If we sent you a check right now, where would you go to cash it? If you said a bank or credit union, you’re in the majority. Yet a notable number of Americans take a different approach.
As of 2013, approximately 8% of U.S. consumers were unbanked, which means they had no affiliation with mainstream banking. Another 20% were underbanked, which means they had bank accounts but also depended on other services such as check-cashing counters or payday loans.
These nontraditional options have become known as alternative financial services (AFS). AFS are financial services offered by providers that operate outside of federally insured banks. They include eight different financial industries:
- Money Orders
- Prepaid Cards
- Cash Checking
- Payday Loans
- Rent-to-Own Transactions
- Buy-Here-Pay-Here Auto Loans
- Refund Anticipation Loans
A go-to for many people with economic, logistical and psychological barriers, AFS were conventionally tailored toward low-income consumers but their use has spread to other groups like millennials due to their convenience and ability to fulfill short-term financial needs.
Placing importance on consumers’ behaviors, needs, drivers and hesitations has been a point of differentiation for AFS in the financial landscape. They have become increasingly innovative by finding new ways to become more accessible and capitalize on new technological advances in mobile and online platforms.
As unique services continue to hit the market, banks and AFS must continue to understand their consumers and create services that accommodate consumers’ economic and social lifestyles. In addition, financial institutions will need to consider the unbanked and underbanked consumers’ specific needs in future development.
Curious to learn more about these consumer groups? Email firstname.lastname@example.org for the full trend report.
August 5, 2016 | Research