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Money Smart News - January 2004

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Tapping Into the Unbanked Market
Panel Three: Beyond Toasters: Account Incentives That Really Work, and Why

The panel entitled "Beyond Toasters: Account Incentives That Really Work, And Why," tackled the issue of how the benefits of a bank account are not readily apparent to the unbanked and how various incentives can be tailored to overcome this.

The panel was made up of Evelyn Edwards, Assistant Vice President of Community Reinvestment, Bancorp South, Jackson, Mississippi; Michael S. Barr, Professor, University of Michigan Law School, Ann Arbor, Michigan; Dory Rand, "Financial Links for Low-Income People" Program Coordinator, National Center on Poverty Law, Chicago; with panel moderator Ellen Seidman, Senior Managing Director, ShoreBank Advisory Services, Chicago.

Seidman opened the session by describing a number of programs undertaken by industry leaders intended not only to get new customers from the ranks of the unbanked, but to keep them in the financial services system once they've tried it.

Barr cited surveys taken among the estimated 10 million unbanked Americans indicating that many of them avoided banks because they thought such institutions were for rich people and that those without a lot of money were not welcome. "That perhaps accounts for the recent explosive growth in 'alternative financial services' such as check-cashers and pay-day lenders," he suggested. "This is now a $2 billion-a-year business, built on an annual percentage rate of more than 400 percent for some pay-day loans. We need to crack down on this."

Edwards spoke about the Jackson Asset-Building Coalition, a group of representatives from public- and private-sector organizations with an interest in helping the unbanked, that went on-site in the community to encourage the opening of bank accounts, using a variety of incentives, such as account-matching, combined with financial education, to get people into the system.

Rand described a number of incentives that many banks had used successfully in initiating the unbanked into traditional banking. "Free checking, low-cost money orders, matching funds on initial deposits, direct deposit bonuses, waiving the credit history check, convenient locations and hours, culturally competent staff, a casual atmosphere and free tax counseling were just some successful incentives," she said.

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Last Updated 01/15/2004 MoneySmartNews@fdic.gov