Non-traditional Financial Services Markets in the U.S.: Unbanked and Underbanked Consumers

Table of Contents

Chapter 1 Executive Summary

• Scope and Methodology
• Report Methodology
• Financial Services for the Unbanked, Underbanked and WhyBanks
  • Most Unbanked Previously Owned a Checking Account
  • Over 40% of U.S. Workers Are Underbanked.
  • WhyBanks? Are Driven by Convenience and Price
• Americans Spend $12.6 Billion on 1.2 Billion Nontraditional Financial Services
  • Hispanics Heavily Represented in Unbanks and Underbanks
  • Remitters Spend $3 Billion Sending Money to Latin America
  • 13,000 Check Casher Process $63 Billion Worth of Checks
  • Payday Lenders Will Earn Almost $7 Billion in Fees
  • The Traditional Money Order
  • From 2007 to 2011, Growth Will Move to New Venues and Products
    • Packaged Facts Predicts $200 Billion on Prepaid Debit Cards in 2011
    • Table 1-1 By Segment, Growth of Nontraditional Financial Services, 2002-2011
  • U.S. Economics Grows the Numbers of At-Risk Consumers
  • Subprime Mortgage Defaults
  • Midwestern Consumers are Particularly Vulnerable
  • Wealth Is Increasingly Concentrated While Real Incomes are Falling
  • Borrowing By The Working Poor Has Soared
  • Debt is Becoming Increasingly Expensive For the Middle Class
    • Healthcare Uninsureds and Bankruptcies Will Swell Ranks of Underbanked and WhyBanks?
    • Medical Bankruptcy Filers are Middle Class Americans
  • Who Are the Unbanked?
    • Contrary to Common Perceptions, the Unbanked Aren' t Being Gouged
    • Banks are Increasingly Dependent on Fee Income and Unbanked are Least Able to Afford Fees
  • Who are the Underbanked?
    • 70% of Banked Use Non-Bank Services
  • ChexSystems Exiles - The 8 Million Can' t Banks
    • ChexSystems Runs the “Get Checking” Program
  • Who Are the WhyBanks?
    • WhyBanks? Turn to Payday Lenders for Short-Term Loans
  • Payday Lending Users
  • Prepaid Debit Cards Strongly Appeal to the WhyBanks?
    • Prepaid Debit Users are Working Class with Blemished Credit
  • Prepaid Payroll Card Users
  • Products and Their Marketers
  • Wire Transfer Cos.
    • After Averaging Yearly Volume Increases of 23%, Wire Transfer Volumes Flat
    • Western Union Dominates Wire Transfer Industry
    • MoneyGram
    • GSM Association and MasterCard Enter Mobile Phone Remittance Marketplace
  • Prepaid Remittance Cards
  • Payday Lenders and Check Cashers
    • ACE Cash Express
    • Dollar Financial
  • Innovative Retailers
    • Enter Western Union to facilitate commerce.
    • 7-11 Leads the Convenience Store Herd
    • 7-Eleven Competitors Rushed to Add Similar Kiosks
    • 7-Eleven' s Financial Services Aspirations Derailed by Core Business Challenges
    • FAMSA Helps Latinos Establish Credit in the U.S.
  • Banks Offer Wire Transfer/Check Cashing Services and Safety Net/Basic Services Checking Accounts
    • Citibank
    • JP Morgan Chase
    • Union Bank of California
    • Bank of America
    • Wells Fargo
    • Wells Fargo May Join BofA in Offering Credit Cards to Undocumenteds
    • KeyBank
  • Latin American/European Banks Enter the Market
    • Banco Popular
    • BBVA
  • Prepaid Card Products
    • MasterCard Adds rePower to Green Dot Network
    • Green Dot Anticipates 2007 Revenues of $2 Billion
    • Discover Jumps on Prepaid Debit Wagon
    • NetSpend, All-Access National Savings Program Links Prepaid Debit and Savings Account; Savings Account Pays 3%
    • Capital One Decoupled Debit Card
    • Prepaid Debit Cards Must Launch Valuable Rewards Programs
    • Safeway' s Blackhawk Natural Network for Rewards Program
    • Wal-Mart/Green Dot Natural Rewards Partnership
    • Bank Regulators Could Hamper Future of Prepaid Debit
    • $80 Billion Gift Card Market Mainstreamed Consumers' Acceptance of Prepaid Products
    • Payroll Card Market Exploded with Visa/MasterCard Network Inclusion
    • Ecount Survey Finds 54% of Payroll Cardholders are Banked Using Direct Deposit
  • Alternative Financial Services
    • PayPal: More Customers than American Express; More Secure Than Competitors.
    • BidPay
    • Google Checkout
    • BYOB (Be Your Own Bank) -- Peer2Peer Lending
    • New Labor' s Sigo Card
    • Get Checking Program
  • Case Study: The Wal-Mart Effect
  • Kroger Storefronts Offering Financial Services

