More than most, underserved consumers are likely to appreciate the money management bells and whistles that these newfangled products offer. And while consumers may not rate savings as high on the priority list when asked about it in a market research survey, Simple and GoBank each offers intuitive and fun savings features that small savers would appreciate.
To cast a wider net, the new entrants will have to calibrate their underwriting models to make sure they are weeding out fraudsters without inadvertently cutting off access to consumers with nontraditional credit histories.
They also will need to contemplate consumer cash flow issues. Some cash-strapped consumers need immediate access to their funds. A growing number of prepaid providers are offering check cashing via mobile phone. The customer takes a picture of the check, the check is immediately cashed for a fee, and the proceeds are deposited on a prepaid card. Why not offer customers the choice, after they have snapped a picture of their check, to either deposit the check or cash it?
Some will argue that underserved consumers don't want a financial relationship. While that may be true for some, we shouldn't confuse consumer behavior with consumer preference. Both banks and prepaid companies lament their high churn rates, but their products are often designed and priced in ways that encourage that churn.
While we may yet lack the language to neatly categorize the new products coming to market, it is clear that they represent the future of finance. Let's ensure they are marketed and structured in ways that make them a part of all consumers' futures.
Jennifer Tescher is the president and chief executive of the Center for Financial Services Innovation. Rachel Schneider is the center's senior vice president of innovation and analytics.
Financial Institutions have a lot to gain by engaging consumers with more relevant products. The underbanked segment represent a large market, looking for banks capable of meeting their needs. We're seeing the leaders begin to step up to the challenge.
In actuality these are prepaid accounts. 5 or 6 days to deposit a check remotely? How long does Check21 allow for a check deposit? An hour? Why would anyone wait 5 or 6 days (Bluebird and GoBank) to cash their paycheck? Because its cool to do it through a phone? Waiting 6 days is not cool.
It's the companies that don't want to be seen as 'prepaid'. Simple uses Bancorp-Delaware & TxVia - a prepaid processor and the account can't over draft. Simple though uses a front end to filter out what are considered bad risks so just like a regular checking account if you are in Chex - no approval. However just as with prepaid the Simple bank card cannot be used to rent cars.
GoBank? Prepaid.
Chase does put themselves out there with allowing a $200 credit on a check deposit immediately but they run Chex for Liquid also so its not prepaid in that regard.
The companies are confused about their identity and about their product offerings.