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					                         Attitudes & Habits of
                         the Unbanked:
                         Key Learnings to Better
                         Understand the Unbanked
                         Population in America


                         Mark Crager
                         Visa USA


                         August 13, 2007




Visa Research Services
Presentation purpose: provide key insights into
Unbanked population


                  Develop a profile to better understand
                  the segment




                                 Highlight key characteristics that shape
                                 financial and payment attitudes and behaviors




                                                   Identify key implications and
                                                   solutions to help facilitate
                                                   payment to this segment of the
                                                   population




                          VISA RESEARCH SERVICES                                    1
Overview




           Profile




                                      Implications
                                       & Solutions



             VISA RESEARCH SERVICES                  2
Simple Things We take for Granted:

With a Credit/Debit/Prepaid Card, We can:

•   Have constant access to our funds kept in a secure location
•   Shop online
•   Pay-at the pump for gas
•   Pay for a meal at a restaurant
•   Access an ATM for immediate cash
•   Reserve a hotel room or rental car
•   Buy tickets to a concert
•   Pay bills over the phone




                              VISA RESEARCH SERVICES              3
Executive Summary

Unbanked Population
11% of U.S. households are ―Unbanked,‖ i.e., they do not have a checking account.
• Unbanked households tend to subsist on less than $30,000 annually, despite being
  employed. Compared to the Banked population, Unbanked households have less wealth
  and education, are younger, have more children, rent their residence, and are
  disproportionately non-white and female-led.
• Nearly half the Unbanked own a financial asset, e.g., a savings account or life insurance.
• Unbanked use alternative methods for conducting financial transactions.
  – Check cashing sources—banks, credit unions, grocery stores, check cashing outlets,
    retailers, self-service kiosks, store-value cards, family, friends.
  – Payment methods—cash, money orders, retailers, stored value cards, family, friends.

Barriers to Serving Unbanked
Reasons for not owning an account are due to bank-related issues, privacy, and trust.
• Bank-related—Many Unbanked do not like or need banks. Top obstacles include:
  – Do not write enough checks.
  – Dislike and/or mistrust.
  – Do not have enough money.
  – High service charges.
                                      VISA RESEARCH SERVICES                                   4
Executive Summary


Barriers to Serving Unbanked, cont.
• Privacy—Some Unbanked live and/or work illegally in the U.S. Others wish to hide
  income and assets from family and/or the government.
• Trust—Some mistrust of banks stems from previous negative experiences, both in the
  U.S. and abroad. Many Unbanked simply prefer the reality of cash to a bank statement.

Market Offerings
Among the strategies implemented to serve the Unbanked market, five appear promising:
• Financial services through major retailers.
• Tailored checking accounts and requirements.
• Self-service kiosks.
• Products and services offers to the Hispanic community.
• Prepaid Cards to distribute pay and benefits.




                                       VISA RESEARCH SERVICES                             5
11% of U.S. households are Unbanked


                                                             U.S. Households
                                                          100% = 112 M households


                                                                                 Unbanked*




                                                       Banked




* ―Unbanked‖ households are def ined by the Federal Reserve as those in which no members have a checking account.

Sources: Federal Reserve Board: Survey of Consumer Finances 2004, a triennial household survey. 4,522 f amilies completed volu           ntary,
conf idential interviews providing detailed inf ormation on f amily f inances. Results were weighted to represent the U.S. population. 2004 survey
results were released in January, 2006.

                                                                VISA RESEARCH SERVICES                                                               6
Misperceptions exist about the Unbanked


Perception                                                               Reality
• Have no assets                                                         • Some have assets, including homes.
• Have no income                                                         • Most are employed; some have
                                                                           household income as high as $50K.
• Are not financially savvy                                              • Make rational choices about financial
                                                                           services; may own life insurance, credit
                                                                           cards, etc.
• Primarily use check cashers                                            • Only 24% use check cashers exclusively.
• No access to banks                                                     • Use banks frequently for check cashing
                                                                           and payments.
• Uncomfortable with                                                     • Adopting card-based and online products.
  technology, e.g., ATM




Source: 1. Synergistics Research Corporation: Insights into the Unbanked and Under-banked, December 2005. 2. CFSI: The Power of Experience
in Understanding the Underbanked Market, June 2007.

