NEW YORK – A new study by Global Advertising Strategies, a New York-based marketing and consulting firm, suggests that if financial institutions are serious about leveraging the largely untapped unbanked/underbanked market – i.e. people who have infrequent or nonexistent relations with financial services companies – it will be imperative for them to develop more appropriate and applicable credit-scoring models. Titled “Multicultural Marketing of Financial Service Products and Services to Unbanked Americans” (available at www.ethnicusa.com), the report also suggests strategies and tactics that financial services companies must consider using to better understand and capture this emerging market opportunity, and includes profiles of how some companies are providing services and products to unbanked Americans.
According to the study, unbanked Americans, who are typically immigrants, ethnic minorities, youths, widows, divorcees without credit histories in their own names, and people who have filed for bankruptcy or are re-building their credit-worthiness, comprise more than 13 percent of the 105 million households in the United States. More importantly, spending by unbanked Americans on financial products is expected to increase by 94 percent in the next 4 years(1), presenting an unparalleled opportunity for financial services institutions seeking to attract new consumers in the thoroughly saturated mainstream market.
“For years, banks have misunderstood and ignored the unbanked,” said Alex Romanovich, executive vice president at Global Advertising Strategies. “Just look at how they’ve continued to use traditional credit-scoring models with this community, which is absolutely wrong since the approach isn’t applicable to people who don’t have a credit history and automatically makes them ineligible for standard credit card products. It’s no wonder these people have turned to alternative financial service providers such as check-cashing and money transfer outlets.”
But Romanovich added that as financial services companies have become more challenged in finding new markets and customer frontiers that lead to new revenue streams, the unbanked have become more appealing as prospective customers who can be migrated to traditional services such as checking and savings accounts, credit and debit cards, mortgages and other consumer and business loans.
Understanding the Market
According to Global, to effectively reach the unbanked it is vital that a financial services marketer have a strong understanding of its various sub-segments. “Look at immigrants as an example,” said Romanovich. “They remain very leery of banks because of the corruption and lack of regulation they often experienced in their home countries. As a result, marketing campaigns that can help this demographic overcome their fears will be more effective in developing interest from and relationships with this market,” he said.
Global’s analysis found that one of the most effective tactics for financial institutions to appeal to this market is by offering non-traditional products such as prepaid or stored-value cards because they help to teach fiscal responsibility and transition users into the credit culture. Additional marketing tactics that should be considered include:
- Financial literacy education
- Community involvement
- In-language customer relationship management and advertising
- Ongoing demographic market research
- Corporate level coordination with local execution
Not surprisingly, the report found that large banks trail behind smaller community banks in recognizing the value of ethnic and immigrant communities. “Institutions such as Labe Bank in Chicago have largely grown their customer base by focusing on ethnic minority customers, many of whom are first-generation,” commented Romanovich.
He added that although 67 percent of banks will increase spending on their multicultural marketing, it will be focused on African-Americans, Asian-Americans and Hispanic-Americans, largely excluding important demographics such as Central and Eastern European Americans, the third largest U.S. ethnic market that is only 10% behind Hispanic-Americans in terms of spending power. For more information on the report, please visit www.ethnicusa.com.
