By: Joe Gillen
There is a large segment of the country that, for a variety of reasons, does not rely on traditional banking products to conduct transactions. While some may have little more than a checking or savings account, others do not maintain any such account and instead rely on alternative financial institutions to meet their needs. The Great Recession led to a significant spike in the number of unbanked and underbanked Americans, and many financial institutions are unveiling new products to try to build their customer base. However, many large institutions have found that they are now competing with big box chains, such as Walmart, to appeal to these groups.
Most underbanked individuals rely on check cashing services, payday lenders and pawn shops to pay their bills and convert their checks into cash. However, this can be costly and inconvenient for many people. In response, Walmart recently developed an alternative to traditional checking and savings products: Bluebird accounts. The box chain announced that the service would serve as a valued alternative to high-fee traditional bank accounts, a message that has appealed greatly to underbanked individuals, according to Forbes.
Retail banks respond to Walmart's efforts
Large banks have taken notice as of late to these alternative accounts, and have started developing products designed specifically for underbanked individuals. Some have offered prepaid debit cards, while others have developed loans similar to payday lending products, the news source reports. In addition to trying to reach a new demographic, the news source notes that these products are also outside the scope of Dodd-Frank which has recently taken a chunk out of large banks' fee income.
As the battle to reach the underbanked continues, many local banks that have garnered more trust from the public also have an opportunity to appeal to these groups. Many have cited the high costs of a checking and savings account as reasons for turning away from banks. However, most community institutions and credit unions offer free checking and cash-back reward programs that may appeal to the financial condition of most underbanked individuals. Highlighting these benefits may help local banks not only gain a larger market share, but also help community members gain greater control over their finances and build a stronger foundation for their future.