A larger share of South Florida residents live without bank accounts than in any other major city in the nation — among them, the unemployed, low-income workers with a shortage of cash, and immigrants who may not trust financial service providers.
The “unbanked” and “underbanked” are all around us, including emigrés, young Millenials unaccustomed to entering a bank branch, and workers who live from paycheck to paycheck without a financial cushion — a growing market that encompasses more than one of every four households nationwide.
Indeed, Miami is the poster child for that demographic, ranking as the city with the highest percentage of unbanked households — 20.1 percent, without savings or checking accounts — among all large U.S. cities, according to data from the Federal Deposit Insurance Corp., and compiled in a report from the Corporation for Enterprise Development. Miami also ranks high — at 21.4 percent — among the underbanked, meaning those who have an account but continue to rely on alternative financial service providers like check-cashing services or payday loans.
Those populations have grown in the wake of the recession, said Jennifer Tescher, president and chief executive of the Center for Financial Services Innovation, a Chicago-based nonprofit organization that promotes financial services innovation on behalf of underserved consumers.
“They are people who either don’t have a bank account or the account they have is not fully meeting their needs,” Tescher said. “They don’t have access to the high-quality financial products and services that meet their needs.”
These underbanked residents provide a range of opportunities for banks and other organizations that provide credit and financial services, a subject participants explored at a recent conference at the InterContinental Miami.
About 750 professionals from across the country attended the 8th Annual Underbanked Financial Services Forum, produced by the Center for Financial Services Innovation.
Providing services for the underbanked market is an estimated $78 billion business, with an ever-growing roster of providers, Tescher said.
They run the gamut from giant financial institutions like Bank of America and Chase, credit card companies like Visa and MasterCard, and service providers such as H & R Block Bank, Cash America and new online entrants like LendUp and FairLoan.
To reach the underbanked market, gaining consumers’ trust is essential.
“If you want to change the fabric of consumer finance in America, you have to change consumer behavior in some way,” said Raj V. Date, former deputy director of the Consumer Financial Protection Bureau and current managing partner of Fenway Summer in Washington, D.C., who delivered a keynote address at the conference. “And it’s very hard to change consumer behavior if people don’t trust you.”
An array of companies want to earn that trust, with products including secured credit cards that require a cash collateral deposit, prepaid debit cards and online loans geared to provide credit to those without established credit histories or those with low credit scores looking to reestablish their finances.
But annualized rates on short-term loans for this population can be as high as 36 percent. And many products also carry fees.