card Rewards Programs Are Vanishing
  • 5. Savings Strategies of UnderbankedPrize-Linked SavingsConsumer Interest in PLS AccountsWhy Would PLS Accounts Be Attractive to Banks?Barriers to Widespread Deployment of PLSWhat If Consumer Savings Were Prioritized?Michigan Credit Unions Partner to Offer PLSHow Successful Are the Michigan Programs in Growing Savings?Can Banks Offer the Products Unbanked and Underbanked Consumers Want?Cashing Payroll Checks Is Important to the 27% of Employees Not Using DirectDepositBill PaymentAlternative Financial ServicesIntroductionCheck CashingChecks Still a Popular Choice on PaydayAce Cash ExpressAce Cash’s New Partnerships and New ServicesDollar FinancialChexar - Bring Check Cashing to Small RetailersWal-Mart - Transformer of Check Cashing FeesPayday LendingProfitability of Payday Lending BusinessPayday Lending LegislationFederal Payday Lending LegislationPayday Lending Regulations at the State LevelImpact of Banning Payday Loans on Consumers’ Debt Management BehaviorsPayday Lending Regulations in Hawaii - A Contrasting Experience
  • 6. Fragmented, Embattled Industry May Benefit From Turmoil in Banking IndustryAdvance AmericaQC HoldingsPaymentsPrepaid CardsChallenges Facing the Prepaid Card IndustryGreen DotNetspendRemittancesRemitters Are Satisfied With Their Current Money Transfer ProviderRemittances and Emerging Technologies: Can Price Drive Channel Adoption?How Much Are Individuals in the U.S. Sending Abroad?Structural and Regulatory Challenge Hinder the Use of New RemittanceChannelsGlobal Wire Transfer TrendsGlobal Remittance VolumesRemittance Flows Are Critical to the Economies of Many NationsRemittance OperatorsMoneyGramMoneyGram Bill Payment ServicesWestern UnionWestern Union Takes on Wal-MartWestern Union Experiments with Mobile TechnologyChallenging the SpreadRemittance ChannelsHampering the Uptake of New Channels in the U.SWestern Union’s Account-to-Account RemittancesWestern Hemisphere Banks Bypass U.S. MTOs to Facilitate Remittances
  • 7. Money Orders U.S. Postal Service Is Largest Seller of U.S. Money Orders Where Are the Banks? International Leaders Offer Roadmaps for U.S. Service Providers U.S. Bankers Face Structurally Endemic Challenges as They Consider Future Customers U.S. Bank Branch Network Build for Previous Generation of Banking Customers Meeting Mass Market Financial Services Needs in Africa Smart Phones and SMS Capability Fuel Growth of Retail Financial Transaction in Africa Mobile Payments: The Intersection of Cards, Banks and the Unbanked Cash + Mobile = Economic Growth Mobile Remittances Threaten African Banks Airtel / MasterCard and M-Pesa / Visa: Virtual Payment Cards Central Bank Mobile Payments Platform May Increase Mobile Competition in Kenya M-Pesa: Biography of a Market Leader Mass Market Savings Strategies British Premium Bonds - Mainstream Prize-Linked Savings South African Million-a-Month PLS Rethinking the Branch: Hub-and-Spokes Organization Should Be Considered Capitec - Profits From the Previously Unbanked The Shot Heard Round the Cape: Capitec Raises the Performance Bar for Its Competitors First National Bank Uses Product-Branches Branches to Sell Specific Products WIZZIT Uses Its Independent Sales Force and Door-to-Door Sales to Sign Up New Bank Customers South African Regulators Create KYC and AML Exemptions to Allow Providers to Target Low-Balance CustomersChapter 2: Characteristics of Underbanked and Unbanked Consumers
