The underbanked: How much potential do they carry?

The expanding underbanked market represents 20 percent of all U.S. households that should not be ignored. Reaching this market presents challenges and opportunities and will require a rethinking of products, distribution channels and communication strategies.

by. Jim Marous, Editor, Retail Banking Strategies

The financial crisis of 2008 and the emergence of Gen Y has created a massive generation of digital consumers that have higher debt, lower incomes, less trust of traditional financial institutions and a view of banking that differs greatly from their predecessors. These consumers are looking for ‘banking’ products that provide value, convenience and functionality that can, at times, be offered by non-traditional providers.

Given the sheer size of this segment of consumers, they are hard to ignore. The challenge is how to serve a market that is highly diverse, of lower immediate value and needs to be reached using new offers and media. To date, non-traditional financial services providers have done the best job in serving this market.

The primary reason is because of these players have been better at innovating, have a lower overhead structure, are less regulated, and do not need to deal with legacy operating systems. Alternatively, traditional financial organizations have better brand recognition and a more expansive distribution network (in most cases).

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