Their transactions will more than double sales of non-traditional financial services--reaching an astounding estimated $389 billion in fees and loans by 2011, according to "Non-traditional Financial Services Markets in the U.S.: Unbanked and Underbanked Consumers," a new report from market research publisher Packaged Facts.
Often the first thing that comes to mind when thinking of non-traditional banking is immigrants' use of wire transfer services (due to lack of a Social Security card or identification) and the use of check cashing and payday lenders. But the huge, untapped growth area is among the blue-collar working class that has been roiled by layoffs, loss of health insurance, foreclosure threats, credit problems and other financial woes. The other untapped area is young consumers who are cherry-picking products and services based on price and convenience, says Elizabeth Rowe, the report's author.
The non-traditional financial services market serves 28 million unbanked consumers, 44.7 million underbanked individuals, and 11 million unbanked illegal immigrants. Collectively, they earn $1.1 trillion in annual income, and spend $12.6 billion on alternative financial transactions annually.
Banks and other marketers have turned a keen eye to the unbanked market in the past four years because they spend money. As individuals, they generally earn under $20,000, but in aggregate, these 28 million unbanked Americans earned and spent nearly $510 billion in 2006. Among families without a checking account in 2004: 52.1% had previously owned a checking account; 55.1% had incomes in the lowest 20% of the population; 56.6% were headed by persons younger than 45 and 61% were non-white or Hispanic.
Rowe, who was the senior banking expert at Guideline, Inc. (a New York consultancy/business advisory firm) for 11 years, directing research covering the retail and commercial banking industries, says banks thought it would be easy to lure in the unbanked and underbanked by offering free base checking. But increasing numbers of consumers are disenchanted with hidden fees and are not only abandoning their relationships with their banks, but are no longer interested in traditional banking, period, she says.
"Once you cantilever out, you become a totally free agent," Rowe tells Marketing Daily. "You're not susceptible to the branding of not only a particular institution, but the entire category."
These consumers find ways around the need for traditional banking services, she says, and only about 17% would actually benefit by having a traditional banking relationship, according to the report.
Prepaid debit cards are likely to be a huge area of growth, Rowe says. Use is predicted to soar from $29.3 billion in 2007 to $200 billion in 2011. Other new venues and products such as online Peer-2-Peer lending are also expected to significantly impact future growth, she says.