As U.S. "Unbanked" Population Grows, Financial Institutions Must Develop New Approaches...

Wed Jul 30, 2008 9:58am EDT

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As U.S. "Unbanked" Population Grows, Financial Institutions Must Develop New Approaches and Products for Underserved Markets

NEEDHAM, Mass.--(Business Wire)--
More than 100 million consumers living in the United States today
are considered "unbanked," "underbanked," or credit underserved, and
often rely heavily on nonbank providers of financial services to
conduct their financial transactions. Despite various regulations
enacted to provide banking services to a broader range of consumers,
many financial services institutions fail to offer the products needed
by this significant portion of the U.S. population and bring them into
the mainstream banking system.

   New research from TowerGroup finds that traditional financial
institutions must focus more attention on creating the right products
for financially underserved consumers - given that existing products
do not meet the needs of this population nor help institutions win
additional market share in this category. Institutions cannot simply
strip down products designed for more affluent or mainstream American
markets. They must make a full-scale evaluation of various segments of
the underserved market and address these customers' unique needs,
preferences, and economic circumstances.

   While banking institutions may be largely absent in serving these
markets, consumers are not without options. In addition to Community
Financial Centers and Financial Service Centers, a new wave of
providers such as retailers offering financial products (H&R Block,
Wal-Mart) and online providers (peer-to-peer lenders) are working to
fill the gap. The traditional banks will have to compete with the
increasing number of providers who serve these markets and have
developed large and profitable networks.

   TowerGroup believes the most challenging aspect of serving
unbanked, underbanked, and credit underserved consumers is defining
and identifying the different segments of the market. The majority of
the individuals in the unbanked sector - many of which have a distrust
of the banking system - rely heavily on a cash-based economy,
generating few to none of the records used in traditional credit
reporting. Consumers who are more easily identifiable are those with
thin credit files or "subprime" consumers with unfavorable credit
profiles. They also tend to fall into the undeserved market due to
their inability to secure loans and other banking services stemming
from both their lack of credit history or negative history upon which
an institution would make a lending decision.

   A graphic illustrating the complexities of the underserved market
can be downloaded at:

   TowerGroup points to a number of ways in which banks can compete
for the underserved markets. For lending transactions, a number of
risk tools using alternative data elements not previously available
for credit evaluation purposes can help institutions ascertain the
creditworthiness of credit-underserved consumers. Other aspects they
need to consider to attract this population include cultural
traditions and inclusivity, office locations and hours, language
barriers, marketing, and account documentation requirements.

   The TowerGroup report titled "Will Unbanked Outnumber Banked
Consumers? Solutions in the Race to Win Share in Underserved Markets,"
is authored by Bobbie Britting, Research Director in the Consumer
Lending practice at TowerGroup. To request a copy of the research or
to arrange an interview with Britting, please contact Jorge Lavina at
+1.917.595.3047 or Those interested in
subscribing to a TowerGroup research service may call +1.781.292.5200
or email

   Sign up for the biweekly newsletter, TowerGroup News, to stay
informed on the latest research and events. To learn more, visit:

   About TowerGroup: TowerGroup is the leading research and advisory
services firm focused exclusively on the financial services industry.
A respected source for trusted information and advice, TowerGroup
brings many of the world's leading financial institutions, technology
companies, and professional services firms a deeper understanding of
the business and technology issues impacting their organizations.
Headquartered near Boston in Needham, Massachusetts, and with offices
in North America and Europe, TowerGroup serves a global client base.
Visit for more information.

For TowerGroup
Jorge Lavina, +1-917-595-3047

Copyright Business Wire 2008