New model may benefit banks, customers

One in four Americans lacks sufficient access to high-quality financial products and services. In Georgia, the figures are closer to one in three. Without access, consumers are more challenged to pay bills, save for a rainy day and build a financial foundation strong enough to withstand a crisis.

Roughly a third of these households are unbanked, according to a 2009 FDIC study, meaning they have no checking or savings account. The remaining two-thirds are underbanked. They have an account, but it doesn’t fully meet their financial needs, so they fill the gap with products and services sold via a mix of convenience stores, retailers and Web-based providers.

An estimated 42 percent of financially underserved households face challenges accessing credit because they lack sufficient credit history. Access to credit overall has become more limited given the effects of the recent recession. As of 2010, about half the U.S. population had a credit score below 600, representing a shift of 16 million people from average to damaged credit in four years. The financial crisis has exacerbated these trends, but it didn’t cause them. Before the recession, with banks building new branches on seemingly every corner, the underserved were hidden in our midst. It turns out that physical access is not the main problem; relevance is.

Paycheck-to-paycheck consumers are not well served by the checking account, which works best for people who have enough money left after each paycheck to keep some in the bank. They need immediate access to their money but are less likely to have direct deposit. They often need to pay their bills last-minute, which means online bill-pay doesn’t work either. And they simply can’t afford an unexpected overdraft fee.

So instead of heading to the bank on payday, underserved consumers go first to the supermarket or a convenience store to cash their check, pay bills and send money home. If there’s any cash left over, they might deposit it in their bank account.

Checking accounts aren’t working too well for banks, either. New regulations have reduced the revenue that banks can generate from checking accounts, and they are finding themselves with scores of money-losing customers. Now, the interests of consumers and banks may finally be aligning.

A small but growing number of banks and credit unions are beginning to understand that they can simultaneously serve their customers better and generate new revenue by offering the kinds of services many of their customers go elsewhere to access.