A CFSI inbrief on the Underbanked Consumer Study Characteristics of Latino Un- and Underbanked Consumers

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1 The CFSI Consumer Study - inbrief July, 2009 A CFSI inbrief on the Consumer Study Characteristics of Un- and Consumers This CFSI inbrief analyses the fi nancial attitudes and behaviors of the 20.6 million underbanked consumers in the U.S. These consumers represent 47% of the 44M s in the U.S. The following information draws from the 2008 CFSI Consumer Study, and the U.S. Census Website. While consumers report some preferences and behaviors in common with all underbanked consumers, there are many instances in which they differ. Some of these differences likely refl ect cultural and language issues. In addition, there is signifi cant variation in the attitudes and behavior between foreign-born s and those born in the U.S. Roughly half of underbanked consumers are foreign born, the majority of whom moved to the U.S. in the last 20 years. Relative to the broader underbanked population, differences in the attitudes and behaviors of Foreign Born consumers is more pronounced. s represent a larger share of the underbanked population than of the total U.S. population. U.S. Population Population Population Median Age White Median Income $59,740 $26,390 $20K-25K Home 68% 68% 42% Ownership Rate Foreign born 13% N/A % of the U.S. Population % of the U.S. Population 3 2 Non-white Hispanic Black or African American Other 1

2 The CFSI Consumer Study - inbrief July, 2009 consumers are more likely to be unbanked versus underbanked, especially if they were born outside of the U.S. They are also more likely to prefer cash as their main method of payment. consumers are identifi ed as those that have a current checking account and/or current savings account and who have made one or more non-bank fi nancial transactions in the past 30 days. In contrast, unbanked consumers are those who have no current checking account and no current savings account. The unbanked are more likely to prefer cash as their main method of payment. U.S. Households 40M are fi nancially underserved Unbanked Banked 72M 64% M 17% 21.4M 19% Cash Data on Un- and All Un- and 52M 5 55M 49% Compared to All Un- and, 20.6M 5M 15.6M % 69.8% 19.7% 80.3% U.S. Born s Debit Card Foreign Born s Check Money Order Credit Card Prepaid Card All All U.S. Born s Foreign Born s 2

3 The CFSI Consumer Study - inbrief July, 2009 consumers are less likely to have ever had a checking account or visited a bank branch. A greater percentage of consumers are unbanked, have never had an account or never visited a bank or credit union compared to the larger underbanked population. However, two thirds of consumers who have visited a bank or credit union in the past rated it as a pleasant or very pleasant experience. This indicates that there may be opportunities for banks or credit unions to increase usage of their services if they can successfully invite s into the branch. All Un- and individuals Un- and 49% 3 23% 34% Foreign Born s U.S. Born s 2 43% 18% % 5 34% Had a checking account in the past Never Currently has a checking account Percentage reporting never visited a bank or credit union All Income <$20K Male Female 3

4 The CFSI Consumer Study - inbrief July, 2009 consumers choose different locations and methods of conducting their financial transactions than the general underbanked population. Grocery stores and supermarkets rated highest as the preferred place to conduct fi nancial transactions by underbanked consumers. 42% of consumers had used the grocery store for a fi nancial transaction at least once in the last 30 days, as compared to about - for the remaining categories, including superstores/ club centers and a bank branch in a store. Therefore, partnerships with grocery stores and supermarkets in communities may be an opportunity for banks and credit unions looking to penetrate this market. Percentage reporting location preference for fi nancial transactions 4 3 Supermarket or Grocery Store 3 2 Union - Stand Alone Branch Check Cashing Outlet or Currency Exchange Union - Inside Store Liquor Store Super Center or Club Store All All s U.S. Born s Foreign Born s Male s Female s Percentage reporting zero fi nancial transactions by location type Union Stand Alone Branch Union Inside a Store Check Cashing Outlet/Currency Exchange Liquor Store Super Center/ Club Store 7 6 Supermarket/ Grocery Store All s U.S. Born s Foreign Born s * Represent the six most popular locations. 4

