2012 2012 Center Center for for Financial Financial Services Services Innovation Innovation Underbanked 101 Joshua Sledge, Analyst, Innovation and Research, CFSI CFSI Underbanked Financial Services Forum June 13, 2012
Defining the Underserved Total Underserved = Unbanked + Underbanked 2008 CFSI Underbanked Consumer Study Unbanked: No current checking account and no current savings account Underbanked: Current checking and/or savings accounts, and one or more non-bank financial transaction in the past 30 days CFSI uses underbanked as the term to encompass both groups 2009 FDIC National Survey of Unbanked and Underbanked Households Underbanked: Current checking and/or savings accounts, and rely on alternative financial services, specifically: Non-bank money orders, non-bank check-cashing services, payday loans, rent-to-own agreements, or pawn shops at least one or twice a year OR refund anticipation loans at least once in the last five years
The Underserved Population Approximately 30 million U.S. households 60 million adults are financially underserved 9 million Unbanked Total Unbanked and Underbanked (% of U.S. Households): 26% 88 million 21 million Underbanked Underserved: all consumers within group by ethnicity 32% Black 29% American Indian 24% Hispanic 16% Hawaiian 15% White 7% Asian Source: CFSI Underbanked Consumer Study, 2008, FDIC 2009
Underserved Income Distribution Underserved doesn t necessarily mean lower incomes Percentage of Households that are Underserved $75k plus $50k-$75k $30k-$50k Underbanked Unbanked $15k-$30k Less than $15k 0.0% 5.0% 10.0% 15.0% 20.0% 25.0% 30.0% Source: CFSI Underbanked Consumer Study
Age of the Underserved 35% 30% 25% 20% 15% Age Distribution of Underserved Combined Underbanked Unbanked Gen Y represents 9.5M underbanked households Underbanked Unbanked Banked 6.1 M, 23% 9.5M underbanked households 10% 5% 16.7 M, 64% 3.4 M, 13% 0% 18-24 25-34 35-44 45-54 55-64 65-74 75 + Source: CFSI Underbanked Consumer Study, FDIC National study
A $45B Marketplace $28 $26 $24 $22 Refund anticipation loan Credit scoring Auto title lending Internet payday $20 Pawn shop lending Fees and Interest ($B) $18 $16 $14 $12 $10 $8 $6 $4 $2 $0 LMI credit card Payday lending Rent-to-own merchandise financing Overdraft Money orders Payroll cards GPR prepaid Check cashing Walk-in bill pay Remittances Checking/Savings/CDs LMI mortgage Credit Payments Deposits Mortgage Source: 2011 CFSI and Core Innovation Capital analysis.
Trends in Underbanked Marketplace 40% Underbanked Market Growth 2009-2010 30% 20% 10% 0% -10% -20% -30% Source: 2011 CFSI and Core Innovation Capital analysis.
Why Not at a Bank? Not enough money to make an account useful Accounts are too costly I wish I could have money to handle. I don t have any. What I m learning about myself is that I m really trying to survive. Lack of trust in banks instead of bouncing the one big check they bounced a zillion other little ones.... Then they charged, it was $30 for each of that, so next thing I know it s like negative $600. Forget it! I mean, you guys are killing me here! I don t like putting my money in a bank. I don t trust nobody with my money but me. A Tool for Getting By or Getting Ahead? Consumers Views on Prepaid Cards (April 2009) AND A Study of the Unbanked & Underbanked Consumer in the Tenth Federal Reserve District (May 2010)
Why Underserved? Satisfaction with Providers Almost 80% of underbanked consumers are satisfied with their preferred financial services channel Top reasons for satisfaction It doesn t take a lot of time I ll go to 7-11 in the morning and check my balance, pull out some money and I ll get the money orders while I m there at 7-11. I try to handle everything all at once. Helpful employees that treat customers with respect Treat people the way you want to be treated. And then educate them so that they don t have those fees and if you educate somebody and you help them, who do you think they re going to be the first person to come to when they need help? Source: CFSI Underbanked Consumer Study
Underserved: Preferred Location for Transactions Banks and retailers are the most preferred places to conduct financial transactions Preferred outlet for financial transactions? 40 30 35% 43% prefer a bank 24% 45% prefer a retailer 20 10 0 8% 6% 0 1% 6% 2% 2% 3% 6% 2% 1% 2% Source: CFSI Underbanked Consumer Study
Underserved Consumer Transactions Most frequently cited method of payment None of These 6% 5% Food Stamps/ Benefit Card 2% 1% Payroll Card 1% 0% Prepaid Card 2% 2% Debit Card 2% 32% Unbanked Credit Card 3% Underbanked 16% Money Order 3% 1% Check 4% 16% Cash 27% 77% 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% Source: CFSI Underbanked Consumer Study
