While banks have historically viewed this market as risky and
unprofitable, the commercial success of the informal financial
sector and tremendous growth of the microfinance movement have
forced them to reconsider. Given the intense competition in today’s
retail banking market, acquiring new customers is viewed as easier
than attempting to poach existing customers from other banks.
Furthermore, studies indicate that the recently banked are a far
easier group to cross-sell additional products and services to than
long-term existing customers.
Unsurprisingly, many banks now view the market
as a strategic imperative and are developing innovative strategies
in product design, distribution, marketing, customer relations, and
credit risk management to meet its unique needs.
Major market segments include low-income
consumers, immigrants, ethnic minorities, and rural communities.
However, there is considerable diversity within these groups and
careful segmentation is required. A careful and detailed
understanding of the customer is needed.
Grassroots marketing is more effective than
traditional marketing in reaching the unbanked. It typically
involves participation in community events, networking with
community leaders, and partnering with community-based
A familiar, welcoming, branch environment is
essential to attracting the unbanked. In many markets providing
services in the customer’s native language is an important first
step. Decorating the branch according to the themes of the target
culture is also common. Ideally, banks should hire staff directly
from the communities they serve.
Banks are placing branches in more locations
likely to be frequented by the unbanked, such as stores, schools,
community centres, and workplaces. Portable and mobile branches
allow them to test new locations and serve areas where the cost of
a traditional branch is not justified. They are also partnering
with third-party distributors such as retail outlets, postal
networks, cheque-cashers, microfinance institutions, workplaces,
and community organisations.
Direct technological channels are constantly
lowering costs and expanding outreach. Satellite-linked ATMs and
smart cards are used in rural areas. High mobile phone penetration
among unbanked consumers is driving the spread of mobile telephone
banking in a number of markets. The Internet is a less effective
channel at present, because of lower penetration and the relatively
high cost of personal computers (PCs), although recent developments
in PC design and retailing may see this change.
Banks should mitigate the risk of lending to
low-income or new borrowers by using a number of measures including
affordable repayment schedules, alternative credit scoring models,
diversification and group lending, small trial-run loans,
savings-backed loans, guarantees from governments, charitable
organisations, or employers, and financial education.
Many products for the unbanked are ‘gateway
products’ – designed to attract customers into the bank so they can
be persuaded, over time, to invest in more profitable offerings.
Common products include basic accounts, remittances,
cheque-cashing, bill payments, prepaid cards including payroll and
benefit cards, payday loans, microcredit, and consumer finance.
Gateway products are often lower-priced versions of products
already accessed by the unbanked through informal financial
With detailed case studies from the UK, the
US, Russia, India, Mexico and Brazil this report provides a timely
introduction to tackling the largest untapped retail banking market
in the world.