                                                          VISA RESEARCH SERVICES                                                             7
Bank-related issues are primary driver of
decision to remain Unbanked

Reasons Why Unbanked
• Bank-related issues such as:                                             • “I may get an account later on, when I have
   – Few checking needs.                                                     more money.”

   – Dislike and/or mistrust.                                              • “I’m afraid I’m going to overdraw the account.”

   – Lack of funds.                                                        • “I don’t need a checking account since clearly,
                                                                             I am not responsible enough to handle one.”
   – High fees (service charge)



• Privacy of financial information:                                        • “I recently filed for bankruptcy. I’m trying to
   – Wish to hide income from                                                protect what little I have. If I put money in a
                                                                             checking account, the IRS will come after it.”
     family members,
     government agencies, etc.                                             • “One reason someone would not have a
                                                                             checking account involves illegal immigrants to
   – Do not reside and/or work                                               the United States.” *
     legally in the U.S.

* The Survey of Consumer Finances does not ask f or citizenship status, so the number of Unbanked who are illegal immigrants i s unknown.
Sources: 1. Survey of Consumer Finances, 2004. 2.Answerbag website, 6/11/07. 3. Creditboards website, 6/19/07.

                                                            VISA RESEARCH SERVICES                                                          8
Reasons for lack of checking account are stable,
but dissatisfaction with service charges grows

Reasons for Lack of Checking Account                       1995       1998   2001   2004
Do not write enough checks                                  25%       28%    29%    28%
Do not like dealing with banks                              19%       19%    23%    23%

Do not have enough money                                    20%       13%    14%    14%
Service charges are too high                                  8%      11%    10%    12%
Cannot manage or balance account                              8%       7%     7%     7%
Minimum balance is too high                                   9%       9%     7%     6%

Do not need or want an account                                5%       6%     5%     5%
Credit problems                                               1%       3%     4%     2%
Other                                                         4%       3%     2%     2%
No convenient hours or location                               1%       1%     0%     1%


Source: Survey of Consumer Finances, 2004.

                                             VISA RESEARCH SERVICES                        9
While bank minimum balances and monthly fees
are decreasing, bank fees are increasing

Average Monthly Service Fee                                  Average Non-Sufficient Fund Fee




Minimum Balance to Avoid Fees                               Average ATM Surcharges




Source: Bankrate: Checking study, Fall 2006.

                                               VISA RESEARCH SERVICES                          10
Still, check cashers are used to cash checks,
buy money orders, pay utility bills, and wire funds

Reasons for Using Check Casher                                  Check Cashing Center Activities (Among Users)
• Convenient locations and hours.                                 Cash Payroll Checks &
                                                                 Purchase Money Orders
• Less hassle than cashing checks                                  Cash Personal Checks
  at stores and banks.                                                  & Pay Utility Bills
                                                                     Cash Social Security
• Less expensive than using                                          or other Govt. Check

  an ATM.                                                                   Wiring Money


• Do not have a checking or                                                    Purchase a
                                                                             Prepaid Card
  savings account.                                                            Purchase a
                                                                              Phone Card

                                                                         Short-Term Loan




Source: Synergistics Research Corporation: Insights into the Unbanked and Under-banked, December 2005.

                                                          VISA RESEARCH SERVICES                          11
Alternative non-bank sources of check cashing
and bill payment methods are also used

Alternative Check Cashing Sources                                       Alternative Bill Payment Methods
                                                                        • Bills are typically paid on-site, using
                                                                          money orders or through friends
                                                                          and family.
                                                                        • Walk-in bill payment, i.e., cash or
                                                                          money order payments made
                                                                          on-site, has declined among
                                                                          Unbanked as companies move to
                                                                          phone and online payments.
                                                                              Year              Walk-in Payments
                                                                              2004              70%
                                                                              2005              64%
                                                                              2006              62%




Sources: 1. Synergistics Research Corporation: Insights into the Unbanked and Under-banked; December 2005. 2. Bank Technology News:
―Payment: Automation is Washing Money Orders Away,‖ April 2007.

