Forget Semantics – Focus on Improving Consumers' Financial Health

We read with great interest Kevin Wack's recent column encouraging the financial community to "Ditch the Word 'Underbanked' ". After all, our organization, the Center for Financial Services Innovation, is largely responsible for popularizing the language to describe consumers who participate in the banking system but whose financial needs are not fully met.

We, too, agree that the term "underbanked" has outlived its usefulness. But it would be a mistake to assume that most American consumers are thus financially well served.

Nobody thinks of themselves as underbanked. They think, "I need a place to cash my paycheck," "I need a loan" or "I need advice on how to manage my money." How they address these needs is a complex matter of preference, behavior and access. They are looking for high-quality products, be it bank, nonbank or anywhere in between – and there are still too few good solutions out there.

The problem with the term "underbanked" is that it positions banking as the sole solution, when we know that the reality is much more complex. While banks continue to play a critical role in the ecosystem, the world of consumer finance has changed significantly in the past decade.

These changes have been driven by technological innovation, the shifting role of banks in the lives of consumers and recent economic hurdles that impacted a wide swath of Americans. What were once considered alternative products, such as reloadable debit cards, are increasingly becoming mainstream. As such, a consumer's attachment to a formal bank may not always carry the significance it once did.

It was with these trends in mind that CFSI, in conjunction with American Banker, decided the former "Underbanked Financial Services Forum" should be renamed "Emerge: The Forum on Consumer Financial Services Innovation".  

So let's ditch the word "underbanked" and replace it with a focus on improving consumers' financial health. Someone who is financially healthy has the ability to borrow, spend, save and plan well. They have a financial cushion when things get tough and are resilient in the face of financial challenge. And they have access to high-quality financial services when they need them. 

How many Americans are in need of better financial health? According to a 2013 survey of U.S. consumers by Aite Group, 43% of respondents rate their financial health as inadequate, poor or very poor.

In the wake of the financial crisis, more than half of American consumers ended up with credit scores below 600. More than three quarters of Americans reported this year that they do not have enough saved to cover six months of living expenses, and more than one quarter report having no savings at all.

These and other data points suggest that millions of Americans could benefit from better products and services to support their financial health – perhaps an even greater number than those who by official measures count as "underbanked."

The reality that many Americans struggle to achieve full financial inclusion was not well understood even a few short years ago. Popularizing the term "underbanked" helped to raise awareness of this large and diverse segment of American consumers. It helped galvanize the financial services industry to look afresh at a market segment otherwise ignored or relegated to subprime providers.

And it led policymakers to mandate that the Federal Deposit Insurance Corp. conduct a biannual survey of Unbanked and Underbanked Households, providing the industry with an unrivaled national snapshot of this market and its usage of financial products.

Ultimately, though, our focus should be on improving the financial health of Americans. Whatever we call them, these consumers deserve the kinds of high quality, widely accessible savings, credit and payments products and experiences that are critical ingredients in the recipe for financial health. And there is money to be made by firms willing and able to serve them responsibly, respectfully and on their terms.

So let's stop talking semantics and get to work.

Jennifer Tescher is the president and chief executive of the Center for Financial Services Innovation.