Underserved Represent Huge Opportunity

November 15, 2011

There's money to be made catering to the financial forgotten: poor and working poor families that get shunned by mainstream banks. If you're reading this, you probably already have a sense for that. Now there's real-life data illustrating this point.

The Center for Financial Services Innovation (CFSI) reports that America's unbanked and underbanked last year generated about $455 billion in loans, payments and deposits for nonbank financial services providers. To put this into perspective, consider that banks have been crying foul for months now over an estimated $9 billion industry hit on debit card interchange. (Posts with more detailed discussions of debit card interchange caps are available here and here.)

CFSI and Core Innovation Capital (a venture capital firm that invests in projects that address America's financially underserved), released data earlier this month indicating that 60 million underbanked American consumers generated $45 billion in fee and interest revenues, primarily at nonbank financial services providers in 2010. (The 60 billion number comes from a Federal Deposit Insurance Corporation's 2009 estimate of underbanked adults in the U.S.)

The data preseneted by CFSI and Core Capital indicates some financial services are charting more growth than others among the underserved. The market for payments services, for example, grew 6% between 2009 and 2010, while extensions of credit rose just 2%.

Additionally, several specific products/services saw huge advancements in adoption between 2009 and 2010, according to a Knowledge Brief published by CFSI and Core. These include: Internet-based payday loans (up 35%), general purpose reloadable prepaid cards (33%) and payroll cards (25%).

"This new data confirms that there is a large opportunity for the financial services industry to create new products and services that are both profitable for them and provide much needed solutions for this customer segment," said Arjan Schutte, managing partner at Core. "Our vision is to transform this market in a way that is significantly more profitable to the industry, will save consumers billions of dollars and help create upward mobility for tens of millions."

50 million American households are considered "unbanked" - they have no relationships with federally insured financial institutions