Reaching the Underserved Isn’t Easy, and That’s Before Tackling the Complex Task of Improving Their Financial Health

Reaching the Underserved Isn’t Easy, and That’s Before Tackling the Complex Task of Improving Their Financial Health

Is There an Optimal Time to Encourage the Underserved to Improve Their Financial Health?

Charles Keenan

Charles Keenan

Charles Keenan has written about payments since joining the American Banker as a staff reporter in 1997, a time when automated teller machines were appearing just about everywhere but people's living rooms thanks to the relaxation of surcharging rules.

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For years, the digital transformation of financial services has been ballyhooed as a panacea of sorts for the unbanked and underbanked. But in terms of improving the financial health of this group of underserved Americans, it's proving to be a very difficult task.

Underserved consumers appear to be increasingly abandoned by traditional banks and other retail providers, such as high-end supermarkets and specialty medical facilities. In terms of access to financial service products, it's not likely to get any better for this group anytime soon, as banks are facing increasing financial pressure and continue to close branches in lower-income neighborhoods across the country to reduce costs and adjust for growing transaction volume via electronic channels. The closing of branches in these communities, in combination with this group's lack of transportation options — many don't own a car — further limits their choice of, and access to, financial products and services.

"A lot of these individuals and their families operate in a tight geographical radius," says Kelley Knutson, president of Netspend, a consumer payment solutions provider (and TSYS company). "They have fewer options in their neighborhoods due to bank closures and limited opening hours, in addition to already being burdened with a challenging financial status and lower credit scores. Unfortunately, this creates even more obstacles to creating a stable financial situation." 

Smartphones have been billed as one way to reach the underserved. About 64% of people earning less than $30,000 a year own a smartphone, and 74% of those making $30,000 to $50,000 have one, according to the Pew Research Center. That's a good place to start. 

Digital's formidable task

Yet improving financial lives requires reaching a population distracted by surviving to the next paycheck. The underserved spend a lot more time and energy on this task than higher income brackets, making them challenged to take on new tasks that would bolster their financial health.

Plenty of research has shown this. In one 2013 study, reported in the magazine Science, small-production sugar cane farmers in India were given intelligence tests before and after their annual harvest, at which point they would receive payment for a year's work. Farmers scored much better on the tests after harvesting their crops and receiving their income for the year. By interviewing the same people before and after the harvest, the results stripped out variables such as education and genetics.

Smartphones are one way to reach underserved consumers. 64% of people earning less than $30,000 a year own a smartphone. 74% of people making $30,000 to $50,000 annually own a smartphone.

It's a similar situation with underserved Americans, who live paycheck to paycheck. When people are cash-strapped, they focus on being able to pay bills and stretching the budget, notes Mariel Beasley, a cofounder and principal at Common Cents Lab, a think tank at Duke University that creates and tests interventions that help low- to moderate-income people improve their financial well-being. Beasley notes that the focus on making ends meet makes it harder to tackle the most basic daily events, such as taking medicine on time, dealing with family stress and helping kids with homework. "There's this incredible tax that — when resources are scarce — it spills out into all other facets of our life," Beasley says. 

Timing is everything

In one experiment, Common Cents worked with Netspend to see how email could boost participation in a savings account offered by the prepaid card provider. Customers could (and still can) take advantage of Netspend's savings account, receiving an annual percentage yield of 5% for balances up to $1,000. Common Cents sent emails to 45,000 Netspend customers who had opened savings accounts, but had balances of $0. Among various email messages, at most, only 5% of any one customer started saving.

The experiment showed that email is a tough way to change behavior. And it's not necessarily about how much the product pays in interest. "On an individual level, it's so rare [that the interest rate] actually influences somebody's decision to save," Beasley says. "It's really about the mental model that they have when they first engage with this product."

Common Cents has worked with different financial providers over the years to see what works in reaching low-to-moderate income groups. One conclusion is that getting this 'stressed' group to change financial habits depends on getting the timing right. 

Providers need to try to change behavior during periods when people feel more secure about their finances. It could be the start of a new job, or when they add more work on the side. "It's identifying the right moment," Beasley says.  

Then, "How do you make it as easy as possible for somebody to follow through on the right actions?" she says. "And how do we layer on additional framing to make it more appealing? Things that appeal to our emotions right now. Things that make us feel good right now."

Apps are getting better at anticipating the right moment, and the Financial Health Network has invested in startups to help people do this. Digit is an app that analyzes spending using algorithms, which helps the user anticipate cash flow. That includes upcoming bills, expected purchases and minimum balance requirements. It gives users a daily total that's safe for them to save without jeopardizing future cash flow, helping them strive for various goals such as vacation and a rainy-day fund.

Another approach includes getting employers involved. Netspend, for example, works with companies to help speed up clearing of paychecks, as much as two days faster than banks that rely on batch processing. And the Financial Health Network has a stake in Alice, a platform that helps employees identify pretax eligible expenses such as transit passes, contact lenses and daycare tuition.

"Employers have an important role to play," says John Thompson, chief program officer at the Financial Health Network. "There's obviously linkages between financial health and physical health, and all of these things connect back to your productivity as an employer or employee."

So while banks have taken a step back, there’s still a big opportunity, digitally speaking, for providers to help the underserved improve their financial health. Vendors can figure out ways to get people to feel good about decisions and demonstrate a commitment to their long-term well-being that is genuine, Beasley notes. It makes good business sense too. "You are going to engender greater loyalty, and you can potentially help facilitate their growth and increase the long-term profitability of that customer," she says.

The statements and opinions of the writer do not necessarily reflect those of TSYS.

Other Articles by Charles

Charles Keenan

Charles Keenan has written about payments since joining the American Banker as a staff reporter in 1997, a time when automated teller machines were appearing just about everywhere but people’s living rooms thanks to the relaxation of surcharging rules.

His work at the American Banker included writing about credit and debit cards, merchant processing, and bank stocks. He later freelanced for the Banker and industry publications such as Banking Strategies, Bank Director, Community Banker, and U.S. Banker. He also writes about investing, insurance and health care, and is based in Los Angeles.

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