The Inclusive Economy
Takeaways from CFSI’s Underbanked Forum
By Ethan Geiling on 06/21/2011 @ 03:45 PM
Last week, I attended the Center for Financial Services Innovation’s (CFSI) Underbanked Financial Services Forum. The forum brought together over 600 people interested in serving underbanked consumers. The definition of “underbanked” varies depending on the source, but it usually means a person who does not use a checking or savings account and instead relies on some combination of other products and services to meet their financial needs. It’s hard to summarize everything I learned during the conference. So here are a few key takeaways that come to mind:
Underbanked does not always mean poor.
When many people think of underbanked, they often think of low-income and financially unstable individuals. However, this stereotype is not true. The underbanked cross the income spectrum, with a significant percentage of them making more than $40,000 a year. People are not underbanked because they are poor. They are underbanked because banking products are not meeting their needs.
Technology will play an important role in serving the underbanked.
One of the most impressive aspects of the conference was the Core Underbanked Innovators Challenge. Four companies performed live demonstrations of their new products. One product, Goalmine, pioneered in part by CFED Innovative Idea Champion Rimmy Malhotra, demonstrated how it’s making savings and investment accounts easily accessible to consumers, regardless of income level and investment experience. Consumers can log on to the website and open an investment account with as little as $25 in just a few minutes.
The former CEO of Safaricom, the keynote speaker for the conference, was particularly impressive as well. He spoke about many of Safaricom’s innovative products for the underbanked, including M-PESA, a mobile banking service that allows Kenyans to transfer money via their phones and essentially functions as a mobile wallet. Safaricom and M-PESA have demonstrated how a product can quickly go to scale, reaching millions of people. Bringing great ideas to scale is something we often struggle with here in the United States.
Walmart has made a significant contribution to the underbanked field.
Jane Thompson, president of financial services at Walmart, spoke about Walmart’s experience in the underbanked market. Walmart started serving unbanked and underbanked customers nine years ago. Since then, it has grown to become the largest player in the field. According to Jane’s bio, customers will save more than $500 million on financial services at Walmart this year compared to traditional alternatives, like check cashing outlets. Walmart’s $3 check cashing service has pushed many of the more expensive and predatory check cashers out of the market. Additional services like its prepaid MoneyCard have helped consumers manage their day-to-day finances. Jane challenged the audience to think about how little you can charge the consumer with a financial product, rather than how much money you can make from them.
Grocery stores and other retailers are well positioned to serve the underbanked market.
In one session titled “Bread, Milk, and Financial Services,” speakers from Sears and Blackhawk Network spoke about providing financial services to the underbanked where they shop. The speakers argued that now is a “perfect storm” for retailers to take the lead with financial services. Retailers already interact with underbanked consumers on a regular basis, and they are usually more conveniently located than banks. Retailers don’t need to make a huge profit on financial products, unlike check cashers, banks, and other providers. Their main retail business is their primary source of revenue and profit. Walmart opened the door to financial services in retail, and since then other large players like Sears and Kmart have jumped into the space.
Overall, the conference left me pondering the needs of the underbanked, which vary greatly from consumer to consumer. Bank accounts, even with low or no fees, don’t always meet the needs of the underbanked. How do we meet these consumers where they are? And how do we balance questions of access and quality/regulation, which often seem to be in tension. There are no easy answers. I’m looking forward to next year’s conference to learn how the field’s thinking on these issues has progressed!