Understanding the ‘Unbanked’ and ‘Debanked’ and the Opportunities to Serve Them

Until recently, there were the banked and the unbanked. But now, according to a report by the Aite Group, it is time to look at another customer segment—the debanked.

The debanked is the segment of customers who already have a bank account, but no longer are satisfied with the services they receive from banks. One key characteristic of the debanked is that they ditch traditional banking services not because they have to, but because they want to.

“While the unbanked are often misperceived as disadvantaged consumers living outside mainstream society, the debanked are anything but underprivileged,” said Ron Shevlin, senior analyst at Aite Group and co-author of the report. “Furthermore, convincing the debanked to use prepaid debit cards shouldn’t require a lot of education or persuasion. The debanked are already highly satisfied and frequent users of this product.”

The debanked therefore represent a major market opportunity for prepaid and alternative debit card providers. As some have argued, it is not really about being “unbanked” or “debanked” but about the untapped market and how compelling the size of this market has become.

The Federal Deposit Insurance Corporation (FDIC) defines underbanked consumers as individuals who have a checking or savings account but also rely on alternative financial services. Unbanked, on the other hand, refers to individuals who do not currently have a checking or savings account. In the U.S., the unbanked and underbanked have been left to the alternative financial services industry, such as check cashers and payday lenders, or the philanthropically funded nonprofit industry, such as financial literacy programs and credit counseling.

Recently, the Center for Financial Services Innovation (CFSI) reported that products and services that cater to the needs of financially underserved consumers is an opportunity for strong growth. In 2010, people who don’t rely on nontraditional providers for their financial needs numbered nearly 80 million.

Research indicates that the underserved spent $45 billion dollars on fees and interest alone in 2010. This is for services such as check cashing, remittances, rent-to-own, title lending, prepaid cards, walk-in bill payments, and even bank overdraft. It is fair to say that most of these products are generally more expensive than what credit union members typically pay. APRs higher than 30 percent (if not 300 percent); transaction costs of $2-plus; money transfer costs of $10 and up; access to a payroll check for 2 to 4 percent. This revenue originated from a total estimated volume of $455 billion in principal borrowed, dollars transacted and deposits held.

These services are thriving during recession. The largest year-over-year growth came from internet-based payday loans (35 percent), followed by prepaid (33 percent) and payroll (25 percent) accounts. Even as the economy improves, these products are still projected to grow as consumers become accustomed to the products and as the services associated with their use improve.

For more information about implementing a General Purpose Reloadable Prepaid Visa Card Program in your credit union, please contact Bryan Elder, National Sales Executive at 866-598-0698, ext. 1624.


Strategic Link is the NWCUA’s wholly-owned service corporation, providing the Association’s member credit unions with exclusive high-quality, competitively-priced products and discounted services. Questions? Contact Sales & Marketing Associate Craig Reed: 206.340.4789, creed@nwcua.org.

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