The Next Generation of Members: A New Face for the Underbanked

Connect with a growing mobile generation that chooses to opt out of the traditional banking model.


A paradigm shift is occurring in the financial services industry, and perceptions of what constitutes an underbanked population are changing. Previously, the word “underbanked” implied “underserved.” The term focused on low-income communities and less profitable regulatory compliance-driven initiatives. Today, however, the underbanked population is a growing segment that is opting out of the traditional banking model and shifting basic transactions to alternative financial services (AFS) providers.

According to the FDIC and the Center for Financial Services Innovation, 23% of households with bank accounts meet the definition of underbanked and complete most of their basic transactions with AFS providers. The demographic includes not only those with lower incomes but also young people who do not fall within traditional underserved parameters. In fact, 50% of underbanked people have a college degree.

Young people and the traditionally underbanked might have different motivations, but they demonstrate similar behavior when it comes to using financial services. A typical underbanked consumer spends up to $77 per month in fees for AFS transactions, including check cashing, money orders, remittances, walk-in bill payment, and reloadable prepaid debit cards. That fee income goes to non-bank providers because most credit unions and banks do not offer these services.

Underbanked people now have more options to obtain these basic financial services at retailers. Walmart is rapidly expanding its Walmart Money Center concept. Not to be left behind, Kroger, Sears/Kmart, Circle K, Rite Aid, and Target have announced programs that offer AFS products and services in their stores.

Prior to Walmart and other national retailers entering the financial services arena, the only place for underbanked people to purchase AFS products were professional check cashing stores, gas stations, liquor stores, or payday lenders. Some people are not comfortable with purchasing financial services in these venues; few people, however, are uncomfortable with shopping at Walmart.

Banks and credit unions that are shifting to basic accounts that require monthly maintenance fees from $8-10 are further alienating those consumers who don’t maintain high enough balances to avoid fees. In comparison, paying $3.95 a month for a prepaid debit card becomes a more affordable option.

To connect with a mobile generation that is creating its own definition of what it means to be “banked,” financial institutions need to learn about existing members that are turning to alternative financial services providers. Next, they need to consider how to reach out to these current and potential new members.

Learn more about the new face of the underbanked and how to reach them with Cash Banking Solution, presented by the Credit Union Executives Society in partnership with New Market Partners, Atlanta. Read the full whitepaper and watch a free webinar about this new market at



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March 28, 2011


  • Excellent! Times and needs of people are changing and credit unions need to be in tune with these needs and offer products to fill these needs.
  • Taking into account my biased point of view, since the author cites data from my organization, I do think the point is well taken. To what extent does the development of better products and services for underserved consumers (the way we have traditionally conceptualized them) actually lead us to better mainstream products, increased membership, etc? Young consumers are proof that, across customer segments, consumers' financial needs - and their perception of those needs - are changing rapidly, and those institutions who meet those needs with creativity and agility will be the winners. Designing products that work for underserved consumers may, in a strange twist of fate, be the best way to win the hearts and wallets of consumers across the income spectrum.
    Karen Andres