Where is Prepaid Use Highest? Prefer prepaid to checking if cost was similar 65-75 $75K + 55-64 $50-$75K 45-54 $40-$50K 35-44 $30-$40K 25-34 $20-$30K 18-24 Under $20K 0% 10% 20% 30% 40% 50% No Credit Card Credit card user Borrower? Savings Account hecking Account Unbanked 0% 10% 20% 30% 40% 50% 60% Stronger appeal of prepaid by young to middle age adults (18-35) Lower income households have higher preference for prepaid Prepaid cards are preferred among unbanked consumers, and appeal to those without credit cards and borrowers 0% 10% 20% 30% 40% 50% 60% Source: CFSI Underbanked Consumer Study
Frequency of Borrowing 28% of all underbanked have borrowed money within the past 12 months The unbanked borrow slightly less frequently Frequency of money borrowing, last 12 months Once 46% 2-4 times 38% 13+ 4% 5-8 9% 9-12 3% Source: CFSI Underbanked Consumer Study, 2008
Why the Underserved Borrow Reasons for Borrowing within Past 12 Months 30 25 20 15 10 5 0 Travel Home Repairs Fix a Car Other Purchase Car Combined Underbanked Only Unbanked Towards My Living Expenses Pay Utility Bills Almost 40% of borrowing was to cover cost of living. Source: CFSI Underbanked Consumer Study, 2008
Underbanked Savings Underbanked households have a wide range of savings goals I would like to be able to invest, slowly a little at a time and start saving for my children. So even if it is a little bit at a time, I could save for my children. However, a lack of liquidity makes saving difficult Everything is so expensive now. I put money in the savings with the intention of keeping it there. But then I spend what I had in my checking after going to the savings. 80% 70% 60% 50% 40% 30% 20% 10% What savings goals are important for you? 0% An Emergency Retirement Send Children to College Buy a Home Buy a New Car Source: CFSI Underbanked Consumer Study, 2008
Underbanked 101 June 13, 2012 www. USfinancialdiaries.org, 2011
Overview The Financial Diaries project is a deep dive into the finances of 300 low- and moderate-income working families Over the course of a year, field researchers will visit families twice a month and log every dollar that flows into or out of a household A chance to reveal often-hidden choices and how households juggle and navigate, how they save and spend. Relevance for policymaking and financial product design. www. USfinancialdiaries.org, 2011 17
Partners 18 www. USfinancialdiaries.org, 2011
Life on a Low Income How low-income is low-income? What parts of economic activity do typical surveys miss? How does high-frequency data change the picture? Ups and downs. How variable are income and needs within the year? How do low and variable incomes translate into hardship? Stressors. Which life events are de-railing families finances? How are families trying to cope? Accumulation. How do families think about and pursue asset ownership? Where are they most successful? Family and friends. To what extent do kin networks and community help or hinder efforts to save money? To cope? Race and ethnicity. How does race and ethnicity open some opportunities? Limit others? www. USfinancialdiaries.org, 2011 19
How Finance Matters Financial options. What sorts of financial options (formal and informal) are available to families? With what trade-offs? Credit. How do families manage debts? Options and strategies for credit repair? Saving. Can families save? Do they want to? Do they manage to? Short term vs. long term savings. Budgeting. How do families budget? Where do budgets de-rail? Knowledge. How do families acquire financial knowledge? How do they choose among financial service providers, formal and informal? Big picture and policy. How do the pieces work together? How do elements like employer-sponsored retirement plans, consumer credit, and worker tax incentives work in practice? www. USfinancialdiaries.org, 2011 20
Research Sample Financial Services Usage 100% 90% 86% Banked 31% Underbanked 55% 80% 70% Unbanked 14% 60% 50% 40% 30% 20% 10% 42% 45% 39% 19% Banked = Bank account and may also have a credit card. No money order, prepaid card, or alternative loan Underbanked = Bank account and at least one of the following: money order, prepaid card, or alternative loan Unbanked = No bank account 0% BankAccount MoneyOrder PrepaidCard CreditCard AlternativeLoan *Note: Data is based on recruitment questionnaire and for the 319 households in the study as of 5/25/2012. Note: usage refers to households with at least one person with each each type of instrument. Households could have multiple responses - hence the percentages will not add to 100%. 21 www. USfinancialdiaries.org, 2011
Stories from the Field Saving for an emergency Saving paychecks to manage money Savings Clubs Among co-workers As an emotional support group Multiple savings strategies Thinking you can t save 22 www. USfinancialdiaries.org, 2011
Panelists Kevin Wright, Vice President, Emerging Markets and Segments Management, US BANK Hamed Shahbazi, Chairman and CEO, TIO NETWORKS Steve Zuckerman, President, SELF-HELP FEDERAL CREDIT UNION Vicki Frank, Executive Director, CREDIT BUILDERS ALLIANCE