The landscape of financial providers catering to the underbanked has grown and changed dramatically in recent years. Retailers, technology firms, and other nonbanks have elbowed past banks and credit unions to grab a share of the market.
If banks want to compete, they would be wise to look to nonprofit organizations as potential partners.
Community-based nonprofits make strong collaborators. Being on the ground gives them a unique advantage, because of their close contact and deep relationships with underbanked consumers. They have a strong read on underbanked consumers' needs and preferences and often play the role of trusted adviser with their clients.
In addition, nonprofits can offer a more flexible environment for testing products and strategies, paving the way for scalable offerings. Increasingly, they are pitching themselves to private-sector providers as marketing and distribution channels that can penetrate the market effectively and efficiently.
Over the last four years our organization has funded efforts by innovative nonprofits to develop and test a range of financial products, services, and strategies for the underbanked. Our most recent round of funding attracted 133 proposals worth $30 million from nonprofits in 35 states.
A forthcoming white paper details what we saw. Notably, more than 80% of the proposals involved partnerships. Two-fifths of those involved collaborations with banks and credit unions.
Some partnerships revolve around product development. In a project we funded, the Doorways to Dreams Fund of Boston has joined with six Michigan credit unions to test a new product that rewards savings with a combination of interest and cash prizes.
Prize-linked savings accounts have gained traction and popularity in more than 20 countries around the world as varied as Bangladesh and the United Kingdom. Legal and regulatory challenges have hindered their development in the United States. The Doorways to Dreams Fund is tackling these issues to clear the way for innovation.
The majority of bank-nonprofit partnerships hinge on marketing and distribution. Nonprofit groups offer unparalleled access to underbanked consumers at moments that are ripe for discussions — and sales — of financial products and services.
Community-based tax preparation sites have been experimenting with marketing a growing array of bank and credit union products — checking and savings accounts, prepaid debit cards, certificates of deposit, savings bonds, and secured credit cards — that might appeal to lower-income consumers who are receiving large Earned Income Tax Credit refunds.
A growing number of local nonprofits are creating entirely new delivery channels. These one-stop financial centers offer basic products and one-on-one advice, often bundled with other social services like job training or English classes. One example is the Eastside Financial Center in St. Paul, a collaboration between Lutheran Social Service of Minnesota and U.S. Federal Credit Union to reach underserved consumers in a lower-income neighborhood. The two groups have set up locations at the facility and have worked together to develop a customized menu of products and services.
Another nonprofit has developed a closed-circuit television network to reach immigrants through Mexican consulates, where a typical wait is one to two hours long. Profmex creates the content for the network it calls Saber Es Poder (Knowledge Is Power), broadcasting news-like segments on basic financial topics and marketing products and services for banks.
The group also provides brochures and handbooks that contain coupons from financial institutions offering starter products. The coupons provide bankers with a way to track their return on the marketing investment. Wells Fargo was an early partner, and the group is looking for others.
The Community Reinvestment Association of North Carolina has taken the Profmex concept a step further. The group has developed "Nuestro Barrio," a Spanish-language telenovela, or soap opera, that packages financial information as entertainment to help link Latino immigrants with financial services. The series has aired on diverse networks in markets across the country, including Miami, Chicago, and New York, with a potential reach of 25 million viewers.
BB&T was the first banking partner to distribute a DVD of the first season in its branches. The next step is to create a customized set of episodes that integrate BB&T products and services into the story line and can be distributed on its Web site.
The financial services market for the underbanked is changing fast. These initiatives show promise because they are relatively organic and respond to the needs of consumers in their communities. Banks are not always positioned well to see the changes going on in the communities around them. Nonprofit partners can help.