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Unbanked Customers Bring Value to Willing Financial Institutions
Question: We have heard growing implications that self-service kiosks are being positioned in convenience stores to attract unbanked customers. What's the real advantage for banks with this demographic? Is the pursuit of business outside our branches worth implementing an entire self-service platform?
Answer: It seems appropriate to begin a loaded question with a loaded answer: The unbanked are the largest untapped financial services market in US history. Having said that, it is important to understand that once unbanked customers are won over from a service standpoint they can be developed into full customer relationships. The unbanked customer demographic can be thought of as conducting most or all transactions outside of banks, generally consisting of minority groups, lower income, or younger people and disconnected from or distrusting of the banking system. However, this segment has the potential to bring huge business from outside your branches.
A 2005 report from Price Waterhouse Coopers found that over 40% of the US workforce lacks bank accounts. Is this an opportunity? We have been working to convince banks and credit unions that by utilizing self-service technology, they can cost effectively attract unbanked customers, with the opportunity to convert them into "banked" customers.
The unbanked are asset poor and transaction rich. The challenge has always been how to make it pay to service them. Self-service transactional kiosks allow for cost efficient servicing of unbanked customers in two ways: First, transactions can be conducted for pennies on a kiosk versus with a teller. Second, the unbanked are very comfortable paying for transactions. By lowering transaction costs and capturing fees, institutions can bridge the divide. Once unbanked consumers come into the branch, branch staff is free to engage with them without jeopardizing the level of service given to existing customers. This provides institutions the opportunity to convert the unbanked into traditional deposit-holder relationships.
The real challenge is marketing; the unbanked are accustomed to banking in non-traditional venues such as convenience stores, check cashers, pay-day lenders or directly with their billers. This group is also generally uncomfortable in a branch lobby. Banks and credit unions will need to work hard to attract the unbanked and bring them into the branch.
Financial institutions can offer applications on self-service kiosks such as bill payment check cashing, money transfers, and printing of certified checks or money orders. Tower- Group reports that expedited bill payments are expected to exceed 500 million by 2008. These applications are a significant fee-generating opportunity that should have banks and credit unions looking at self-service kiosks to facilitate the unbanked market.
Here are some basic considerations when evaluating self-service kiosks for the branch:
- What are your customer demographics? The first place to start is understanding what applications might be a good fit for your markets. For example, do you have lots of unbanked walk-ins buying money orders? Do you have significant on-us pay-day traffic? Do you serve large numbers of Hispanic clientele (multi-lingual kiosks simplify staffing models and make non-English speakers more comfortable)?
- How is this type of traffic distributed? You need to understand whether the volumes support a self-service deployment on a branch-by-branch basis.
- What are your IT initiatives and constraints? Are there any serious technology infrastructure shortcomings that would limit kiosk deployment and thus your payback?
One final note: Convenience stores and grocers are already down the road on kiosks for servicing the unbanked, and once they capture these "banking" customers, they won't let go easily. In our view, the time for financial institutions to win over the unbanked is now.
Source Technologies
Founded in 1986, Source Technologies provides integrated solutions for managing financial transactions and other secure business processes. Products include MICR printers and consumables, secure disbursement software, and the groundbreaking concourse™ self-service banking kiosks. Source Technologies has created over $400 million in economic value for customers in the last ten years.
First published on BankersOnline.com 4/17/06
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