  • 8. Table 2-1: Banked, Underbanked and Unbanked Status of U.S. Households,2009Who Are the Unbanked?Table 2-2: Percentages of Major Racial and Ethnic Groups That Are Unbanked,2010Table 2-3: Race, Ethnicity, Income and Household Types of Unbanked, 2010Which Unbanked Households Can Become Banked?Table 2-4: Previously Banked Status of Unbanked Households, 2009Figure 2-1: Number of Adults Living in Unbanked Households by PreviouslyBanked Status, 2009Why Don’t Unbanked Have a Bank Account?Figure 2-2: Leading Reasons Cited For Not Owning A Checking Account, 1989-2007The Growing Ranks of the UnbankedWho Are the Underbanked?Table 2-5: Percent of Households Underbanked, by Race/Ethnicity, 2009Spotting the UnderbankedTable 2-6: Percent of Households Underbanked by Marital Status ofHouseholder, 2009Baby Boomers and Seniors Heavily Represented Among UnderbankedFigure 2-3: Oldest Americans Most Likely to Be Unbanked/Underbanked ThanBaby BoomersBaby Boomers Joining Ranks of Unbanked and UnderbankedSeniors Are More Likely To Be Underbanked and Unbanked Than Other CohortsAlternative Financial Services Products Used by UnderbankedTable 2-7: Alternative Financial Services Products Used by the UnderbankedFigure 2-4: AFS Products Used by Underbanked HouseholdsBanking Industry Trends Drove the Growth on the Number of UnderbankedHouseholds?Economy Is Growing the Ranks of the Underbanked
  • 9. Since 2007, Economic Pressures on Working Americans Have Increased Long-Term Unemployment Figure 2-5: Slow Growth GDP Linked to High Rates of Unemployment, 2005- 2015 Health Insurance Costs Are Rising Figure 2-6: Rising Cost of Employee Participation in PPO Healthcare Plans, 2007-2011 Table 2-8: Employer and Employee Medical Costs Allocation, PPO Plans, 2007- 2011 Bankruptcy Figure 2-7: Personal Bankruptcy Filings Show CAGR of 25.6%, 2007-2010 Soaring Number of Senior Citizen Bankruptcies Fueled by Medical Expenses Foreclosures Figure 2-8: Foreclosure Filings, 2005-2010 Declining Real Incomes Figure 2-9: Real Median Household Income, 1999-2009 More Americans Living Paycheck-to-Paycheck Table 2-9: Since 2006, the Number of Americans Living Paycheck-to-Paycheck has Increased 53% Household Strategies for Dealing With Financial Insecurity Figure 2-10: Median Value of Transaction Accounts for Families with Holdings, 1989-2007 The Overall U.S. Economy - 2011 and Beyond ConclusionChapter 3: Banks Targeting the Underbanked/Unbanked Introduction Table 3-1: Types of Payment Instruments Used by Banked, Unbanked and Underbanked Consumers Bankers’ Messages About the Importance of Credit Increasingly Falling on Deaf Ears
  • 10. Products Banks Can Market to Underbanked and Unbanked ConsumersBB&T Links Its Physical Footprint With Prepaid CardLarge U.S. Retail Banks Offer Many More Locations than Even the LargestRetailersTable 3-2: Comparison of the Convenience of Bank Braches and ATM Locationsversus the Location of Major U.S. Retail LocationsBanks Tackle Small Dollar LoansEven in Programs Targeting Underbanked or Unbanked, Bankers Determined toBuild Traditional Banking Relationships with ParticipantsServing Underbanked Consumers While Hitting Fee Income Generation TargetsTable 3-3: Issues Retail Banking Executives are Focusing on in the Next 2 YearsRegulatory Changes Increase Banks’ Pressure on Fee IncomeTable 3-4: Bankers’ Greatest Challenges in Serving or Targeting Underbankedand Unbanked ConsumersHow Banks Became Dependent on Fee Income From Retail CustomersOverdraft Fee Income - Yesterday’s Cash CowGrowth of Overdraft Fee Income Spurred Consumer Dissatisfaction With Banksand Banking IndustryTable 3-5: How Check Clearing Order Affects the Number of Overdrafts ForItems Received on the Same DayBank of America Adds High Checking Account Service Charges and Fees to UseBank TellersChase Bank Adds Service Charges for Low-Income Customers and Those Whoare Not Active Debit Card UsersCitibank Keeps Free Checking for Customers Who Perform 5 Types ofTransactions a MonthConsumers Are Opting Out of Overdraft ProtectionTable 3-6: Number of Noncash PaymentsDebit Card Rewards Programs Are VanishingSavings Strategies of UnderbankedFigure 3-1: Snapshot of Piggymojo App
