The Unbanked Cross Multiple Demographics

  In the 1981 movie Time Bandits, John Cleese plays a snooty Robin Hood, patronizingly redistributing wealth to the underfunded. "Have you met the poor? Charming people," he tells a visitor.
  While Cleese's character lumped the poor together, the unbanked and so-called underbanked are not a homogenous monopersonality. "It is not one demographic," says Todd Brockman, senior vice president at Visa USA. "It is a combination of multiple demographics across ethnicities, income levels as well as financial literacy."
  NetSpend Corp. cofounder Bertrand Sosa says Netspend first marketed its prepaid cards to teens because investors did not believe unbanked adults had any money. NetSpend knew that not to be true.
  "It's the Wal-Mart customer, and you don't get to be the size of Wal-Mart if your customers have no money," Sosa says. Indeed, many unbanked Wal-Mart customers use the store's financial centers for such services as check cashing and prepaid card reloading.
  The terms underbanked and underserved are especially relative. "The underbanked are so varied," says Jennifer Tescher, director of the Chicago-based Center for Financial Services Innovation. She defines underbanked as lacking the financial services that allow individuals to spend and save in ways that lead to long-term financial growth.
  BearingPoint Inc., a McLean, Va.-based research firm, divides the underserved market into three categories. It estimates about 45 million individuals in the United States are underbanked. This means they have some type of transaction account, typically a basic checking account, but find it difficult to get credit.
  BearingPoint's unbanked group includes 28 million individuals who have no accounts and rely on services such as money orders to pay bills. Another 11 million unbanked consumers are unregistered immigrants who do not believe they can open accounts (see chart page 24).
  Tim Ramsey, BearingPoint senior manager, says while the unbanked and underbanked earn a lot collectively-about $1.1 trillion per year-a large percentage live on very little, and many do not manage those small funds well.
  Prepaid cards tend to serve the population well, says Ted Dargan, vice president at MasterCard Worldwide. "It's the first touch point [issuers] have to that segment," he says. "Over time, which could be a year or two, the bank could cross sell more products."
  Ginger Kent, president of UniRush Financial Services, issuer of the prepaid Visa Rush and Baby Phat cards, says cardholders will decide whether to take the bait. "The customer is going to do what the customer thinks is right for them," she says. "If the customer feels the prepaid card is serving their needs well, they'll stay with the prepaid card. If the customer feels a more traditional banking relationship is the way to head, they'll do that."
  Kent says while most unbanked individuals may have less money to spend, they are not averse to paying fees for card-based services as long as those fees are easy to understand and are fair.
  BearingPoint's Ramsey believes not enough banks and prepaid vendors provide sufficient cardholder training. "For the most part, the unbanked segment doesn't understand how prepaid cards work," he says. "The education has to be a lot more targeted to different demographic segments, and it needs to be a lot more direct and involved than [giving people] pamphlets."
  New cardholders also take some coaxing to use the cards for payments as opposed to just securing cash at ATMs. Sosa says many NetSpend cardholders load a small amount onto new cards then immediately withdraw those funds just to make sure the cards work. "Somewhere along the line they've been burned, so they don't go full-fledged right away," Sosa says. As they become comfortable with the card, many load larger amounts and leave those funds on the cards, he says.
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