New Research on Credit Building Featured at Underbanked Forum
By Kate Marshall Dole, Analyst, Innovation & Research
Today, CFSI releases new research that suggests to banks and credit unions a number of ways in which they can support credit building for low and moderate consumers in the U.S. High-quality credit instruments are a critical financial building block for American families, but many people can’t access high-quality forms of credit because of a damaged or limited credit history. Banks and credit unions are uniquely positioned to help consumers build their credit scores – and yet most financial institutions aren’t doing as much as they could be to facilitate increased access to high-quality credit for these consumers.
CFSI’s new research paper highlights initiatives that can be undertaken in the short-term, medium-term and longer-term.
- Short-term: Credit Building Tools, Services and Partnerships. Credit building tools and services, such as online and mobile-enabled credit score tracking programs, may be developed in-house or offered through referrals. Financial institutions can also form partnerships with non profits that provide high-touch products and services.
- Medium-term: Risk-Limited, Credit Building Products. Financial institutions should consider developing risk-limited, credit-building products and promoting them so that customers for whom they are relevant know about and can access them.
- Longer-term: Go Beyond Traditional Credit Files. Over a longer time frame, banks and credit unions should work to incorporate new and deeper sources of data into the credit decisioning process, potentially making high-quality forms of credit more accessible to thin and no file consumers.
This research, which has been sponsored by Citi Community Development, will be featured later today at CFSI’s 7th annual Underbanked Financial Services Forum in a session entitled “Empowering Consumers, Empowering Lenders: Shifts in Consumer Credit Decisioning.” CFSI Board Member and Global Director of Citi Microfinance and Community Development Bob Annibale will discuss the research and how it applies to the work Citi is doing to help build consumer credit.
Fed Finds Underbanked Consumers to be Heavy Users of Mobile Financial Services
By Kate Marshall Dole, Analyst, Innovation, Research & Policy Team, CFSI
In new consumer research results released today, the Fed has found that a larger proportion of underbanked consumers in the U.S. own mobile phones and smartphones – and use mobile financial services – relative to the total U.S. population. The study, conducted by the Federal Reserve Board’s Division of Consumer and Community Affairs, is the first large-scale research study to examine the ways in which unbanked and underbanked consumers own and interact with mobile devices. The findings also include new insights about population-wide mobile phone access, mobile banking and payments usage and behaviors, and online banking usage and behaviors.
A big question on the minds of providers who serve, or seek to serve, the underbanked, has long been: how much do underbanked consumers use mobile phones, and how? The Fed has found that the underbanked actually have access to mobile phones and smartphones in greater numbers than the population overall: 91% of these consumers have a mobile phone and 57% have a smartphone. This compares to the 87% of the U.S. population who have access to a mobile phone, and 44% of all consumers who use internet-enabled phones.
These findings are exciting and validating of CFSI’s latest research on mobile financial services (MFS) usage among these consumers. In our latest white paper on MFS, we suggest that, for financially underserved consumers in the U.S., a mobile phone with internet access is often a substitute (and a cheaper, more accessible one at that) for online access through a computer. For that reason, we have argued, mobile devices are a priority expense item. Having hard data to back up that assertion is important for helping financial providers to see that serving underbanked consumers through the mobile channel is a viable business opportunity that can benefit consumers as well.
Underbanked consumers are also more actively engaged in MFS activities than the population at large. Among the underbanked, 29% of consumers have used mobile banking in the past 12 months, compared to 21% of all consumers. And 17% of the underbanked population have used mobile payments, versus 12% of the total. Looking at specific types of mobile banking behaviors, underbanked consumers generally use mobile banking services in similar ways to all consumers, with the top activities being checking an account balance, transferring money between two accounts, downloading a bank’s mobile application, and receiving a text alert. Underbanked consumers were slightly more likely than all consumers to use their mobile phones to locate an ATM and transfer money between accounts and slightly less likely to use bill pay through their bank’s online site or app.
The picture is different for unbanked consumers. A slightly smaller, though meaningful, proportion of this population owns mobile phones and smartphones – 64% have a mobile phone and 18% have a smartphone. Unbanked consumers are also less likely to use mobile banking (10%), though the same proportion of unbanked consumers have used mobile payments (12%) as the total population. Explaining the use of mobile banking by consumers who, by definition, don’t have bank accounts, the report notes that the survey used mobile banking to refer to “using a mobile phone to access your bank account, credit card account, or other financial account,” which could be interpreted as a payroll or other prepaid debit card. Also, the sample size of people who are unbanked and use MFS is very small (less than 20), so detailed analysis of their behaviors is not possible.
The Fed also uncovered some interesting information about budgeting and financial management using mobile phones. From the report:
One-third of mobile banking users indicate that they receive text message alerts from their bank and, out of this group, 66 percent receive “low-balance alerts.” Nearly all report taking some action in response to getting a low-balance text alert from their bank: transferring money into the account with the low balance (58 percent), reducing their spending (41 percent), or depositing additional money into the account (16 percent). Almost one-third of text message bankers (31 percent) indicate that they receive “payment due alerts,” and 3 percent indicate that they receive “savings alerts.”
Although this finding applies to all U.S. consumers, and not underbanked/unbanked consumers specifically, it’s eye-opening to see that, not only are mobile banking users taking advantage of the mobile channel to stay more in touch with their account balances, they are also taking pro-active steps toward remedying a low-balance account. As noted in CFSI’s white paper on MFS, one of the top opportunities the mobile channel creates for financially underserved consumers, who often manage their cash flow day-to-day, is the ability to have a stronger and more consistent awareness of their financial situation, and to take action where needed to prevent unnecessary fees (such as from overdraft).
There’s much more interesting data to dig through in the full study, which you can find here: http://www.federalreserve.gov/newsevents/press/other/20120314b.htm. Additionally, the Fed’s Jeanne Hogarth will present deeper findings on behaviors and mobile usage by underbanked and unbanked consumers at CFSI’s Underbanked Financial Services Forum, which will be held in San Francisco from June 13-15.
This study goes a long way toward closing the information gaps – and contradicting incorrect assumptions – about mobile access and MFS usage among the underserved. We hope this sparks even more interest among providers in using the mobile channel to profitably meet the needs of the financially underserved.
