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Underbanked, Overlooked But Profitable: BS&T Summit

Just one third of Americans who lack bank accounts are what would be considered subprime risks, according to their credit scores, one of the speakers told a session on the underbanked at BS&T's annual summit this week.

"I can't emphasize enough that the not all of the underbanked are subprime customers," Jennifer Tescher, director of The Center for Financial Services Innovation (CFSI), added in her address to the gathering in Scottsdale, Ariz. CFSI was founded in 2004 to help banks profitably serve the underbanked. It is a non-profit affiliate of ShoreBank Corp. ($2.4 billion in assets, Chicago.)

Tescher's fellow panelist, who mostly addressed the underbanked abroad, also stressed the profit potential for banks in dealing with those currently unbanked. Peter Bladin, director of the Grameen Technology Center, a Seattle-based service provider of technology services to micro-lenders in developing countries, said, "it's a business which, if well run, can be very profitable".

The Technology Center is part of a Washington, D.C.-based nonprofit, the Grameen Foundation. It has no business or legal ties to Grameen Bank, one of the best-known micro-lenders, founded 32 years ago in Dhaka, other than that Prof. Muhammed Yunus was a founder or both the U.S. and Bangladeshi organizations.

Three-quarters of a billion people in the developing world, and fast approaching 1 billion, have been funded from Grameen's family loans, Bladin said. However, credit scoring models used in the West—such as FICO scores—do not exist in developing organizations, so Bladin's organization is working to create automated underwriting systems designed in terms that mean something in micro-lender's local markets. Those might be: does the applicant's house have a roof or do their children attend school—all indicators of upward mobility for the majority of the world's citizens, who live on $2 a day or less, he said.

Tescher, who shared findings from an analysis by CFSI, said that in the U.S. 106 million people lack bank accounts. For a large element (46 percent) it is because they have less than ideal FICO scores for want of a credit history with banks. Just 33 percent are subprime and a full 25 percent have prime credit ratings, she added.

Bladin opened his address by remarking with a hopeful observation about banks' newfound interest in the unbanked. "I'm typically speaking at telecoms conferences and not banking conferences, which maybe gives you an idea of how this market is going."

He later noted that in some countries, such as the Philippines and Kenya, local telcos have become the dominant providers of payments services built around mobile phones. He added, "85 percent of the cell phones deployed today are in the emerging markets."

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