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Underbanked Consumer Market

 
Definitions-
Underbanked:

People who have limited experience with traditional financial institutions. The underbanked have no more than one traditional financial account. Underbanked individuals are also referred to as having ‘thin files.’ It is important to note that underbanked individuals do not necessarily have bad credit; they simply lack sufficient credit history to have an accurate credit score.  Populations that often fall into the underbanked category include college students, new professionals, and immigrants. 

Unbanked:
People who lack a traditional credit history and have no experience with traditional financial institutions.  This population can include minors, new citizens, and college students. Unbanked individuals can also lack a SSN. 

Underserved:
Includes people in both the underbanked and unbanked definitions and also subprime populations. Refers overall to individuals who have limited or no experience with traditional financial institutions.

The underserved consumer credit market (comprised of the unbanked, underbanked, and subprime) represents one of the most lucrative opportunities for financial institutions (FIs) in today’s changing industry. Banks that can effectively serve the underserved without compromising their credit risk standards can gain access to a vast pool of qualified, profitable customers. The challenge is how to effectively decision consumers who have a lack of traditional credit histories.

Underbanked

Defining Unbanked and Underbanked

The defining characteristic of the 70 million underserved consumers in the United States is their lack of traditional credit bureau data. In the case of underbanked consumers, like students or senior citizens, there is a lack of recent credit history. In the case of unbanked consumers, like recent immigrants, there is a complete lack of any traditional credit data. In both cases, the consumers are usually declined for credit, despite the fact that many of them are excellent credit risks. The key to succeeding with this market is the use of alternative credit data and analytics that enable FIs to effectively segment the underserved population into prime and subprime customers.

Reaching Out to the Underserved

Some FIs have begun to realize the value of underbanked and unbanked consumers. The first step to effectively decision underserved consumers is to recognize the underlying value of consumers with bureau thin files and no hits. By incorporating alternative credit data pulls and analytic processes after a thin file or no hit bureau response, financial institutions can literally take a second, closer look at these applicants.

Effective Decisioning with Alternative Data Sources

The right tools empower lenders to decision well for the underserved market without sacrificing time and money. The foundation is a flexible decisioning environment capable of least-cost routing to find the right vendor at the right price to retrieve the right data. Zoot’s Vendor Network delivers this capability with a single connection to dozens of data and service providers.

A second factor is the ability for business users to make changes to credit criteria like score cutoffs and interest rates, in realtime. Zoot’s instant rules tool allows lenders to proactively modify and implement select criteria relevant to the underserved market at a moment’s notice.

A Growing Market

Being positioned to serve the underserved is an advantage to customer acquisition in today’s market and will only expand as the profile of U.S. consumers evolves. Financial institutions that have systems in place to monitor fraud and risk while maximizing flexibility will be ahead of the trend.

Underbanked graph

Learn More:
White Paper, "Giving Credit Where Credit Is Due: Serving the Underserved in the United States through Insight into the European Credit Culture"
Solution Brochure, zLinkSM Data Aggregation


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