George Hodges blog post on CFSI’s Compass Principles Most banks we work with struggle with the Compass Principles value of “profitability and scalability” when looking at financial services for the underserved. Look at the current environment: consumer backlash to increasing fees on existing products and a hostile regulatory environment for small dollar credit products. To reference Arjan Schütte’s recent article, banks would seem to have two equally undesirable choices: be a mercenary or a missionary. He proposes a third path – be a visionary. I don’t know about that, but being a good data analyst and understanding your customer’s behavior is a start. Combining a basic segmentation analysis of your accounts with a look at their “whole wallet” of financial transactions can transform low balance, single account, unprofitable customers into a new profitable growth opportunity. Here are some scenarios that may fit your financial institution: You recently completed a segmentation analysis of your customer base and identified that 35% are not profitable because their only product is a low balance checking or savings account. Your have a major university or large military base in your community, but don’t have a good product fit for the student population or enlisted personnel. You have a youth/young adult strategic initiative, but don’t yet have a strong mobile/card based product to support it. You have a growing working class population that is different than your historical suburban, mass-affluent target customer. What each of these scenarios have in common is what the regulators call “underbanked” customers. According to the FDIC, this represents 23% of the population, totaling 60 million adults in the US. These are typically customers who only have a single savings or checking account with an average balance of [...]
Recapturing Revenue From AFS Providers
George Hodges post on CUES Skybox I had the opportunity to speak with a number of credit union CEOs and board chairs at CUES Symposium in Bonita Springs earlier this month. The dominant theme was liquidity and the absence of lending opportunities. Unfortunately that’s not a problem most credit unions have any control over at the moment, so it begs the question: Are there other immediate opportunities to grow revenue and expand your member relationships outside of lending? If any of the following scenarios fits your credit union, the answer is probably yes. You recently completed a segmentation analysis of your member base and identified that 35 percent are not profitable because their only product is a low-balance checking or savings account. You serve a major university or large military base, but don’t seem to have a good product fit for the student population or enlisted personnel. You have a youth/young adult strategic initiative, but don’t yet have a strong mobile/card-based product to support it. You have an underserved designation with a working class population that is different from your current suburban, mass-affluent member base. What each of these scenarios has in common is a large number of what the regulators call “underbanked” members. According to the FDIC, this represents 23 percent of the U.S. population, totaling 60 million adults. If you do a segmentation analysis of your member base, these are typically the members who only have a single savings or checking account with an average balance of less than $1,500 and are not an immediate lending opportunity. At first glance, this is your least desirable group of members for profitability and growth. But looks can be deceiving. If you only value their current account relationship, [...]
The Value of Deep Customer Knowledge: Understand Your Customers
George Hodges’ post on CFSI’s Compass Principles. Submitted by CFSI guest blogger on October 31, 2011 – 12:46pm By George Hodges, Managing Director, New Market Partners. New Market Partners works with financial institutions to provide alternative banking solutions and is a Sponsor of CFSI’s Underbanked Solutions Exchange. To quote Steven Covey’s perennial best seller 7 Habits of Highly Effective People, “Seek first to understand, then to be understood.” The foundation for a “win-win” customer relationship, right? Easier said than done when dealing with underserved financial services customers. Even the terminology is a barrier. We have conducted extensive primary research with these consumers, and I’ve never heard anyone say, “heh, I’m underbanked.” If you want do some quick consumer research for yourself, try it out on a young adult, which I did last week with my college age daughter. Ask what they need to be “fully banked?” They probably won’t understand that, so follow with “how do you want to be able to use that debit card you carry around with your iPhone?” The answer I got was, “Well, when I get some money, like a check from you, I need it right away, and it has to be available immediately, just like cash, but on my card. Then I like to check my balance from my iPhone before trying to pay for something so I won’t be embarrassed if my card is rejected, and I usually wait to pay my bills until I get the check because I don’t have any extra money, and you know I HAVE to reload my iPhone or my life would end. Then I say, “great, you are clearly underbanked! I happen to be an industry expert on this, let me explain how we [...]
