Jul 05, 2013 Sean Albert
Since the economic fallout in the United States roughly five years ago, alternative financial services have become more popular than ever before. Short term loans, as well as a variety of other products and services, have been seen as helpful boosts for consumers, small businesses and even larger enterprises in recent years.
Now, younger generations are driving growth in both the alternative lending market and the newly popular prepaid card industry. Distrust in traditional financial institutions and products reached a tipping point of sorts during the Great Recession, as well as the years directly following the financial crisis, which many accounts seemed to indicate rested squarely on the shoulders of Wall Street.
Unbanked and underbanked households have been the most frequent users of prepaid cards and alternative financial services in the past four years, while Millennials are beginning to flood the market as well. Businesses can capitalize on this new-found popularity by offering products that are dramatically different from those of traditional institutions.
Survey reveals popularity
The Deseret News recently reported that a new survey conducted by Think Finance revealed that a majority of millennials are using pawn shops, short term loans, prepaid cards and check cashing services. The study included responses from more than 1,000 individuals between the ages of 18 and 34, who are considered the millennial generation.
The findings are incredibly important for the average retailer in the United States, as more Baby Boomers begin to exit the market and are replaced with a growing population of millennial consumers. Following trends among this highly profitable group can mean the difference between cultivating a marketing and service strategy that is relevant or unsuccessful.
According to the news provider, eight out of 10 of the respondents cited using alternative financial services as emergency options, such as when they need cash quick to pay off an impending debt or make a timely purchase. However, the survey did reveal that these individuals would not be considered unbanked or underbanked, as 92 percent had a traditional checking or savings account.
The source explained that alternative products were viewed as more convenient and having more amicable hours of operation than traditional financial institutions by millennials. What's more, Think Finance found that these consumers believed prepaid cards and alternative financial services had more perks, such as lower monthly and annual fees.
USA Today interviewed officials from the firm to better understand why these characteristics seemed to shine through in the survey.
"It's flexibility and controllability that's really important for millennials," Think Finance CEO Ken Rees explained to the news provider. "Banks don't have great products for people who need short term credit. They're not really set up for that."
He went on to state that alternative financial services have specifications that are simply easier to comprehend than those of traditional banks. For example, USA Today noted that smaller providers of alternative lending products do not view the payoff as interest, but rather one-time fees, making them more preferable for younger generations.
Why regulation might not work
American Banker explained that regulators are increasingly interested in creating rules that will provide oversight of the prepaid card industry, while alternative financial services have also undergone significant changes when it comes to compliance. However, the source explained that the implementation of federal or state charges for offering or using prepaid cards, similar to debit interchange fees, could impede the burgeoning sector.
Many experts believe that prepaid cards are becoming a critical driver of economic wellness, especially as such a high population of consumers refuse to use traditional banking services. Businesses can capitalize on prepaid card popularity through the launch of progressive strategies.