And not just in the feel-good, glow-in-the-moment way (although there's nothing wrong with that). But in the dollars-and-cents, meat-on-the-table, and upwardly mobile way.
Take the example of United Bank, of Atmore, Ala., as described by Christopher McClinton, ABA's vice president of payment solutions. It's a real success story.
Read the whole thing at the link below, but, briefly, it goes like this. The bank is in an area of Alabama crushed by economic blows because of the closing of the regional textile mills and domestic catfish hatchery operations. Many people in the area have been pushed across the line from steady employment to scratching out a living as best they can for themselves and their families. Where once they were considered eminently bankable in the traditional sense, they've now entered the ranks of the "underbanked."
As an aside, they are not alone. Javelin Strategy & Research estimates that there are 37 million underbanked Americans, spread across the country, honestly struggling to pay bills. More on that in a bit.
In January 2012, United Bank launched a prepaid card solution as a complement to its existing checking accounts. It used the ABA's Community Bank Prepaid Program. Not only was this available to all of its existing customers, it provided a lower-cost option to those who previously had to use check-cashing and other cash-only options. Even though the prepaid option isn't free, it costs less than other options available, it allows cardholders to save money, and it gives them access to online financial management tools.
The bank then took the next step and aligned itself with a local counseling service called the Hale Empowerment and Revitalization Organization (HERO).
"The thing about HERO," says Greg Walker, vice president for business development and marketing, United Bank, "is that they have access and see people who may never come into a traditional bank. HERO reaches out and is part of our branch there [Greensboro, Ala.], providing information about secured and prepaid cards, and their clients trust them."
In the year since, the bank reports "a slow but steady growth in the demand for prepaid-and an increasing number of prepaid users who subsequently convert to regular accounts."
In other words, a revenue stream that was not there before.
ABA's Business Solutions subsidiary late last year commissioned a survey about banks' attitudes, adoption rates, and deployment plans regarding prepaid cards. Results: a third of the banks that have implemented "general purpose reloadable cards" did so specifically to target the low- and moderate-income segment of the population-especially if those individuals had been denied traditional accounts [also known as the underbanked].
Which is kind of what Javelin's recent research concludes.
"The underbanked are not a homogenous group that can be easily targeted with a one-size-fits-all approach," says Mark Schwanhausser, director, Multichannel Financial Services, at Javelin. "Financial institutions and bill-pay innovators need to realize that there is a win-win ROI opportunity to improve bill payment services and cut processing costs by better understanding and targeting the 15% of Americans who are underbanked.
To be clear, this particular study by Javelin focuses on online or mobile banking access, but the relationship to serving the underbanked and gaining return on investment is evident.
"When it comes to paying bills, the underbanked are just like Americans at large. They want safe and convenient ways to control the flow of payments. As a result, persuading the underbanked to try paying bills online or on their smartphones is likely to be similar marketing and educational themes that motivates consumers at large," says Javelin in a recent report.
For bankers, of course, a key part of all this is risk assessment. Resources are available to deal with this. To start with, ABA's Corporation for American Banking specifically endorses RiskView Credit Risk Decisioning Solutions by LexisNexis as a way to gauge extensions of credit to thin-file or underbanked customers. RiskView uses a proprietary scoring methodology based on public records and nontraditional consumer credit data to increase approvals while minimizing defaults.
Other heavy hitters are getting into this game-which may reinforce the idea that it is a game to get into. For example:
· FICO and FactorTrust partnered to use their associated expertise to develop new credit risk assessment models for lenders to better serve underbanked consumers. Here's where the ubiquitous Big Data business comes in.
"Alternative data can be a valuable supplement to traditional data sources for risk assessment," says Andrew Jennings, FICO's chief analytics officer and head of FICO Labs. "By combining alternative data, advanced analytics and decision services, lenders can now make better credit decisions on people who don't have a credit history, and who have therefore found it hard to obtain credit."
· Experian also has made significant steps in this direction. Last month it announced that its RentBureau business will collaborate with WilliamPaid, essentially to allow on-time renter payments to be factored in to their credit history.
"With 35% of the U.S. population renting, a rent payment should mean much more than just a positive mark in the landlord's ledger," says Steven Wagner, president, Experian Consumer Information Services.
Experian followed this up this month by upgrading its VantageScore model to 3.0 status, specifically to include up to 30 million more consumers previously deemed unscorable, by using a "wide range of credit data to increase predictiveness."
So who wins when the underbanked are banked safely in some way?
As ABA's McClinton says: "Everybody wins."
Sources used in this article include:
- Look Before You Leap: Key Considerations for Moving to a Digital-Only Model
- Disruptions Past, Present and Future Raise the Existential Question: “What Are Banks For?”
- Study Links Credit Card Offer to Bank Choice
- What Banks Can Learn From the United Capital Acquisition
- What the Win-Win Partnership Between Apple and Goldman Sachs Means for Payments