RLR Management Consulting

Who are the Underbanked?

By Paul Richardson, SeniorConsultant
RLR Management Consulting, Inc.

Who are the Underbanked?

In the old days the term ‘unbanked’ described the homeless or criminal elements of society. Financial institutions now find themselves competing in this new uberification of services age, a new breed of consumers has appeared, the ‘underbanked’. Here’s a peek at who and what may be competing for that old-fashioned account holder.

Banking Alternatives

Many young adults are ‘underbanked’. They are looking for hip cool products using social media payment vehicles like Facebook or Apple. They want their funds now, not next day, and want the ability to use a text to send funds. One example of this would be ApplePay. The user would simply text to send or request funds. The recipient clicks ‘accept’ to complete the transfer. The sender’s debit card is charged and the credit goes to Apple (outside the bank account). The recipient can use the funds on a pre-paid card or send via ACH to a bank account at no charge.

Another platform picking up traction is Zelle, a service that can be used within many banks’ mobile apps or using the Zelle app. The unique thing about Zelle is that transfers are virtually immediate, their payments ride the ATM network. Social responsibility is huge with this age group, young adults want to support products and services that align with their social values.

Lack of Trust

Consumer trust levels declined significantly following the 2008 financial collapse. While Dodd-Frank and improved federal regulations were intended to instill confidence in the banking system, it didn’t seem to improve trust in banks. Consumers simply do not trust that a financial institution will keep their money or information safe.

Lack of Understanding

To the lay-person the banking system is complex, there is a basic lack of understanding as to how the system works. This lack of understanding can cause fear and avoidance.

Banking Hours Limitation

As the traditional brick and mortar branches are disappearing, due to a growing online presence, the location and hours of the branch is an issue for many consumers. Pre-paid cards may be an alternative for consumers who can’t get to a bank branch during open hours.

As fintech services become more and more a part of the banking world, the idea of “having a bank” may shift more and more into the background. Service offerings to do “banking”, like Zelle, Facebook and Apple etc. will become more mainstream.