Getting to Know Underbanked Consumers: A Financial Services Analysis

This paper describes a survey conducted by ShoreBank Advisory Services in Washington, D.C., Los Angeles and Chicago that provides a basis for financial services segmentation of the low- and moderate-income population in these cities.

The paper presents the following details of the survey:

• It utilized a multi-stage stratified random sampling design in which census tracts were stratified by city, race/ethnicity and income;
• It examined approximately 500 households in each city;
• The median income was US $18,522.

The paper argues that:

• Most discussions about the financial services practices of low- and moderate-income customers neatly fit them into two categories, the banked and the unbanked;
• The banked are assumed to be fully integrated into the formal financial sector, while the unbanked are excluded from formal financial networks;
• Most low- and moderate- income households rely on a patchwork of financial services provided by both bank and non-bank institutions;
• There is remarkable diversity in terms of demography, attitudes and experiences in this market.

The paper concludes that:

• Banks need to understand the distinct and related segments of this sector in order to increase their service to, and profitability from, this sector;
• Banks face severe competition in this market from the alternative finance services providers;
• Both banks and non-banks that wish to serve the sector will have to be demand-led;
• Leadership that believes in the viability of the opportunity offered by this market can build relationships with a population that has the potential for growth and profitability.