                                                         VISA RESEARCH SERVICES                                                       12
Overview




           Profile




                                     Implications
                                      & Solutions


            VISA RESEARCH SERVICES                  13
Nearly half the Unbanked earn less than
$15,000 a year

             U.S. Households by Income                                             Unbanked vs. Banked by Income

                   100% = 112 M households

                  <$15 K                     >$45 K




  $15–$29 K




                   $30–$44 K




Source: Survey of Consumer Finances 2004 (all dollars in year 2004 dollars, adjusted by CPI).

                                                             VISA RESEARCH SERVICES                                14
Unbanked median household income is $17,457


                                             Median Household Income




Source: Survey of Consumer Finances, 2004.

                                                   VISA RESEARCH SERVICES   15
42% of Unbanked have a financial asset;
18% own a savings account

                Financial Asset                                      Unbanked                   Banked
                                                             % Owned        Median Value   % Owned   Median Value

                Any financial asset                              42%          $2,610        100% $26,200
                Savings account                                  18%             $300        51%      $3,100

                Retirement/pension                                11%         $6,800         54% $37,000
                Cash-value life insurance                         11%         $3,000         26%      $6,000
                Savings bonds                                      4%         $2,000         19%      $1,000
                CDs                                                3% $10,000                14% $15,000
                Stocks                                             1%         $4,000         23%     $15,000
                Money market                                       1%         $1,500         24%      $8,000
                Other managed assets*                               1% $30,000                8% $45,000
                Other financial assets                            10%         $2,000         10%      $5,000
* Personal annuities and trusts with an equity interest and managed investment accounts.
Source: Survey of Consumer Finances 2004 (median calculated f or asset owners only).

                                                            VISA RESEARCH SERVICES                                  16
24% of Unbanked have direct deposit account


                   Direct Deposit                                           Unbanked    Banked
                  Receive direct deposit*                                        24%     77%
                  Payment deposited
                  •       Paycheck                                               49%     68%
                  •       Social security                                        37%     31%
                  •       Pension/                                                 6%    14%
                          other retirement income
                  •       Other                                                  15%      8%




* Funds may be deposited directly to a savings account or credited to a payroll card.


Source: Survey of Consumer Finances, 2004 (multiple answers accepted).

                                                              VISA RESEARCH SERVICES             17
9% of Unbanked make automatic payments


                 Automatic Payments                     Unbanked      Banked
                Make automatic payments                        9%      52%
                Payments made
                •      Utility bill                          32%       38%
                •      Insurance                             29%       49%
                •      Car loans                             27%       16%
                •      Mortgage/rent                         24%       34%
                •      Other                                   5%      13%




Source: Survey of Consumer Finances, 2004.

                                             VISA RESEARCH SERVICES            18
71% of Unbanked own a non-financial asset;
32% own their home

             Non-Financial Asset                   Unbanked                   Banked
                                             % Owned     Median Value   % Owned Median Value

             Any non-financial asset           71%       $11,000          95% $160,300

             Vehicle                           60%         $4,500         89% $15,100

             House                             32% $52,000                73% $165,000

             Business                            2% $26,000               13% $102,000

             Other real estate                   2% $44,000               14% $100,000

             Other non-financial                 2%        $2,000           8% $15,000
             assets




Source: Survey of Consumer Finances, 2004.

                                              VISA RESEARCH SERVICES                           19
23% of Unbanked spend less than their income


                                             Spending Relative to Income




Source: Survey of Consumer Finances 2004 (based on self-reported spending habits).

                                                           VISA RESEARCH SERVICES    20
Unbanked save most often for emergencies,
Banked tend to focus on retirement

                Top Reasons for Saving                  Unbanked      Banked
                Emergency                                   17%       21%
                Retirement                                  13%       36%
                Child’s education                           11%        7%
                Buy home                                    10%        4%
                For children/family                          6%        4%
                Own education                                4%        4%
                For the future                               4%        5%
                Ordinary living expenses                     4%        2%
                Miscellaneous/other                         23%       14%


                Don’t/can’t save                             8%        3%


Source: Survey of Consumer Finances, 2004.

                                             VISA RESEARCH SERVICES            21
51% of Unbanked have debt; median loan balance
is $5,700, less than one-tenth of Banked population

               Debt                                 Unbanked              Banked
                                               % Have Median Owed     % Have Median Owed

               Any debt                          51%        $5,700     79% $65,500

               Installment loan                  30%        $5,000     48% $12,000

               Credit card balance               22%           $770    49%     $2,400

               Mortgage/HE loan                  15% $37,000           52% $97,000

               Other lines of credit              1%           $280     2%     $4,000

               Other real estate loan             1% $42,000            4% $90,000

               Other debt                         7%        $3,500      8%     $4,000




Source: Survey of Consumer Finances, 2004.