Chapter 2 Market Size and Growth

• Highlights
• Scope and Methodology
• Report Methodology
• Definitions
• Americans Spend $12.6 Billion on 1.2 Billion Nontraditional Financial Services
  • Unbanked - no checking or savings accounts
  • Federal Reserve Finds Unbanked to be Young, Low-Income and NonWhite
  • Table 2-1 Types of Transaction Accounts Owned by Families, 2001 - 2004
  • Most Unbanked Previously Owned a Checking Account
  • Table 2-2 Distribution of Reasons Cited By Respondents For Their Families Not Having a Checking Account, By Reason, 1995-2004 Surveys, (Percent)
  • Checking Account Ownership by Individuals is Lower Than For Families
  • Hispanic Unbanked
• Simmons Research Details Characteristics of the Truly
• Disintermediated
  • 14.8 million Americans Have No Bank Account, No ATM/Debit Card and No Credit Card
  • Table 2-3 No Bank Account, No ATM/Debit Card and No Credit Card
• Underbanked Have Checking or Savings Accounts, But Rely on Non-bank Financial Services Providers
  • Check Cashing and Payday Lending
  • Table 2-4 Pay Day Lending Industry, Number of Transactions and Revenues (2000-2006)
  • Table 2-5 Retail Outlets of Publicly Held Companies Offering Check Cashing, 2006
• Wire Transfers
  • Unbanked and Underbanked Immigrants are Key Users of Wire Transfer Services
  • Table 2-6 Global Flows of International Migrant Remittances to Developing Countries and Globally, in Billion $ (2000-2006)
  • From 2001-2010, Wire Transfers to Latin America Will Total $500 Billion
  • Table 2-7 Remittances to Latin America (2000 - 2010)
  • Indian Immigrants Are Heavy Users of Wire Transfer Services
  • Table 2-8 U.S. Migrant Remittances to India Dollar Value and Growth, 2000-2006
  • Immigration is Changing the U.S.
  • Table 2-9 Immigrants to the United States, By Region and Country, Percentage and Number, 2004
  • Unauthorized Foreigners Make Up 5% of U.S Workforce
  • Table 2-10 Size and Growth of the U.S. Labor Force Age 16 and Older, by Nativity, 1994 and 2004
  • Figure 2-1 Cumulative Change in Population, 1995-2050 Prepaid Debit Cards
  • Packaged Facts Predicts $200 Billion on Prepaid Debit Cards in 2011
  • Table 2-11 Prepaid Debit Card Market 2003 - 20011 (Dollars in $Billion))
  • Market Share of Prepaid Debit Cards
  • 2008 and 2009 Will Be Breakthrough Years for Prepaid Cards-$200 Billion Market by 2011
• The Emerging Suite of Features for Prepaid Cards
  • Rewards Programs Tied to Prepaid Cards Have Huge Unrealized Potential
  • Tying Credit Building/Repaid to Prepaid Cards Will Appeal to Some Consumers
  • Packaged Facts Forecasts Automated Savings Tied to Prepaid Cards as a Hit with Consumers.
  • Consumer Level Prepaid Card Customization Will Become Product Norm Within 4 Years
• Peer-2-Peer Lending As a Credit Alternative for Underbanked and WhyBanks?
  • P2P Lending Obstacles
  • More Niche Players in the Niche P2P Lending Market
  • Table 2-12 Venture Capital Backing and Consumer Excitement Will Make U.S. P2P Lending a $5.3 Billion Market by 2012
  • Viral Marketing is Building P2P Community
• The Traditional Money Order
  • Money Orders are Stockpiled for Large Ticket Purchases
  • Traditional Money Orders are Disappearing
  • Table 2-13 U.S. Money Order Market Share the United States, 2007
  • Table 2-14 The Death of the Money Order, 2007 - 2011
  • Seismic Shifts in Venues and Products are Coming in the Next 5 Years.
• By Product, Growth of Nontraditional Segments, 2002-2011
  • Table 2-15 By Segment, Growth of Nontraditional Financial Services, 2002-2011
• U.S. Economics Will Grow The Numbers of At-Risk Consumers
  • At Risk Consumers Have Strained Relationships with Banks
  • Table 2-16 Indicators for Economic Concern
  • Americans Have No Savings Safety Net
  • Table 2-17 Americans' Self-Reported Savings (Excluding Home and Pension), by Age and Work Status
  • Subprime Mortgage Defaults Will Disintermediate Borrowers
• How Resets Affect Mortgage Payments
  • Increasing Recession in the Midwest
  • Continued Shrinkage of the Historically Middle Class
  • Borrowing By The Working Poor Has Soared
  • Healthcare Uninsureds Will Swell Ranks of Financially-at-risk Consumers
  • Medical Expenses are the Leading Cause of Bankruptcy Filings
  • Table 2-18 Consumer Bankruptcy Filings, 2000-2006
• Medical Bankruptcy Filers are Middle Class Americans
• Buffeted Consumers Most Receptive to Nontraditional Financial Services Providers

