The underbanked population is already a $200 billion market and another five percent of the banked population will join these people if banks continue to change pricing to make up for reductions in debit card change.
The underbanked, or those who do not have a checking or savings account but rely on alternative financial services such as non-bank money orders or non-bank check-cashing services, payday loan institutions, rent-to-own agreements, or pawn shops do not trust conventional banking services. Blacks, Hispanics and Native Americans were also the most likely Americans to be underbanked.
The video below, created by Bank 2.o author Brett King, delineates a few factors for the recent rise of the underbanked population. Now the average user of a prepaid debit card is 27 and college-educated and has decided that since the transactional flexibility of a prepaid card is similar to a debit card offered through a traditional bank, so there is really no reason to start up with them.
Having said all this, it seems that the rise in the underbanked is due to a combination of two factors:
- those not able to afford using conventional bank services, and
- those who have found prepaid debit cards to satisfy their needs better for a lower cost.
This equals to an astonishing one quarter of Americans. Either way, it seems like you need to be making a certain amount of money for it to be worth investing in a bank, which heightens the risk of theft and makes it virtually impossible to ever reach stable financial security.
In order to address this quick-rising demographic, banks will need to compete with companies like Green Dot Corp. who partnered up with Wal-Mart, and Plastyc a firm that received $2 million from the venture capital firm Core Innovation Capital. Western Union is another threat with their 46,000 agent locations they are able to control a large portion of prepaid cards and services for the underbanked.
If banks wanted to attract these unbanked customers they would have to adjust rates for certain account types or perhaps develop their own pre-paid card solution to keep money within their own pipelines. With the $200 billion prepaid market it would seem that banks would be jumping at the opportunity to take part in it.