How To Reach The Underbanked

Credit unions can reach both those who don't have their own financial institution and those who don't use theirs frequently.


This is the second in a two-part series on how credit unions can benefit from serving underbanked areas.

Self-Help Credit Union, Latino Community Credit Union and several San Francisco-area credit unions offer some valuable lessons to credit unions aiming to serve the underserved while growing their bottom line, as a recent article in The Economist describes.

Self-Help Credit Union ($539.1M, Durham, NC), which has expanded from its North Carolina market into California through several acquisitions, is among the several cooperatives trying to improve their communities. To reach the poorer demographic, the credit union helps develop affordable housing and lend to small businesses, as well as offer mortgages to low-income members through its network of credit unions.

Self-Help Credit Union CEO Martin Eakes believes that “most families enter the middle class by becoming homeowners,” he tells The Economist. The credit union benefits from helping previously unbanked members own a home and build wealth and credit by developing a long-term healthy member relationship. Self-Help Credit Union launched a service for the underbanked called Micro Branch that gives members convenient access to services such as check-cashing and remittances while encouraging them to save money with the credit union’s services.

Latino Community Credit Union ($105.7M, Durham, NC) has had strong growth in recent quarters, including a 7.5% 12-month asset growth as of June, according to Callahan & Associates’ Peer-to-Peer data. The growth of the credit union, which targets a Latino population, has had a positive effect on robberies against Latinos, which in turn has helped to increase property values in neighborhoods surrounding branches, according to a study by The University of Virginia’s Darden School of Business. By 2008, LCCU helped create $9.8 billion in real estate value, the study says.

Offering tailored mortgages to Latinos is only one way to reach the underserved Hispanic community, says Miriam De Dios, vice president of Coopera Consulting, a Des Moines, IA,-based firm that helps credit unions reach Hispanics.

Coopera, which in Spanish means, “to cooperate,” recently partnered with The Members Group to develop a prepaid card geared toward Hispanics. Coopera researched the market and found that 50% of Hispanics are unbanked or underserved. The unbanked and underserved use mostly cash and financial transfer services like wiring, so there was an opportunity to offer them an alternative form of payment, De Dios says.

“Hispanics are the largest, fastest-growing, youngest and most underserved group in the U.S.,” says De Dios.

The Coopera card gives the unbanked and underserved in the Hispanic community more safety than cash, but is easier to get than a credit card because the user doesn’t need a credit history.  So far, seven credit unions have already signed-on to using the card and it could serve as an outreach product to potential members.

“Often, building trust is hard, but this is an introductory tool that can be offered to non-members,” says De Dios. With the Coopera card already in high demand, The Coopera Group is now developing more products to reach the Hispanic community.

Bank on San Francisco, a government initiative designed to reach the underbanked, has drawn banks and credit unions in the Bay Area together with city officials and local groups to serve more unbanked community members. Mission San Francisco Credit Union, Northeast Community Federal Credit Union, Patelco Credit Union, Redwood Credit Union, San Francisco Federal Credit Union, and Spectrum Federal Credit Union were among the first credit unions involved. Community Trust Credit Union, a division of Self-Help, has since joined the effort. They've all agreed to offer lower or no-cost checking accounts, give customers with a bad credit history a chance with loans, and accept both Mexican and Guatemalan consular IDs to open accounts.

The Bank On San Francisco goal was to improve the financial education of poorer residents in the area and to offer an alternative to predatory lenders charging significantly high interest rates to the unbanked. The program resulted in an estimated 71,000 new accounts and was so successful that it’s being replicated in cities across the U.S.

Credit unions, too, can copy this model by partnering with other local credit unions, and possibly community banks, to help improve the community by converting the unbanked into new members and offering them products to keep them for the long-term.

For part one in the series on serving the underbanked, see "Reach Out To Underbanked Communities."