                                             VISA RESEARCH SERVICES                        22
Unbanked are less likely to shop around
for credit

                                 Comparison Shopping for Credit Products




Source: Survey of Consumer Finances, 2004.

                                              VISA RESEARCH SERVICES       23
The most frequent sources of loans are store and
credit cards, finance companies, and banks

               Key Loan Sources                         Unbanked      Banked
               Store/credit card                           23%        49%
               Finance company                             12%        22%
               Commercial bank                             11%        33%
               Individuals                                 11%         5%
               Real estate lender                            7%       25%
               Credit union                                  5%       12%
               Savings and loan                              2%        7%
               Other—non-financial                         10%        10%




Source: Survey of Consumer Finances, 2004.

                                             VISA RESEARCH SERVICES            24
Unbanked borrow primarily to pay for goods
and services

               Reasons for Borrowing                    Unbanked      Banked
               Goods and services                          30%        52%
               Vehicle                                     18%        39%
               Home purchase                               15%        50%
               Education                                   10%        16%
               Home improvement                             1%         7%




Source: Survey of Consumer Finances, 2004.

                                             VISA RESEARCH SERVICES            25
Unbanked and Banked share views on
acceptable borrowing

                Okay to Borrow                         Unbanked      Banked
                Education                                76%           83%
                Car purchase                                65%       83%
                Living expenses                             53%       47%
                Vacation                                    15%       14%
                Jewelry, etc.                                5%        6%




Source: Survey of Consumer Finances 2004.

                                            VISA RESEARCH SERVICES            26
Nearly half the Unbanked feel somewhat or
very lucky financially

                                         “I Have Been Lucky Financially”




Source: Survey of Consumer Finances, 2004.

                                                  VISA RESEARCH SERVICES   27
Majority of Unbanked are employed


                  U.S. Households by                                         Unbanked vs. Banked by
                  Employment Status                                            Employment Status
                  100% = 112 M households

                      Other
                Non-Working

        Retired




      Self-
      Employed
                                             Work for
                                             Someone




Source: Survey of Consumer Finances, 2004.

                                                    VISA RESEARCH SERVICES                            28
Unbanked tend to be younger; households
more likely to be female-led

           Unbanked vs. Banked by Age                      Gender
                                                           • 40% of Unbanked households are led
                                                             by a female.
                                                           • 27% of Banked households are led
                                                             by a female.




Source: Survey of Consumer Finances, 2004.

                                             VISA RESEARCH SERVICES                               29
Unbanked are disproportionately non-Anglo


          U.S. Households by Ethnicity                                 Unbanked vs. Banked by Ethnicity
                 100% = 112 M households

                         Other
          Hispanic

  African-
 American




                                             White




Source: Survey of Consumer Finances, 2004.

                                                     VISA RESEARCH SERVICES                               30
Over 80% of Unbanked have no more than a
high school education

         U.S. Households by Education                                Unbanked vs. Banked by Education
                  100% = 112 M households

             Less than
                                         College Degree
           High School
                                             at Least




  High School
     Graduate


                                   Some College




Source: Survey of Consumer Finances, 2004.

                                                    VISA RESEARCH SERVICES                              31
Unbanked consider themselves less healthy
than Banked

                                             Self-Assessed Health Rating




Source: Survey of Consumer Finances, 2004.

