MIAMI-The unbanked and underbanked do not all share the same profiles or the same financial wants and needs.
Grayson Clarke, senior director of Credit Risk Decisioning at Lexis Nexis, noted that the data compiler considers an individual underbanked if they have no or thin credit files-a label that applies to upwards of 65-million people nationwide. And thin and no file consumers are likely to remain that way thanks to the CARD Act, he suggested during a luncheon presentation at SourceMedia's 5th Annual Underbanked Financial Services Forum here, as it becomes more difficult to get a credit card.
The greatest concentration of underbanked individuals can be found in immigrant-heavy areas such as California, Arizona, Florida, and the metropolitan northeast. Most are likely to be young and every year, 5% to 6% of no-file consumers move into a credit product. But even with little credit information, Brent Sorenson, director of Analytics R&D at Lexis Nexis, indicated that about 40-million underbanked individuals are scoreable.
For instance, although they may not have credit scores, he noted other breakout information can give financial institutions a strong road map on how to do risk analysis on these individuals. People who have been evicted from their homes, for example, have a 32% "bad rate." Individuals with higher-value homes, which they may have inherited or bought in cash, are more likely to be a good risk, as are those who have not moved frequently and have professional licenses or degrees.
"When you use good breakouts, you can recognize that people who maybe fit more the 'B' type at first, and are closer to an 'A,'" said Clarke.
There are also differences in why underbanked individuals remain underbanked. Increased complexity in the financial services industry has turned off many people who have decent credit, assets and cash. Half of the underserved simply want fixed price products that they can pay each month and not get hit with penalty fees, while the other half are "control freaks" when it comes to their money, according to Hank Israel, director at New York City-based Novantas.
"The reality is that the unbanked is all kinds of folks. It's seniors, it's college students, it's people who are disenfranchised from the system and can't stand us anymore," added Rick Claypool, SVP & Director Consumer Deposit Products at BBVA Compass.
Financial institutions need to provide simplicity, clarity, choice and control to woo the underbanked back into the traditional system. Demonstrating that they are trying to help consumers help themselves is a good first step, argued Bank of America SVP Tracy Grooms.
"Our customers aren't looking for us to be their moms and dads necessarily, but they are asking for us to be a partner."
