The Myth of the Underbanked
Mainstream media often defines the underbanked as consumers who have a checking account and use pay day lenders (or other non-bank entities) on occasion, or as consumers who use prepaid cards but don’t have a primary relationship with a financial institution. Who decides if someone has enough bank accounts, loans, or credit cards?
There are plenty of reasons why people don’t use traditional financial services—they may opt for a no-debt lifestyle, perhaps they mistrust banks, or in some cases don’t qualify for certain products because they have bad credit. People who fall under the categorization of being underbanked often have all of the bank products they desire or the products available don’t fit their lifestyle. There simply isn’t a one-size-fits-all bank.
Instead of focusing on the number of bank products someone has or how many they should have to be considered fully banked, a greater emphasis should be placed on providing products that better meet customers’ individual needs. The road to getting credit can be complex, confusing, and impersonal. Financial institutions need to create a smoother experience to make that road less bumpy—without hidden fees, fine print filled with legalese, and numerous trips to the branch.
There are innovative companies emerging that have introduced new banking models—everything from methods of underwriting to online-only services. They were created to serve people in different ways because they recognized consumers’ increasing frustration with the gaps in traditional banking services. A couple examples of these innovators are Earnest, which offers student loan refinancing and low-cost personal loans and BankMobile which as the name suggests, is a branchless bank in your pocket.
Earnest emphasizes not what the customer would pay, but what the customer should pay. They use between 80,000-100,000 data points (including income, savings, and 401K accounts) to gain a broader picture of individuals and offer the best rates. Loans are structured to help consumers get out of debt faster and pay less interest. Another unique quality is that customers choose the length of their loan—if they want a seven year and two month loan or a five year and five month loan, no problem. The Earnest model focuses on trust and forging lifetime relationships.
BankMobile offers fee-free checking and savings accounts, higher savings rates, and mobile app features that allow customers to conduct their banking wherever and whenever they choose—building a branchless bank is the core of their business. They actively seek feedback with the goal of making financial transactions effortless and a bank that makes sense in today’s mobile world. How many banks actually ask their customers to help them co-build an institution that works for them? It’s a simple premise that seems to be taking hold as BankMobile reports they have 1,000 new accounts opening every month.
The word underbanked is often used to demonstrate that people are not being well served by our traditional financial system. Quite frankly there are people who shouldn’t be given loans and other credit products (flashback to the financial crisis of 2007-2008). But, for those who are financially responsible there should be better options. Consumers today want more from banks; they want a trusted financial partner. Banks don’t need to be all things to everyone. Earnest and BankMobile discovered a gap and provide services that work for those individuals. Now is the time to go the extra mile to provide products that make good financial sense and work to build a better bank.
Maybe one day the industry will be asking the unhappily banked—how can we better serve you?