5 The CFSI Consumer Study - inbrief July, 2009 A greater proportion of consumers express a preference for prepaid cards versus checking accounts, relative to all underbanked consumers. Although rates of use are not signifi cantly higher than those among the general population, a greater percentage of s indicated a preference for a prepaid card to a checking account if the cost of these alternatives where equal. As such, the community may represent an opportunity to expand prepaid usage. -focused marketing, in conjunction with education about the costs of using prepaid cards and other low-fee card products, could help prepaid card providers to capitalize on existing interest in their products. All Un- and 62% 37% 3% Un- and 3% 5 47% Prepaid Checking acco unt No Respo nse 7% 7% 46% 48% Foreign Born s v. U.S. Born s 5 49% Percentage reporting reason they would prefer using a checking account to using a prepaid card Provides Proof of Paying a Bill Convenient for Paying Bills More Familiar with Checking Help Build Credit Help Budget Less Expensive than Prepaid Required to Send Money Abroad All All Percentage reporting reason they would prefer a prepaid card to using a checking account Accepted Everywhere Less Expensive than a Checking Account Can Only Spend the Money I Have Can Pay More Quickly Not as Much Personal Info Needed Purchasing and Loading Money is Easier More Options for What and How I Buy Things No C redit Check Needed Help Build Better C redit Score Build Savings

6 The CFSI Consumer Study - inbrief July, 2009 While underbanked consumers borrow at similar rates to all underbanked consumers, they borrow for different purposes and from different sources. Rates of credit use were no different from the total underbanked population: about of underbanked consumers reported that they had borrowed in the last 12 months. However, s frequently cited family and friends as either the reason for borrowing or the source of the loan, and banks were used by much lower rates in comparison to the overall underbanked population. Further, payday loans held very little appeal for borrowers. Person-to-person lenders could consider ways to help s translate their existing behavior into credit building practices. Reason for borrowing in the last 12 months 2 Pay Medical Bills Pay Rent Pay Utility Bills Towards Living Expenses Purchase a Car Fix a Car For Education To Help Out a Friend To Help out Family or Relative To Pay off Debt Travel Meet Payroll Vacation Needs Other Source for funds borrowed in the last 12 months Not included limited difference between All and : For furniture purchase (4%), For home repairs (), To invest in a new/existing business (6%), To avoid bankruptcy () Family Member or Relative Union 3 2 Friend All Pay Roll Advance from Employer Pawn Shop Finance Company Someone in the Neighborhood that Lends Money and Charges Interest Payday Lender 6

7 The CFSI Consumer Study - inbrief July, 2009 Methodology: A national study of 2,799 underbanked adults 18+ by phone and mail Non-Hispanic/Hispanic A broad age sample Weighted back to U.S. population proportionally All US Households: 112 million US Households: 21.6 million Unbanked US Households: 18.5 million Segments were identifi ed, including: Market segment size Propensity for fi nancial products Desired marketing and communication approaches About CFSI The Center for Financial Services Innovation (CFSI), a nonprofi t affi liate of ShoreBank Corporation, facilitates fi nancial services industry efforts to serve underbanked consumers across the economic, geographic, and cultural spectrum. It provides funding and resources, enables partnerships, and identifi es, develops, and distributes authoritative information on how to respond to the needs of the underbanked profi tably and responsibly. CFSI works with banks, credit unions, technology vendors, alternative service providers, consumer advocates, and policy makers to forge pioneering relationships, products, and strategies that will transform industry practice and the lives of underbanked consumers. For more on CFSI, go to ShoreBank is America s fi rst and leading community development and environmental banking corporation. For more on ShoreBank, go to To Contact CFSI: Center for Financial Services Innovation 2230 South Michigan Avenue, Suite 200 Chicago, IL tel: fax: www. 7