  • 11. Prize-Linked Savings Consumer Interest in PLS Accounts Why Would PLS Accounts Be Attractive to Banks? Barriers to Widespread Deployment of PLS What If Consumer Savings Were Prioritized? Michigan Credit Unions Partner to Offer PLS How Successful Are the Michigan Programs in Growing Savings? Can Banks Offer the Products Unbanked and Underbanked Consumers Want? Check Cashing Table 3-7: Banks Offering Products/Services to Unbanked/Underbanked Consumers Most Banks Will Only Cash On-Us Checks or Payroll Checks for Their Own Customers Cashing Payroll Checks Is Important to the 27% of Employees Not Using Direct Deposit Table 3-8: Why Do You Choose Against Direct Deposit? Bill Payment Table 3-9: How Do Unbanked/Underbanked Consumers Pay Their Bills?Chapter 4: Alternative Financial Services Introduction The Market for Alternative Financial Services Product, 2007-2015 Table 4-1: AFS Industry Revenues by Product Line, 2007-2015 Check Cashing Checks Still a Popular Choice on Payday Ace Cash Express Ace Cash’s New Partnerships and New Services Table 4-2: Ace Cash Express Store Growth, 2006-2011 Dollar Financial Table 4-3: Dollar Financial’s Check Cashing Income, 2006-2010
  • 12. Competitors in the Check Cashing SectorChexar - Bring Check Cashing to Small RetailersHow Chexar WorksWal-Mart - Transformer of Check Cashing FeesPayday LendingTable 4-4: Use of Payday Loans by Banked Status, 2009Table 4-5: Among Users of Payday Loans, Frequency of Use by Banked Status,2009Profitability of Payday Lending BusinessTable 4-6: PDA Revenue, Cost and Profit (pre-tax basis), 2009Payday Lending LegislationFederal Payday Lending LegislationPayday Lending Regulations at the State LevelPayday Lending Regulations in MississippiPayday Lending Regulations in ColoradoImpact of Banning Payday Loans on Consumers’ Debt BehaviorsPayday Lending Regulations in Washington StatePayday Lending Regulations in Hawaii - A Contrasting ExperienceFigure 4-1: Revenues of Publicly-Traded Payday Lenders, 2006-2010Table 4-7: Revenues of Publicly-Traded Payday Lenders, 2006-2010 ($ inMillions)Fragmented, Embattled Industry May Benefit From Turmoil in Banking IndustryTable 4-8: Number of Retail Locations of Largest Payday Lenders, 2010Advance AmericaQC HoldingsFigure 4-2: Payday Loan Industry Revenues, 2006-2015 (public companies)PaymentsTable 4-9: Number of Noncash Payments
  • 13. Prepaid CardsFigure 4-3: Prepaid Card Load Volumes, 2008-2012Challenges Facing the Prepaid Card IndustryEntry Points Into Prepaid MarketGreen DotFigure 4-4: Green Dot: Key Business Metrics, Quarterly, and 2010Table 4-10: Green Dot: Quarterly Key Business Metrics, 2009 and 2010 (inmillions)NetspendTable 4-11: Netspend, Total Revenues, 2006-2010 ($ in millions)RemittancesInternational Remittances Originating in the U.S.— Who Is Sending Money andHow Often?Table 4-12: Number of Times Money Transferred to Relatives and FriendsOutside the U.S. During the Previous 12 Months, by Nativity of HouseholdTable 4-13: Total Dollars Remitted to Relatives and Friends During Previous 12MonthsTable 4-14: How Immigrants in the U.S. Send Money HomeRemitters Are Satisfied With Their Current Money Transfer ProviderTable 4-15: Satisfaction Levels With Remittance Channels, 2010Remittances and Emerging Technologies: Can Price Drive Channel Adoption?How Much Are Individuals in the U.S. Sending Abroad?Table 4-16: Remittance Sizing Estimates Significantly Vary From One U.S.Government Agency and NGO to AnotherStructural and Regulatory Challenge Hinder the Use of New RemittanceChannelsGlobal Wire Transfer TrendsTable 4-17: Global Remittance Volumes to Developing Countries, 2005-2015 ($billion)Figure 4-5: Remittance Inflows to Developing Countries, 2005-2015
