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Banking for the Masses

As a whole, the underbanked and unbanked—consumers who have either limited relationships with financial institutions or none at all for a variety of reasons—account for more than 30 million Americans. That is not an insignificant number, and smart banks are redoubling their efforts in reaching out to this market.

But mainstream financial institutions realize the underbanked/unbanked population is a tough nut to crack. The cultural and language barriers involved with courting this group are many. Most of the underbanked/unbanked are either African-American or Hispanic. The Hispanic segment is growing fastest and, unfortunately for financial institutions, Hispanics in general tend to be uncomfortable maintaining relationships with banks, say experts. Instead, they prefer to frequent retail-like outlets and check cashing stores. Enter any low-income or immigrant neighborhood and you're more likely to find a Western Union branch than a bank branch.

Financial institutions need to get creative if they wish to gain market share among this segment. In addition to offering fee-based check cashing, remittance services and low-minimum-balance savings accounts, banks also can use technology to entice the unbanked to rethink their relationships with financial institutions. Payroll cards and prepaid cards, for example, can bring these consumers from the fringes of financial services into the fore by offering a good "starter" financial instrument—one backed by a bank. Self-service check-cashing kiosks are another technology alternative that could attract the unbanked/underbanked market.

Banks' understanding of this potential new market will continue to grow along with the tides of new immigrants. But financial institutions should strike while the iron is hot, or they may find themselves shunted aside for the Western Unions of the world. --M.B.

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