Chapter 3 The Consumer

• Highlights
• Who are the Unbanked?
  • Only 63% of Immigrant Households Own a Checking Account
  • Table 3-1 Share of U.S. Immigrant Heads of Households Who Have Checking/Savings Accounts, 2006
  • Conventional Wisdom is Lack of Bank Branches Responsible for Unbanked Consumers
  • Table 3-2 The Unbanked, 2007
  • Contrary to Common Perceptions, the Unbanked Aren' t Being Gouged
• How the Unbanked Receive Income
• Unbanked Spending on Financial Activities
  • Table 3-3 Unbanked Spending on Financial Services
  • Table 3-4 Where Checks Are Cashed
• Unbanked May Cash Checks at Banks, But Seldom Obtain
• Other Services
  • Banks are Increasingly Dependent on Fee Income and Unbanked are Least Able to Afford Fees
  • The Immigrant Unbanked
• Who Are the Underbanked?
  • 40% of Americans Living Paycheck-to-Paycheck
  • Underbanked Have No Savings Cushion For Emergencies
  • 70% of Banked Use Non-Bank Services
• ChexSystems Exiles - The 8 Million Can' t Banks
  • What is ChexSystems?
  • ChexSystems Runs the “Get Checking” Program
  • What is the Relationship Between ChexSystems and the Unbanked?
  • Table 3-5 Select Characteristics of Former Checking Account Owners and Those Who Have Never Had a Checking Account
• Who Are the WhyBanks?
  • WhyBanks? Turn to Payday Lenders for Short-Term Loans
  • Table 3-6 How Banked and Underbanked Conduct Financial Activity
• Banks May Offer No Savings to the Unbanked/Underbanked
  • Banks Cheaper Alternative For Only 17% of Unbankeds
• Growing Role of Immigrants in the U.S. Economy
  • Figure 3-1 Industries in Which Immigrants Work (%)
  • But Marketers Can' t Ignore 12 Million Undocumented Immigrant Consumers
  • Illegals are Marketed to Like Other Consumers
  • Figure 3-2 Number of Undocumented Immigrant Arrivals (in millions)
  • Growth in U.S. Immigration at 70-Year High
  • Immigrants Moving Throughout the U.S.
  • Figure 3-3 Total Foreign-Born and Percentage Foreign-Born in the United States, 1900-2000
  • Unbanked Hispanics Have Unique Characteristics
• Understanding the Unbanked Hispanic
  • Lack of Documentation is Barrier to Account Ownership
  • Undocumented Immigrants Fear Rules Will Change and Be Used Against Them
  • Banks Cheaper For Wire Transfers, But Nonbanks Trump Based on Convenient Locations
• Internet-based Products and Immigrants
  • Most Latinos Use the Internet
  • Table 3-7 Characteristics of Latinos Using the Internet
  • Latinos Online Also Own Cell Phones
• Payday Lending Users
  • Payday Loan Customers Steadily Employed But Have Damaged Credit
• Ace Cash Express Customer Demographics
• Dollar Financial Check Cashing Customer Demographics
  • Payday Lenders Target Working Class, Not Poor
• Prepaid Debit Cards Strongly Appeal to the WhyBanks?
  • Prepaid Debit Users are Working Class with Blemished Credit
  • Prepaid Cards Attractive to Bank Customers Afraid of Bounced Check Fees
• Prepaid Payroll Card Users
  • 54% of Prepaid Card Users were Banked With Direct Deposit
• Prepaid Cards: Spending Habits of Banked and Unbanked
  • Table 3-8 Prepaid Card Spending Categories, Banked vs. Unbanked, 2006

