Reaching the unbanked

The economic recession led to a major increase in unbanked and underbanked households in the United States, largely the result of heightened distrust in the nation's financial institutions. Alternative financial services have enjoyed higher demand in the process, while businesses and banks continue to look for new ways to reach these households.

Prepaid cards and electronic payments have been among the strongest, most consistent methods of penetrating the unbanked and underbanked markets, especially when strategies are cultivated in such a way that separates them from traditional banking services. Businesses can capitalize on these trends by marketing new and unique payment services to target households.

Getting the unbanked on board
The Winter Park/Maitland Observer recently reported that the unbanked and underbanked populations continue to grow, despite efforts of financial institutions to regain the patronage of these households. The Federal Deposit Insurance Corporation (FDIC) estimates that roughly 17 million adults are considered unbanked and 51 million would fall into the underbanked population. 

According to the news provider, these figures represent roughly 28 percent of the national adult population and illustrates the potential sources of revenue for companies that successfully reach these individuals. Unbanked households are characterized by not have a checking or savings account, either by choice or inability to acquire one, while underbanked adults are those who need to supplement traditional services with alternative sources of credit or check cashing.

The source explained that there a variety of common reasons that lead to households falling into these categories, including a lack of sufficient funds to open an account, poor banking records, no identification and language barriers. Additionally, bad experiences with former traditional banking services could lead to a decision to avoid checking and savings accounts.

Finally, The Winter Park/Maitland Observer asserted that high fees and hidden penalties are among the biggest deterrents of households from traditional banking services. Still, government agencies and advocacy groups believe that these households have high risks as a result of not possessing any banking services because of a variety of factors.

Enter prepaid and electronic
With such a massive opportunity for growth in the unbanked and underbanked populations, many businesses and lenders are turning to advanced technology and prepaid cards as a method of tracking the behaviors of these households. Prepaid cards that come with the loosest terms and least fees are often the most successful, while electronic payments accounts that ensure security and affordability have been shown to attract underbanked and unbanked households.