While there are many ways to reach out to the underbanked -- including developing innovative products and marketing and community outreach programs -- technology finally is helping overcome some of the challenges. Technology is making engaging the underbanked profitable for banks and, in turn, beneficial for those with lower incomes. Automation has made it possible for banks to squeeze profits out of even the smallest transactions and lowered the cost of opening checking accounts to the point where it is feasible for banks to offer low- or no-minimum balance requirements.
A Second Chance: Checking Accounts
To successfully engage the underbanked, Roth says, "Financial institutions need to look at what is going to make this segment profitable," while offering products that appeal to its members. Of course, one of the flagship activities among the underbanked is check cashing. But if a consumer doesn't have an account with a bank, the institution is unlikely to provide this service.
One solution is to provide second-chance checking accounts, which provide a way to bring the underbanked into the financial mainstream and help them feel comfortable using bank products. Second-chance checking accounts typically are monitored by the financial institution for a set period and often are linked to financial education.
The Bank on San Francisco initiative advocates these second-chance checking accounts for people who have mismanaged accounts in the past. "For some banks there was some work required [to set up these accounts]," says San Francisco Treasurer Cisneros, noting that while second-chance accounts are less automated than regular checking accounts they still can be profitable for banks. He points out that New York-based Citibank ($1.3 trillion in assets) has offered these types of accounts for years.
Citi's Access Account is a non-interest-bearing transactional account that was launched in 2003, according to Janis Tarter, a spokeswoman for the bank. The Access Account also has remittance and funds transfer options, no minimum balance requirement, statements in English and Spanish, and dedicated customer service available in English, Spanish and Chinese, Tarter explains. She says a diverse range of customers is attracted to the Access Account -- when Citi piloted the product in Chicago in 2003, recent immigrants, senior citizens and students signed on for the product.
"The account-opening process for this product requires less documentation since there are no paper checks and does not require a Social Security number," Tarter explains. Despite the differences, she adds, the technology behind the Access Account isn't much different from that of the bank's traditional checking accounts -- the product engines, which the bank builds itself, are run on an IBM (Armonk, N.Y.) mainframe.