Partnering with different organizations may be the key to successfully reaching out to the "unbanked"-but there are hidden risks in those partnerships.
A recent study by the National Community Investment Fund's Retail Financial Services Initiative found that financial institutions that forged innovative partnerships were the most successful at serving the underserved, but picking the right partner isn't always as simple as it seems, according to Christopher Tan, senior analyst with the Center for Financial Services Innovation, which partnered with the RFSI on the "From the Margins to the Mainstream: A Guide to Building Products and Strategies for Underbanked Markets."
How Partnerships Were Formed
Most of the partnerships were formed with leaders of a given underserved community. Such partnerships allowed the financial institution to learn everything from important cultural barriers that needed to be overcome to the types of products and services a community really wants and needs, the study found.
Moreover, those partnerships also gave the institution an opportunity introduce itself to the community and establish instant cachet and rapport with the community.
But some of the most innovative partnerships were among some unlikely bedfellows. Bethex FCU, for example, teamed up with check casher RiteCheck.
"One initial hurdle to this type of partnership is there is a certain amount of reputational risk," Tan noted. "It's like you're sleeping with the enemy. There are some innate tensions and fears."
Indeed, since many efforts to reach out to the underserved revolve around providing low-cost alternatives to potentially predatory groups like payday lenders and check cashers, such a partnership on the surface may appear to be self-defeating, but the success of the Bethex/RiteCheck partnership proves that doesn't have to be so.
"That's why what Joy Cousminer did was so important," Tan added, referring to the CEO of Bethex FCU.
The key in such partnerships is that both sides have to trust each other, and both sides must stand to gain from the partnership.
One reason the partnership worked, Tan suggested, is that check-cashers are "more acceptable, less predatory" than their payday lending counterparts.
Among The Lessons Learned
Additionally, what they are finding, Tan said, is that one doesn't have to preclude the other.
"The thought always was, if they had direct deposit, there would be no need for a check casher, so of course a check casher would fear this kind of partnership," he explained. "But in the end, it's not that big of an issue because for every person who does cross over into traditional financial services, there are still a lot more who continue to go to the check casher. Plus, for many low-income people, their salaries come from several different employers instead of one employer, so they might still go to a check casher for some checks, and go to the credit union with the others."
