Innovate solutions, alleviate problems
ash is King, The Next Wave, The Strivers sound like upcoming shows for the fall schedule on ABC. But they're not. Those three monikers, along with five others, were coined by a Center for Financial Services Innovation study to describe the eight consumer segments of the un and unbanked populations.
According to CFSI, Cash is King are consumers least likely to have – or to have had – checking or savings accounts with banks; The Next Wave are individuals who desire home ownership and want to save money to reach that goal; and The Strivers are aggressive money managers who may opt out of demand deposit bank accounts for fear of identity theft.
The intent of CFSI's classifications and the entirety of the June 2008 study – downloadable at the organization's Web site – is to understand those consumers on a deeper level, and to recognize they are not a monolithic consumer block; they are individuals with different backgrounds and different financial needs.
"It's roughly 40 million households and they don't all want the same things and so we're hesitant to suggest strategies that are a one size fits all, because we don't really feel there is such a thing," said Jennifer Tescher, Director at the Center for Financial Services Innovation.
Alternative banking tool
As a nonprofit organization affiliated with community development banker ShoreBank Corp., CFSI's goal is to conduct research on the "uns" and invest in promising new ideas that can improve the quality of their financial lives, as well as supply direction to financial institutions for reaching that market with products and services.
One of the products CFSI touts is general purpose reloadable prepaid cards (GPRPs).
"[GPRPs] look and feel most like a checking account, and they provide consumers with the greatest ability to transact a variety of different type of transactions," Tescher said. "I mean, a gift card is essentially an electronic gift certificate. That's very nice. But from the perspective of trying to give consumers tools to achieve financial prosperity, a gift card is really not going to get them very far." If FIs price GPRPs appropriately for this market, incorporate the right mix of consumer protections and functionality, prepaid cards can "very much feel like a substitute for, or a stepping stone to, a checking account," Tescher said.
That's what Tescher believes many unbanked and underbanked consumers desire – a way into the traditional banking system. They want savings and checking accounts and credit lines as well. "I'm not necessarily talking about the addition of a credit instrument, although that's happening also, but having your use of a prepaid card count toward building credit would be something that many underbanked consumers would highly value," she said.
Tescher offered up MasterCard Worldwide-branded prepaid cards provided by AccountNow Inc. and issued by MetaBank as an example. Working with the alternative national credit bureau PRBC, AccountNow reports cardholders' recurring bill payments to PRBC, thereby allowing consumers to establish credit ratings.
In good time
According to Tescher, the biggest hurdle facing the expansion of prepaid cards beyond gift and calling card applications is Father Time.
"It takes time for people to understand what it is, how it can benefit them," she said. "Even though it is largely aimed at the un and underbanked consumers, the fact is even if it were aimed at the mass market, we'd be having the same issue.
"Prepaid is still relatively new. It hasn't been a decade yet. I mean, it's barely been five years that general purpose reloadable has been broadly available. And we're just now starting to see very limited amounts of national advertising."
Chicago-based CFSI works with prepaid card providers to help them better understand the unbanked and underbanked markets; counsel them on how to design, price, and market their products; and learn how to make those products most beneficial for the consumers who use them.
The goal is to convince consumers that prepaid cards are "more than just a disposable piece of plastic," Tescher said.
Almost There is another consumer segment in CFSI's study. Over 60 percent of Almost Theres already have established relationships with banks through checking accounts.
Almost There may also describe the current state of the prepaid industry as well. But being "almost there" is not a bad place to be, for it implies a day when it will "get there."
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