Chapter 4 Products and Marketers

• Highlights
• Products and their Marketers
• Wire Transfer Cos.
  • Most Migrant Workers Heavy Users of Remittance Services
  • After Plummeting, Wire Transfer Costs Have Stagnated
  • Acquisitions in the Wire Transfer Space
• Western Union
  • Table 4-1 Western Union: Revenue, Revenue Growth and Transactions (2002-2006)
  • In Just 5 Years, Western Union Nearly Tripled Its Number of Outlets
  • Table 4-2 Western Union: Revenue as a Percentage of Total Segment Revenue (2004-2006)
  • Western Union Gold Card is a Successful Rewards Scheme Driving Transaction Volume
  • Western Union is a Target for Consumer Advocates
• Vigo
• MoneyGram
  • Table 4-3 MoneyGram: Revenues and Revenues Growth (2004-2006)
  • MoneyGram' s Growth Focused on Europe
• GSM Association and MasterCard Enter Mobile Phone Remittance Marketplace
  • GSMA and MasterCard Try to Speed Standardizations for Cell Phone Remittances
• Prepaid Remittance Cards
  • Fewer Than 7% of Remitters Have Tried Remittance Cards
  • Celent Estimate: 11% of Remittances are by Card
  • Card-Based Remittances Will Grow With New Marketers, Technology and Prices
• Payday Lenders and Check Cashers
  • Banks Exit Short-Term Credit Market So Payday Lenders Step Into Opportunity
  • Payday Lenders Reorganized as Credit Services Organizations or Became Self-Funding
• Advance America
  • Table 4-4 Advance America: Stores, Loan Numbers and Revenue (2002-2006)
  • In Texas, Advance America Changed from Payday Lender to CSO
  • In Michigan, Advance America Now Charges “Check Presentment Deferment Fees”
• ACE Cash Express
  • Table 4-5 Ace Cash Express Store Growth (2003-2006)
• Dollar Financial
  • Table 4-6 Dollar Financial: Stores and Payday Lending/Check Cashing Fees (2002-2006)
  • Future Growth for Dollar will Come from American West, Canada and the U.K.
• QC Holdings
  • Table 4-7 QC Holdings Store Growth (1999-2006)
• Innovative Retailers
  • Enter Western Union to facilitate commerce.
  • 7-11 Leads the Convenience Store Herd
• 7-Eleven' s Financial Services Aspirations Derailed by Core Business Challenges
  • FAMSA
• The Future of FAMSA and Mexican Businesses
• How is FAMSA Doing So Far?
• Banks Offering Wire Transfer/Check Cashing Services and Safety Net/Basic Services Checking Accounts
  • Banks Own About 5% of U.S. Remittance Market
• Citibank
  • Citibank and Banamex Game to Test New Strategies to Target Hispanics
• Bank of America
  • BofA Markets Credit Cards to Undocumented Immigrants
• JP Morgan Chase
  • Chase Introduced Rapid Cash Account Featuring Free Wire Transfers
  • Direct Benefit Card, a Prepaid Card Targeted to Low-Income Consumers
• Union Bank of California
• Wells Fargo
  • Wells Fargo May Join BofA in Offering Credit Cards to Undocumenteds
• KeyBank
  • KeyBank Offers More than Check Cashing
• Latin American/European Banks Enter the Market
  • Banco Popular
  • BBVA Acquires U.S. Banks to Market to U.S. Hispanics
• Acquisitions Make BBVA Largest Bank in the Sunbelt
• Prepaid Card Products
  • Card Swap Websites Turn Gift Cards into Payment Instruments
  • Visa, MasterCard, American Express and Discover Wade into Well Established Markets
  • Payroll Cards Surge In Popularity With Visa and MasterCard Support
• Visa Introduced Payroll Card in 2001, Then Added Features
• MasterCard' s Payroll Card Offers Extensive Network For Reloads
• Payroll Processors Also Promote Payroll Cards
  • Visa and MasterCard Target Unbanked With Prepaid Debit Cards
• Visa' s ReadyLink
• MasterCard Launches Its rePower Network Through InComm
  • American Express
  • Discover Jumps on Prepaid Debit Wagon
  • InComm Eliminates Monthly Fees From Its Prepaid Card Products
  • Green Dot Intends to be THE Universal Prepaid Debit Card Network
• Green Dot' s Initiatives
• Green Dot' s Customers
  • NetSpend Introduces “All-Access” Debit-Based Savings Account
• NetSpend Pays $10 Million for Vince Young Endorsement
  • Trycera Financial
  • Table 4-8 Trycera' s Gross Dollar Volume 2004 - 1 Qtr 2007
• Prepaid Cards with Credit
  • Starbucks Duetto Card
• Revel Card is First Prepaid Debit Card with Line of Credit
• Revel Card to Target Military Personnel and Unbanked/Underbanked Native Americans
  • Unbanked, Underbanked and WhyBanks? Get Tax Refunds on Prepaid Cards
• Intuit' s TurboTax Marketed Russell Simmons Tax Refund Card to Young, Unbanked Tax Filers
• Alternative Financial Services on the Internet
  • PayPal
• More Customers than American Express; More Secure Than Competitors.
• PayPal Testing Text-to-Buy
  • BidPay
  • Google Checkout
• BYOB (Be Your Own Bank) - P2P Lending is New Credit Alternative for Underbanked and WhyBanks?
  • How P2P Lending Works -- Prosper.com
  • Loan Funds Deposited in Pooled Accounts to Mitigate Risk
  • More Niche Players in the Niche P2P Lending Market
• FDC and the Traditional Money Order

