When trying to woo underbanked consumers, financial institutions (FIs) must have a strategy because these consumers are a volatile group – they are cautious, demanding, and are liable to run away and never look back. They have the potential to bring substantial profitability to financial institutions, but have thus far appeared to be fickle and highly risky.
What does this all mean for enhancing customer acquisition? Many consumers can fall into the ‘underbanked’ category including: immigrants, recent high school or college grads, and consumers that simply do not trust financial institutions. These consumers are demanding because they have no, or very little, traditional credit history. While they may not be demanding on purpose, or even know they are demanding, they do require a more effort from FIs than do other consumers. They are cautious because they are not heavy users of financial products, they have no, or only a few accounts, but nothing substantial. They are liable to run away and switch to another FI if they get treated like a number rather than a person or if they are not getting adequate attention.
This is quite the challenge for FIs. About 15% of all consumers fall into the underbanked category and have the potential to be profitable if banks could accurately assess how risky or profitable they may actually be. To make an accurate assessment, banks have to modify their traditional processes. For traditional consumers, banks could look at data from traditional credit bureaus and gain a fairly accurate view of each consumer. However, underbanked consumers lack this traditional credit history. To compensate for the lack of data, banks can take another approach – use other data sources. Most consumers have a financial history, even if it is not traditional. Consumers have telephone and utility bills, can utilize payday lenders and check cashers, and consumer behavior can even be assessed through rental histories and payments. When banks alter their processes, this other data can be accessed and consumers can be accurately assessed for how credit-worthy they are.
When banks can make accurate assessments of consumers, even when traditional data is not available, a deeper relationship begins to form. If the consumer is found credit-worthy, they can be offered more premium products or better terms because the bank had additional information. Without access to the alternative data, banks would be left to rely on the minimal traditional data. Because banks can make better offers to underbanked consumers, they are likely to experience greater trust and customer satisfaction.
Overall, underbanked consumers have the potential to be profitable; banks just need a way to access relevant consumer information. While traditional credit history may not be available, banks can use other data sources to accurately judge the financial behavior of underbanked consumers.
When banks put in this extra effort to help these consumers as much as possible, they not only improve rates of customer acquisition, but the consumer will be more likely to have a positive experience and feel loyalty toward the financial institution as well.