Ron Stapp went to the Underbanked Financial Services Forum in Chicago last week to learn more about how his bank could offer remittance services to immigrants.
But the senior vice president and branch administrator for County Bank, a unit of the $1.7 billion-asset Capital Corp of the West in Merced, Calif., said he also came away with new ideas for rating creditworthiness.
He found out at a panel discussion that companies such as First American Credit Information Group of Poway, Calif., PRBC of Annapolis, Md., and Experian Inc. of Costa Mesa, Calif., are helping the underbanked build credit histories through payment of routine bills, such as rent and utilities. Banks can use that information to tell if a potential borrower with little or no history of mortgage, car, or credit card payments is creditworthy.
"The idea there was using such bill payments as a way to have a nontraditional credit score for individuals that do not have the typical Equifax, Trans-Union score, but they are paying their bills on time, to acquire some type of score," Mr. Stapp said.
First American compiles data on things like rental, utilities, and insurance payments to help people build a credit history. PRBC does the same, then has the information verified by a third party. Experian incorporated phone bill payments into its credit scoring in 2005 and is designing a pilot project to test credit scoring using repayment histories on payday loans and rent-to-own arrangements.
Mr. Stapp was one of dozens of bankers at the conference, which was presented by the Center for Financial Services Innovation and SourceMedia Inc., the parent of the American Banker.
Jennifer Tescher, the director of the center, a division of Chicago's ShoreBank Corp., said she had expected about 100 attendees, but more than 400 registered for the conference.
That, she said, shows that businesses see a chance to be profitable, not just charitable, in this market.
"The turnout confirms that there is strong awareness and keen interest in the underbanked as the next growth market," Ms. Tescher said. "People came to this conference because they clearly understand there is a market opportunity, so we can focus on how to take advantage of the marketplace."
Also in attendance were representatives from credit unions, check cashers, prepaid card management companies, and some regulators.
Brud Baker traveled from Enid, Okla., to hear about trends in the prepaid card business.
Mr. Baker is the president and chief executive officer of the $372 million-asset Central National Bank and Trust Co., which has issued about 100,000 prepaid debit cards. Like Mr. Stapp, he gleaned ideas for marketing to the underbanked, specifically mentioning a program run by the nation's largest bank, Citibank.
The Citigroup Inc. unit's Citibank at Work program was designed to help employers enroll their workers in direct deposit. Citi conducts financial seminars and sends a banker out to businesses to sign employees up for accounts. Miriam Solomon, a senior vice president at Citibank, said at the conference that it is on track to open 210,000 accounts this year.
Deborah C. Wright, the chairman and CEO of the $661 million-asset Carver Federal Savings Bank in New York, part of Carver Bancorp Inc., said perceptions of the unbanked and underbanked have changed.
She said community banks have wanted to pursue the underbanked but often have not had the resources to, say, open branches in low-income neighborhoods. Large banks, meanwhile, often saw their presence in low-income markets as philanthropy, and did not see the underbanked "as a profitable market segment."
But with check cashing firms and remittance services thriving, banks of all sizes are recognizing an opportunity in offering similar services.
Still, the underbanked have been going to fringe financial service providers for so long that they may not be willing to cross over to banks, Ms. Wright said.
"I think it will be interesting to see how long it will take the mainstream institutions to cross the barrier of trust to be successful in the marketplace," she said.
Richard A. Karpowich, a senior vice president at the $672 million-asset City and Suburban Federal Savings Bank in Yonkers, N.Y., agreed that banks have their work cut out for them.
"Everybody is going after this business," he said.