Chapter 5 Marketing Strategies

• Highlights
• Introduction
• National Community Reinvestment Coalition (NCRC)
  • NCRC Focuses on Branch Availability
  • NCRC Recommendations
  • Assessment of the NCRC' s Strategy
  • The Brookings Institution
  • Strategy Proposed By The Brookings Institution
  • Banks Should Open Specialized Branches Providing Check Cashing Services
  • Advantages of Bank Outlets Over Bank Branches
  • Outlets Should Offer "starter" Deposit Accounts.
  • Outlets Should Offer Accounts Specifically Designed to Build Savings.
  • Outlets Should Seek Community-based Partners and Offer Financial Literacy Programs.
  • Assessment of the Brookings Strategy
  • New Labor' s Sigo Card
  • What Are Worker Centers?
  • What is the Sigo Card?
  • Marketable Advantages of the Sigo Card
  • Sigo Card Designed as Win-Win Product
  • Assessment of the Sigo Card/Worker Center Strategy
  • Get Checking Program for Banking System Exiles
  • Assessment of Get Checking Program
• Looking Ahead
  • Further Consideration of Open-Loop Prepaid Cards
  • Capital One' s Portable Debit Card
  • Prepaid Debit Cards Must Launch Valuable Rewards Programs
  • Figure 5-1 Western Union Gold Card Active Cards
  • Safeway' s Blackhawk Natural Network for Rewards Program
  • Wal-Mart/Green Dot Natural Rewards Partnership Beyond 2007
  • Bank of America Needs to Grow Asian Business
  • HSBC Could Use Prepaid Debit as Complement to Asian Credit Card Strategy

Chapter 6 Retailer Slugfest

• Highlights
• Pepe the Penguin vs. The Big Yellow Smiley Face
• Table 6-1 Number of Wal-Mart Supercenters (U.S.)
• The Wal-Mart Effect
• But Not Invincible
• Table 6-2 Number of Kroger Stores (U.S.)
• Storefronts Offering Financial Services
• Table 6-3 Kroger Financial Services Offerings
• Wal-Mart' s Performance is Dragging
• Kroger Sales and Stock Performance Continue to Astonish
• Wall Street
• Bankers Monitor Wal-Mart' s Every Move
• Wal-Mart Markets to the Unbanked
• Table 6-4 Wal-Mart and Its Customers
• Strike One
• Strike Two
• Strike Three
• Strike Three, Part B
• Wal-Mart' s Banking Charter Motives Questioned
• The Financial Services Wal-Mart Offers
• Table 6-5 Wal-Mart Financial Services Offerings
• Wal-Mart Building Out MoneyCenter Locations
• Why Partner With Wal-Mart?
• Strategies At Play with the Partnerships Wal-Mart Has Already Formed
• Maintain market leadership
• Build Brand Name and Tap New Markets
• Challenge a More Dominant Brand
• Leverage Wal-Mart Distribution to Capitalize on Emerging Trend
• Wal-Mart Aggressively Pursues Low-Income Customers
• Table 6-5 Prepaid Card Fees at Wal-Mart
• Wal-Mart' s Value Proposition
• Green Dot - Wal-Mart' s Prepaid Partner
• Green Dot is a Company to Monitor
• Financial Services is Growth Focus for Wal-Mart
• Why Buy A Bank When You Just Act Like A Bank?
• Table 6-6 U.S. Banks with the Most Branches, May 2007
• Banking On Mexico
• Moving Forward

Appendix