                                                    VISA RESEARCH SERVICES   32
Overview




           Profile




                                     Implications
                                      & Solutions


            VISA RESEARCH SERVICES                  33
Prepaid Cards Offer an Efficient Way to Store
Funds, Make Purchases, Pay Bills, Save, and
Build Credit
Products and Services                                                          Unbanked Benefits
• General checking account features,                                           • Do not require same identification
  e.g., store funds, make purchases.                                             or credit history as banks.
• Direct deposit.                                                              • Can purchase and reload at retailers
                                                                                 and check cashers.
• Tax refunds.
                                                                               • Provide immediate access to funds.
• Remittance features.
                                                                               • Cost is lower than many alternatives
• Bill payment.
                                                                                 for Unbanked consumers.
• Credit-building.
                                                                               • Prepaid format makes it nearly impossible
• Overdraft protection / payday advance                                          to overdraft (i.e., no unexpected fees).
  alternative.
                                                                               • Some providers help build credit by
• Consumer protection.                                                           reporting to credit bureaus.
• Rewards.                                                                     • Some providers exploring savings features
                                                                                 and small credit extension.
• Savings.
Sources: 1. Center f or Financial Services Innovation: Stored Value Cards: a scan of current trends and f uture opportunities, July 2004. 2. US Banker:
―Landing the Unbanked With Lure Aiming to Build Credit,‖ April 2007. 3. Synergistics Research Corporation: Insights into the Unbanked and Under-
banked, December 2005.

                                                               VISA RESEARCH SERVICES                                                               34
Two Types of Prepaid Cards


Open-Loop System                                                              Closed-Loop System
• Cards used for multiple purposes and at                                     • Cards can only be used for issuer’s
  multiple points of sale and for paying bills.                                 products or for limited purposes, e.g.,
                                                                                prepaid gift cards or phone cards.
• Projected to reach $43.8 B by 2009.
                                                                              • Projected to reach $192.3 B by 2009.
• Three types:
    – Payroll-Only Cards—direct deposit of
      paychecks or other ACH deposits, e.g.,
      Social Security Payments.
    – Reloadable Payroll Cards—direct
      deposit cards for payroll checks; other
      ways to reload cards.
    – Reloadable Debit Cards—reload in a
      variety of ways.



Sources: 1. Center for Financial Services Innovation: Stored Value Cards: a scan of current trends and f uture opportunities, July 2004. 2. US Banker,
―Landing the Unbanked With Lure Aiming to Build Credit,‖ April 2007. 3. Synergistics Research Corporation: Insights into the Unbanked and
Under-banked, December 2005.

                                                              VISA RESEARCH SERVICES                                                               35
Unbanked and Banked use stored value
cards differently

Unbanked Stored Value Cards Usage                                     Banked Stored Value Cards Usage
Most Unbanked use prepaid cards for                                   Banked consumers primarily use
everyday purchases.                                                   prepaid cards for small office and home
                                                                      office business expenses




Source: Ecount: Consumer Spending Trends of Banked and Unbanked Cardholders, July 2006.

                                                        VISA RESEARCH SERVICES                                  36
First step in serving Unbanked: apply segment
knowledge across the entire value chain

                                Value Chain



         Product Design/           Marketing               Cardholder
         Development                                       Management


        • Products and     • Delivery                  • Promote
          services           channels                    responsible usage
                           • Partnerships              • Manage risk
                                                         and recovery with
                                                         issuer




                              VISA RESEARCH SERVICES                         37
Primary Source Description


Survey of Consumer Finances, 2004
Federal Reserve Board’s 2004 Survey of Consumer Finances (SCF) is a triennial survey
of U.S. families’ financial portfolios sponsored by the Board of Governors of the Federal
Reserve System with the cooperation of the U.S. Department of the treasury. It is
designed to provide detailed information on U.S. families’ balance sheets, use of financial
services, demographics, and labor participation. Data from the SCF are widely used—from
analysis at the Federal Reserve and other branches of government to scholarly work at
major economic research centers. For the 2004 SCF, 4,522 households were interviewed
in face-to-face interviews by staff from the National Opinion Research Center (NORC),
University of Chicago, between July and December.
All estimates (means, median, percentages, number of households) are computed using
sample weights, and therefore are representative of the U.S. household population in
2004. All dollar values are in year 2004 dollars, adjusted by the CPI All Urban, All Items.
Household total income is reported for the year prior to the survey, all other reported
monetary values are for the survey year. Any personal demographic characteristics
(education, age, etc.) are in reference to the head of the household. Note that for dual-sex
couples, the head of household is always the male, while for same-sex households, the
head of household is the older of the two individuals.

                                       VISA RESEARCH SERVICES                                  38
                                                Mark Crager
                                                Vice President
                                                Visa USA
                         Contact Information:   P.O. Box 8999
                                                San Francisco, CA 94128
                                                (650) 432-5168
                                                mcrager@visa.com




Visa Research Services

				
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