The federal is deficit going down. The Dow Jones is at an all-time high. The consumer confidence index is inching back up. For business owners, everything is looking good, right?
Hidden in the upbeat data is another trend that could have big impact on your business. Much of the job creation in this new economy is in low-wage service positions such as food service workers, security guards, janitors, gardeners, cleaners, home health aides and child-care workers. Many of these employed people are outside the mainstream banking system, relying on a hodgepodge of alternatives that may not make financial sense for them such as neighborhood check-cashing services.
In the United States, there are still an estimated 9 million households that do not have a savings or a checking account, and another 21 million households with bank accounts that also rely on payday lenders and check-cashing stores that can mire borrowers in a financially damaging vortex. As the Consumer Financial Protection Bureau recently put it:
The current repayment structure of payday loans... coupled with the absence of significant underwriting, likely contributes to the risk that some borrowers will find themselves caught in a cycle of high-cost borrowing over an extended period of time.
Clearly, even when the economy is doing better, if some people are underbanked, they still shop less efficiently and present a bigger credit risk. If you run local stores, you should care about how your customers can pay you in a way that doesn't make them, or you, go broke. If you run an e-commerce website, you should wonder if some customers can pay you online at all.
The good news is that there are increasing options for businesses with a local presence to partner with high-quality financial services tailored to serve these customers better. These partnerships will help close the gap between good new financial services and the people who need them. They will also spur more businesses to take a page from companies like Wal-Mart and 7-Eleven, which offer customers a range of financial services, to help customers get on financial track and cement a trusting relationship that creates loyalty.As an entrepreneur specializing in alternative, technology-enabled financial products, I see many of these new services. At the Unbanked Financial Services Forum, many of these new products were on display. Here are a handful of ones I found interesting lately:
- L2C is an additional resource alongside the traditional credit services that takes into account factors affecting lower income consumers, for businesses in rental, telecommunication, healthcare or alternative financial services. It lets those businesses make better -- informed decisions about the credit/risk profile of customers and potentially reach qualified customers who might otherwise by rejected because of incomplete credit histories.
- BillFloat helps thousands of billers and utilities get paid on time by customers who are temporarily cash-strapped. This accelerates cash flow, reduces collections costs, and helps reduce customer churn. They also allow e-commerce providers to offer installment plans for customers who would not qualify for traditional credit options.
- Tio Networks installs self-serve kiosks that act as "reverse ATMs" for customer access to cash-based bill payment in convenience stores, groceries, and other retail locations 24x7. They increase foot traffic in stores while saving time to consumers who would otherwise have to wait in line at their utility companies' offices.
Of course, what are also needed are the policies and regulatory systems that extend to cover consumers needs. The best of these services tie into established banking infrastructure and include coverage such as FDIC protection.
The pieces are coming together: products to better serve underserved consumers and partnerships with trusted businesses that already operate in neighborhoods. The winners will be both the consumers and the businesses that help them.