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.
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“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.
The Millennial generation, totaling 80 million in the United States, provides a particularly large, underserved market. By next year, Millennials, ages 18 to 34, are expected to encompass 36 percent of the U.S. workforce, said Ken Rees, chief executive of Think Finance, a speaker at the session on the subject. Many prefer to handle finances online or via mobile devices rather than visit bank branches, he said.
Access to emergency credit is another issue for the underbanked. Online start-up lenders LendUp and FairLoan, based in California, are hoping to bridge that gap by tapping into technology.
“Online opens up a huge, accessible distribution channel, said Paul Leonard, California director for the Center for Responsible Lending, during a session on innovation in online lending. “There is no need for bricks and mortar.”
Challenges remain, however, because some consumers are reluctant to use the Internet or to provide financial information online. And finding good borrowers may be tough.
“We make loans to people that the banks and credit unions aren’t approving right now,” said Sasha Orloff, chief executive and founder of San Francisco-based LendUp, a speaker at the session on online lending.LendUp’s online platform can be accessed by computer or smartphone, in English and Spanish, and the borrower can choose the dollar amount and the duration of the loan, within certain parameters, such as up to $250 for 30 days, then graduating to $500 for three months and then $1,000 for a year, he said. Annualized rates start at 25 percent.
“It teaches people to be better borrowers,” Orloff said. “So in turn, they become better customers.”