The underbanked are a more-complex customer market than previously believed, new research shows. Fortunately, technology can help banks better serve this potential customer segment.
KeyBank (Cleveland; $93 billion in assets) teamed with the Chicago-based Center for Financial Services Innovation (CFSI) to identify tactics that might appeal to consumers with limited banking relationships and improve acquisition efforts. The resulting study The Power of Experience In Understanding the Underbanked Market examined 760 check-cashing customers across the country and determined that many of them already interact with a bank in some manner; only 24 percent use check-cashing outlets exclusively. "[The study] demonstrates the potential that many of these people want to be engaged by banks in some manner," states Jennifer Tescher, director with CFSI.
This finding proved to be the greatest boon to KeyBank, according to Mike Griffin, SVP of community development banking. "We've always operated under the belief that we could bring people to the bank with check cashing," Griffin says, noting that KeyBank is one of a few banks that have successfully engaged the underbanked community, through its KeyBank Plus check-cashing program. "It's a product they know and it helps them overcome their fears of dealing with a bank. The fact that there are actually some segments [of underbanked consumers] that are interested in expanding their banking relationship is helpful. ... The study helps validate what we're doing to expand these relationships."
According to CFSI's Tescher, the study breaks the underbanked down into five segments, each with very different expectations with regard to what they want in a check-cashing experience and the degree to which they wish to engage with traditional banks. In general, she says, more can be done with technology to serve these segments.
"Technology plays an important role in servicing this market, but its potential hasn't been as tapped as it could be," Tescher comments, noting that banks often are saddled with legacy systems that slow efforts to roll out new services. "It's expensive for banks to refit their systems. But how do you integrate [technology for the underbanked]? How does a teller know if a person is a customer? This is forcing banks to rethink what defines a relationship."
Tech for ID Verification, Convenience
Technology plays a large roll in KeyBank's efforts to service the underbanked. According to the bank's Griffin, it has used technology from Valid Systems (Fort Worth, Texas) for the past two years to help register and authenticate customers for the bank's check-cashing service. "This helps us with risk mitigation," he explains. "One of the biggest issues with this service is ensuring the identity of the person we're dealing with." Griffin notes that the bank's previous system for authenticating users was manually intensive and did nothing to engender feelings of trust and satisfaction among already reticent customers.
Further, Griffin says, the new technology fits the bank's multichannel strategy for serving the underbanked. "The ATM will be a hidden home run for us since the Valid system allows you to do transactions at an ATM," he explains. The bank is testing a single-function check-cashing ATM at one of its Cleveland locations. So far, Griffin says, customer acceptance has been positive. And, "We can compete with the check-cashing outlets on convenience using ATMs," he contends.
A New Look at the Underbanked
The CFSI/KeyBank study identified several common threads among underbanked consumers that can help banks in their outreach efforts:
• Underbanked consumers often are confused by mainstream banks and their policies.
• Physical surroundings matter. Many people are uncomfortable in an institutional setting and prefer a less-formal environment. Safety and confidentiality are important.
• Respect is paramount. Financial institutions can show respect through convenient locations and hours, friendly employees and clear communication about charges and other policies.
• Underbanked consumers may not be served by traditional financial products. Banks may need to think about how to offer check cashing, money orders and low-cost remittances, for example.
• Underbanked consumers are interested in learning about financial matters but may not have time for traditional classes. Experiential learning, online courses and peer coaching might be alternatives.
Source: Center for Financial Services Innovation