Takeaways from the Underbanked Market Sizing Study
A new report out today updates some data on the scope of the under-banked marketplace.
I am consistently surprised by number of people that do not understand the scope of this trend. Everyone probably knows someone that does not have a checking or savings account or who goes to some kind of provider of an alternative financial product like a check casher or a payday lender. In all, the report estimates that there are now 24 million under-banked households and another 10 million households that are living with no formal banking relationship. In the end, only 83 million households are fully-banked – a group that constitutes about 69 percent of the nation.
The following list outlines the scope of markets, sorted by category. Numbers in parentheses indicate the rank of that product category within the entirety of the underbanked expenditure. The rankings are for rates of y-o-y growth. Thus, when internet payday lending is ranked with a “2,” it means that the fees paid for internet payday loans are second only to fees paid for subprime credit cards. The number does not reflect principal borrowing but only fees.
- short-term credit: 41 billion: sub-prime credit card (1), installment loan, auto title, sub-prime auto loan (8),
- very short-term: $20.5 billion: internet payday (2), pawn (5), payday loan (12), overdraft, RAL, deposit advance, RAC (6)
- payments $8.9 billion, payroll card (3), GPR prepaid (4), check cashing, remittance
- deposits $3.8 billion savings (10), checking (9)
- other: $3.8 billion: rent-to-own (11), tax preparation (7), walk-in-bill-pay, debt settlement
What’s down: storefront payday, check cashing, money orders, walk-in bill-pay, and refund anticipation loans. The decline in RALs has been going on for years as more and more customers came to prefer the value proposition of a refund check in lieu of a loan. However, with the FDIC’s actions to eliminate those loans, only one bank was able to offer them in 2012. There is actually a substantial likelihood that one or several tax preparation firms will establish a loan offering through a tie-in with a non-bank. If that happens, then the RAL will perpetuate. Until then, however, the RAL is extinguished.
What’s up: deposit advance, installment loans, internet payday, GPR, payroll cards, RACs.
Jacob DuMez
November 20, 2012
Payroll cards represent the third largest category for fees? This doesn’t seem right. When I look at the graphic from the CFSI report, the only way payroll cards are ranked third is in terms of year-over-year revenue growth, 2010-2011. And, it should be noted, they apparently calculate their fee estimate based on 2010 operating revenue/total dollars loaded ratio from only one card provider (NetSpend). Not to detract from the overall takeaway – the scope of the underbanked market opportunity is vast – but the rankings you use appear misleading.
sdoggie
November 20, 2012
Well I can see your point – payroll cards are generally better to consumers than are other GPR cards. Still, the possibility could be that its just a function of their use. There are a lot of people using those cards and the ones that do tend to use them heavily.
Michael
December 9, 2012
What is the definition of an underbanked? No bank account at all? not even a prepaid debit card? There are many services that provide prepaid debot cards though they charge a onthly fee.
Adam Rust
December 10, 2012
Unbanked is an FDIC word. By their definition, it means that you have neither a savings account nor a checking account.Underbanked is different and harder to pin down. It can mean that you only have one of either a savings or a checking account, but the FDIC\’s definition could also be applied to a consumer that uses check cashers, payday loans, or other alternative financial services.
I think a prepaid card moves someone closer to be fully banked. Some have a savings account, but for anyone that has one and uses it full-time, I would have to say that they are at least \”underbanked.\”