Banks Vie for Previously Underserved Markets and Focus on Hispanics

In the U.S., there are an estimated 5.9 million households without bank accounts (4.5% of all U.S. households), according to a Federal Deposit Insurance Corp. (FDIC) survey in 2021. An additional 18.7 million households (14.1%) were estimated to be “underbanked,” meaning individuals with very low credit scores or no access to credit at all. Until recently, this market was not actively pursued by banks.

In the U.S., hundreds of millions of dollars are paid yearly by employers or other sources, to people with no bank accounts, as well as the underbanked and undocumented immigrants. Those with no bank accounts must seek financial services from check-cashing services, sellers of money orders, so-called “payday lenders” which charge exorbitant interest rates and fees, along with Western Union and other firms that wire money (“remittances”) to the immigrants' family members back home.

The remittance of money from the United States to family members in Latin America is one of the most active payment corridors. There is good profit potential in providing simple financial services to consumers who have historically spurned traditional bank accounts.

Financial technologies are being developed to serve the needs of consumers outside of the traditional banking system via smartphone apps. For example, in China, WeChat Payment (owned by Tencent) enables peer-to-peer payments and money transfers, without the assistance of banks. Venmo, owned by PayPal, provides similar services as does competitor Zelle. Several mobile apps are competing to assist consumers, including the unbanked, to easily pay the rent, pay utility bills and make other recurring payments.

Major U.S. banks including JPMorgan Chase & Co., Wells Fargo & Co. and U.S. Bancorp are testing the use of data relating to credit card applicants’ checking and savings accounts, as an alternative to making judgements based solely on traditional credit scores. People who pay with cash or with debit cards only, or those who are new to the U.S., often do not have credit scores and were unlikely to be approved for credit cards in the past. Today, these individuals have a better chance of approval if they keep positive bank account balances over time and avoid overdrafts.

In the U.S., the Hispanic population is rapidly expanding. At the same time, it is growing in household wealth and buying power. By as early as 2037, Hispanics in America will total 100 million (up from 49 million in 2010) and make up about 25% of the population. In the 2022 FDIC survey, 10% of Hispanic households were found to be unbanked, compared to 3% of Caucasian households.

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