Priorities in Crediting Underbanked Consumers
According to the FDIC 2009 National Survey of Unbanked and Underbanked Households, one out of four U.S. households is underbanked. That’s “underbanked” – not unemployed and, not necessarily, unreliable or higher risk. Common misperceptions notwithstanding, the 60 million Americans who prefer to use non-bank financial services comprise segments of both the white- and blue- collar workforces, with 71 percent earning an annual salary of $30,000 by working in all sectors of the economy. The majority of these hard- working Americans “occupy” much of the 99 percent of the job market and is under the age of 45. Yet for a variety of reasons, either this population doesn’t qualify for access to credit or is fed up with the high cost of banking fees or is simply not willing to be inconvenienced one iota to use them.
How do these people survive in a credit- driven economy where you need to have some way to show that your past payment performance doesn’t define your current risk profile?
It is important to note that the total spending power for the underbanked population is estimated at around $1 trillion per year, however consumers with less than perfect credit are often unfairly penalized when it comes to access to essential services, such as housing and utilities.
In the housing market, families who have lost their home to foreclosure or been forced to declare personal bankruptcy have little chance anytime soon of again owning their own personal piece of Americana. Ditto for consumers who thought they were doing the right thing to build their personal credit by paying for all their expenses in cash and, paradoxically, literally accrued no credit despite their good payment practices. These people are flocking to apartment rentals where the multifamily industry has seen a surge in occupancy averaging more than 90 percent in major markets over the past three to five years. Increased market demand has lead to higher rental costs in many parts of the country, which hurts the credit- impaired segment of the population who is most vulnerable to higher costs.
For consumers who fall below standard credit requirements, moving into a professionally managed apartment community can be an expensive endeavor, especially when security deposits threaten to deplete a renter’s savings and their ability to juggle other living costs. With demand for quality housing outstripping supply, property operators see no reason to take risks and are searching out safeguards to ensure that they won’t lose money to someone who won’t be able to pay their rent on time.
Smart rental operators know that underbanked doesn’t have to equal unreliable and are embracing a new services that brings together landlord and tenant is ways that work for both.
As an alternative to higher move-in costs that are intended to protect against the presumed future payment risk from a rental applicant with lower credit, many property companies are turning to programs that add the framework for disciplined rental payments. Rent Assurance™ from Neighborhood Pay Services leads the pack with a program that helps renters set-up direct deposits as installments from their paycheck every pay period. Landlords know rent money is prioritized every month from their tenants, and tenants save money at move-in and throughout their lease without the burden of late fees that occur when there just isn’t any way to stretch another dollar out of a paycheck.
Other essential service providers, like utilities, are jumping on the bandwagon with products and services for underbanked consumers that help to save them money while improving on time payment performance. The use of reloadable debit cards for utilities has grown during the past decade in keeping with better availability of the product offers. Consumers should shop around and find prepaid debit offers with low to no fees for bill payment as well as access to direct deposit services.
What does the future hold for companies that want to capture a larger share of the underbanked dollar?
Make no mistake, despite the fact that consumers with low to no credit are traditionally valued as higher risk, the choices that they are making about how they manage their money will shape the landscape of financial products and services offered around the corner and around the country for years to come. When convenience and value meet in a way that gives credit to those consumers who may need it most, everyone wins. |