  • 14. Where Does the Money Flow?Table 4-18: Countries Receiving Most Remittances, 2010Remittance Flows Are Critical to the Economies of Many NationsRemittance OperatorsMoneyGramTable 4-19: MoneyGram, Total Revenue and Gross Profits, 2006-2010 ($ inmillions)Cash-to-VisaMoneyGram Bill Payment ServicesWestern UnionTable 4-20: Western Union, Total Revenue and Gross Profits, 2006-2010 ($ inmillions)Western Union Takes on Wal-MartTable 4-21: Comparison of Fees Charged by Wal-Mart Money Card and WesternUnion MoneyWise CardWestern Union Experiments with Mobile TechnologyChallenging the SpreadRemittance ChannelsHampering the Uptake of New Channels in the U.S.Western Union’s Account-to-Account RemittancesFigure 4-6: Western Union Remains Preferred Remitter for U.S. HispanicsWestern Hemisphere Banks Bypass U.S. MTOs to Facilitate RemittancesMoney OrdersU.S. Postal Service Is Largest Seller of U.S. Money OrdersTable 4-22: U.S. Postal Service Money Orders, 2000-2010 (Processed by theFederal Reserve)Table 4-23: Size of Non-Bank U.S. Money Order Market, 2007-2015Western Union’s Money Order Business Adversely Effected by End of IPSPartnership
  • 15. Table 4-24: Financials of Western Union’s Money Order Business Unit, 2008- 2010 ($Millions) Where Are the Banks? ConclusionChapter 5: International Leaders Offer Roadmaps for U.S. Financial ServicesProviders Introduction Table 5-1: Income Equality in Selected Countries (Gini Coefficient) U.S. Bankers Face Structurally Endemic Challenges as They Consider Future Customers U.S. Bank Branch Network Build for Previous Generation of Banking Customers Meeting Mass Market Financial Services Needs in Africa Figure 5-1: African Banking Industry, Changing Revenue Structure, 2009-2020 Smart Phones and SMS Capability Fuel Growth of Retail Financial Transaction in Africa Mobile Payments: The Intersection of Cards, Banks and the Unbanked Figure 5-2: Number of African Countries with Mobile Penetration Rates Above 50% Table 5-2: Number of African Countries with Mobile Penetration Rates Above 50%, 2005-2012 Cash + Mobile = Economic Growth Figure 5-3: African Money Vendors’ Employment Advertising Mobile Remittances Threaten African Banks Airtel / MasterCard and M-Pesa / Visa: Virtual Payment Cards Central Bank Mobile Payments Platform May Increase Mobile Competition in Kenya Table 5-3: Market Share of Mobile Operators in Kenya, 2011 Figure 5-4: Number of African Countries with Mobile Penetration Rates Above 50%, 2005-2012 Table 5-4: Number of African Countries with Mobile Penetration Rates Above 50%, 2005-2012
  • 16. M-Pesa: Biography of a Market Leader Mass Market Savings Strategies British Premium Bonds - Mainstream Prize-Linked Savings South African Million-a-Month PLS Rethinking the Branch: Hub-and-Spokes Organization Should Be Considered Capitec - Profits From the Previously Unbanked Table 5-5: Total Consumer Unsecured Lending, Capitec and South African Banking Industry, 2007 and 2011 Figure 5-5: Capitec’s Unsecured Load Portfolio Has Grown Almost Four Times Faster Than That of Its Peers The Shot Heard Round the Cape: Capitec Raises the Performance Bar for Its Competitors First National Bank Uses Product-Branches Branches to Sell Specific Products Table 5-6: Financial Inclusion Rates Are Slowly Increasing in South Africa, 2008- 2010 Figure 5-6: Financial Inclusion in Africa WIZZIT Uses Its Independent Sales Force and Door-to-Door Sales to Sign Up New Bank Customers Figure 5-7: WIZZkids’ Method for Marketing the Bank’s Services in the Community and Workplace Conclusion Figure 5-8: South African Regulators Create KYC and AML Exemptions to Allow Providers to Target Low-Balance CustomersAvailable immediately for Online Download athttp://www.marketresearch.com/product/display.asp?productid=2826947US: 800.298.5699UK +44.207.256.3920
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