Financial Technology Trends in the Underbanked Market
May 1, 2013
- Eva Wolkowitz
- Rob Levy, Arjan Schütte
The emerging industry of technology startups providing financial services, known as FinTech, has typically targeted a relatively affluent customer base. Yet beneath the surface, a groundswell of hundreds of FinTech companies are developing innovations to serve a consumer segment in even greater need of new ways to access and manage their money.
Financially underserved consumers – those who are financially challenged due to a lack of access to traditional financial services, low or absent credit scores, or simply low incomes – represent over a quarter of American households and $78 billion in annual spending on financial services.1,2 Emerging companies are recognizing the profit opportunity to apply financial technology innovations towards the development of products that better serve this market of more than 68 million U.S.consumers.
The market for products used by underserved consumers grew by 7% in 2011 alone, but many of the credit, payment, deposit, and other financial services in this marketplace fail to integrate available technology, leaving tremendous opportunity for disruption through digitization of offerings and democratization of consumer access. Paper-based transactions, inaccessible data, high acquisition costs, and risk models unsuited to identifying attractive borrowers have historically passed high costs on to underserved consumers and kept entrepreneurs at bay.