Bankers view unbanked consumers as attractive targets because they believe a savings or checking account can often be a steppingstone to an eventual car, mortgage or small-business loan.
The problem is that such relationships can often take years to become profitable, and with low rates crimping profit margins and loan growth spotty at best, banks can only be so patient. So many are digging deeper into data to find existing customers — or those at other banks — who have more immediate profit-generating potential. They're getting an assist from credit bureaus, which are developing new ways to slice and dice data to find these diamonds in the rough.
In one example, banks are using a new Equifax product that identifies consumers who show signs they could move into the ranks of the mass affluent, if they could cut back on their spending. There is even a nickname that retail consultants and bankers use for this demographic: High earners, not rich yet (HENRYs).
At least 20 of the 50 largest banks are using some type of alternative data, or innovative ways to analyze data and generate marketing leads, estimated Christine Pratt, research director for the wholesale banking practice at Aite Group
"Loan demand is down and banks aren't putting as many loans on the books as they want," she said. "They're working to put data from all their sources to increase the pool of [potential] new customers."
Figuring out a way to kick HENRYs up to a higher service tier can also generate more fees for banks, said Brad Jones, retail banking leader at Equifax. It will cost banks more up front in marketing expenses, but banks will make that trade-off, in order to sell additional wealth-building or insurance products in the long run, he said.
"You may want to offer them a more expensive cost and service model, maybe for a fee, so you can show them you see the value in them," Jones said.
Banks do possess scads of data themselves, but they need help lassoing it, said Christopher Liechty, vice president of marketing at the $1.5 billion-asset People's Intermountain Bank in American Fork, Utah.
"All the data is there, but it's all in different buckets," Liechty said. "Getting everything into one place is a challenge."
Equifax's product helps banks find consumers who are in plain sight, but don't jump off the page as marketing targets because they have too little in the way of investable assets, Jones said. The average HENRY has about $214,000 in assets, but the industry standard for an affluent customer is $1 million in assets.
But the statistics show that HENRYs are especially promising. They're young, with an average age of 43. They also make up about 13% of U.S. households and their average yearly income rose 8% from 2012 to 2015, to $135,865.
Their problem, however, is that they live it up, or they've amassed an oppressive amount of debt, such as student loans and auto loans. Many also live in urban areas where housing costs tend to be high.
"These folks make a lot of money, and they spend a lot of money," Jones said. "They're just a few tweaks away from becoming mass affluent."
Equifax's HENRYs product uses alternative data points, such as the types of deposit accounts they have opened and the official code number for financial securities held in their portfolios. The data is then run through analytical tools like estimated financial capacity, likely investment style and demographical bits such as where a person lives. Equifax declined to identify the banks, credit unions and other companies that have used the product.
The onus is on banks to reach these potential customers and to educate them how to move into a higher service bracket, Jones said. The most-effective ways to lure in HENRYs are with wealth-management products and travel-based rewards credit cards, he said.
Rival data firms offer similar products, including TransUnion's CreditVision Link and Experian's Wealth Insight Services. FICO and Lexis/Nexis Risk Solutions also sell products along these lines, Pratt said.
To be certain, these data techniques aren't limited to consumers with the potential to become mass affluent. Credit bureaus that focus on subprime consumers, including FactorTrust in Roswell, Ga., have programs designed to teach them how to improve their credit scores.
Some subprime consumers may not be ready to take on additional financial products, and consumer advocates have warned banks and credit bureaus to tread carefully in pursuing them. Alternative data points like utility bill payments could result in low-income consumers having bad credit scores; that's worse than having no credit score at all, said Chi Chi Wu, a staff attorney at the National Consumer Law Center.
Banks can go it alone and only search their own customers' data sets for new customers, but that approach eliminates a huge portion of the population, said Brett Huff, an analyst at Stephens. It's better for a bank to buy a data set from a vendor or credit bureau "so they don't have to go find the extra data themselves or build a new analytical environment to do the math," he said.
Of course, banks aren't going to wait for consumers to act. People's Intermountain Bank recently purchased data on its own customers that it didn't already have. (The bank declined to identify the vendor that sold it the data.) The bank used the information to troll for existing who could save money through a mortgage refinance, Liechty said. The bank mailed letters to its customers, hand-signed by individual loan officers with their direct phone numbers.
The effort generated enough new business that the Utah bank wants to do more projects, if it can squeeze out the time and money, Liechty said.
"Our dream would be to do a couple of mailings like this on a monthly basis, but the reality is that we have limited time and budget," Liechty said.