Evaluating the Compass Principles for your Financial Institution
George Hodges post on CFSI’s Compass Principles. Submitted by CFSI guest blogger on October 16, 2011 – 10:32pm. By George Hodges, Managing Director, New Market Partners. New Market Partners works with financial institutions to provide alternative banking solutions and is a Sponsor of CFSI’s Underbanked Solutions Exchange. Why start with a set of defined values? Why a value statement for “relationship focus?” Let’s assume that your financial institution is evaluating the “underbanked” as a potential growth market and new source of non-interest fee income. Think about the Compass Principles as a framework for creating a value proposition that serves the customer, is profitable for your institution, and provides a pathway to a sustainable long-term relationship. Given that, why start with a set of values? To use the founding of our country as an analogy, the Declaration of Independence put on paper our American values of personal liberty and the right to self-government. It took ten more years to get our constitution, but the “values” in the Declaration motivated the colonies to fight the revolution, and defined what we were fighting for. The Declaration is our set of values, and the constitution lays out a framework for how to make those values work as a system of government. Values represent who we are, and/or aspire to be. Treating the underbanked as both a mainstream and profitable customer segment is a major change in thinking about “who we are” for most financial institutions. When you look at these value statements, do you think about the “underserved” as non-customer transactions and a new source of fee revenue, OR as people you can build a loyal long-term customer relationship with. If you don’t, the principles become a set of how-to’s that are not likely to get any traction in [...]
First comprehensive industry scan of underbanked providers reveals important insights and trends.
93% of all industry respondents say that reaching underbanked consumers is very important to the future of the financial services industry, according to new study just released by the Center for Financial Services Innovation (CFSI). The CFSI study reveals important new data on projected demand for underbanked product innovations, and differing attitudes between financial institutions and retail players. Click here to access CFSI site and download the study. http://bit.ly/eWJaF2
The Next Generation of Members: A New Face for the Underbanked
As published in www.creditunions.com on March 28, 2011 A paradigm shift is occurring in the financial services industry as perceptions of the underbanked are changing. Underbanked used to just mean underserved. Now, the underbanked are a growing, mainstream segment of the population who are opting out of the traditional banking model, and shifting their basic financial transactions to alternative financial services (AFS) providers. Click to read the white paper. You will need Adobe Acrobat®.
50% of the underbanked have a college degree?
Would it surprise you know that 50% of the underbanked are college graduations? This new group may not think they need a bank to have a deposit relationship and service their basic payment needs. This video provides some thought provoking statistics about the new profile of the underbanked, and why financial institutions need to pay attention to this segment, which represents the next generation of customers, for somebody… Source: YouTube – Opportunities in the Underbanked Space – BANK 2.0 Briefing
Giving the Green Light
As published in CU Management, October 2010. Directors set a successful strategy to profitably serve underbanked members. Serving the underbanked has emerged as a profitable and strategic opportunity to expand membership and reach underserved communities. Some credit union boards are taking a leadership role in creating new strategies to serve underbanked members and the broader community with successful results. Here is a case study you may find useful as you do this at your own credit union. The Opportunity The directors of a large, federally chartered southeastern CU with which my firm has worked recognized a growing underserved population in their market. Their observations were supported by the Federal Deposit Insurance Corp.’s December 2009 survey of unbanked and underbanked households. This study found that 23 percent of existing deposit members use non-bank providers for basic financial transactions. According to the study, customers that would have been considered mainstream “banked” deposit members have proved to be users of such alternative financial services as check cashing, bill-payment, and money transfers. These services can represent up to $70 in monthly fees incurred by existing members at check cashers and non-bank retailers such as Wal-Mart. Bringing these transactions back to the CU could represent both new fee income, and an opportunity to save members money with lower-cost services. Armed with this information, the board challenged management to develop options for a new strategy to serve the underbanked, with a business case to back it up. The board authorized an “emerging markets” management position, reporting to a steering committee of executives, to lead the effort. Business Case Like many CUs, this board believes in the potential long-term value of serving the underbanked as a strategy to fulfill the CU’s core [...]
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Where are underbanked customers doing their financial transactions?
Where are underbanked customers doing their financial transactions?
Customer Profile: 26 year old college graduate Recreation director at the YMCA Checking account in national bank Cash Banking behavior: Uses check cashing store on payday. Bill pay service for overdue cell phone bill. Visits bank to make cash deposit for rent. Needs $150 advance for car repairs.