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.