Credit unions and small community banks are facing competition in one of the most unexpected banking spaces – the unbanked.
Forbes.com just released a report about startup companies racing to deliver basic financial services to the 1.7 billion people on the planet who don’t have a bank account at all. Companies like Tala are loaning as little as $20 a month to people in countries like Mexico and the Philippines, where the unbanked exceed 60% of the population. Borrowers pay 15% interest and use that money to start their own businesses. As they become more profitable, Tala increases the amount they may borrow.
How long do you think it will take for this race to hit American soil?
Companies like Green Dot have already tapped into the U.S. unbanked market with cash cards for consumers who have bad credit or can’t afford bank fees. Cash cards are similar to debit cards except they are not tied to a checking account.
One huge benefit is no overdraft fees. When cardholders run out of money, the card stops working until they get paid again. Green Dot has five million customers. About 40% were previously unbanked. Another big benefit is low fees. Green Dot’s cash card fee is $5 a month. How much are your financial institution’s overdraft and account fees?
Your Financial Institution Has Opportunities
The United States is one of the richest countries in the world, but we still have about 40 million people living in poverty. According to Forbes.com, about 14 million adults —7% of American households—get by entirely on cash.
1. Tap into the unbanked
Underserved and unbanked often mean different things. Many credit unions and community banks cater to the underserved. Millions are still out there with no access to financial institutions and their services. Educate those people. Earn their trust. Help them.
2. Tell their success stories
Rags to riches stories both empower and inspire. If you can demonstrate how your credit union or bank helped improved their lives, you may inspire other underserved and unbanked consumers to trust your financial institution. Word of mouth and loyalty are significant in certain cultures. Take advantage of that.
3. Advocate for financial inclusion
Financial institutions battle daily for the attention of young consumers. Generation Z – born between 1996 and 2010 and comprising about 20% of the U.S. population – are concerned about the impact of poverty and hunger, human rights and equality. That’s according to research conducted by Cone Communications. This is your connection to that generation. Serve the unbanked. Advocate for them. Build your reputation as the financial institution fighting against economic injustice. Gen Z will notice you.
A 2015 Accenture report indicates how traditional banks alone could boost annual revenue by at least $380 billion if they turned all the unbanked into customers. What is your financial institution waiting for?