Between 10 and 20 million Americans are unbanked, meaning they lack a basic checking or savings account. An estimated 40 million others are underbanked--they have a bank account but may have difficulty retaining it, and are not fully integrated into the financial mainstream.
What deters low and moderate income individuals? Households living paycheck to paycheck often avoid traditional bank accounts for their minimum balance requirements, high overdraft penalties, monthly maintenance fees, and delayed deposit of checks. As a result, public-private efforts to pilot initiatives are addressing this disconnect between mainstream market offerings and low-income banking needs and yielding important insights into consumer demand. However, in an effort to tailor public and public-private initiatives targeted towards under-banked populations, it is important to listen to their preferences to structure valuable programs that they will use. In this regard, policy-makers can look to the private sector's experiences for guidance.
What do we know from research, well-crafted demonstration projects, and surveys of low income non-bank consumers? First, consumers prefer quick and convenient access to their funds; a product to conduct point-of-sale and ATM transactions; the opportunity to set aside funds in savings account; transparent fees and process; and government safeguards and protections.
From consumer research of the alternative financial services industry (specifically, check cashing establishments nationwide), we know that consumers seek these non-bank financial products and services because they provide transparent fees stated up-front, immediate liquidity, a sense of privacy, multi-lingual service representatives, and the ability to purchase multiple services-all in convenient locations and hours. Consumers are also drawn to non-bank providers because they convey high levels of trust, respect and security to the individual.
Low income consumer preferences have become well-incorporated into practices of very profitable alternative financial services industry; public efforts to bring more working individuals into the financial mainstream should follow suit, without adopting their predatory and usurious practices.
The New America Foundation's concept for an Assets and Transaction Accountproposes to leverage the tax filing process to deliver a transaction and savings account to working, low-income individuals. By directly depositing a tax filers' refund into a basic, low-cost account held at regulated financial institution, the individual will gain access to the mainstream financial system and a host of product features informed by consumer preferences.
Public policies aimed at jumpstarting a relationship between a working individual and a regulated financial institution should take some cues from the private sector and incorporate knowledge of lower income consumer preferences in efforts to design and provide access to safe and fairly priced services. By listening to consumer preferences, policy-makers can deliver programs that are fair and affordable and meet the needs of those they are serving.