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Underbanked and Unbanked Consumers in the U.S.: Successfully
Targeting Consumers of Alternative Financial Services
July 1, 2011
Underbanked and Unbanked Consumers in the U.S. provides market size, industry
and product revenue forecasts and analyzes the legislative and regulatory challenges
driving the growth of alternative financial services (AFS). Increasingly, these products
are seen as a viable alternative to banks by the 26% of U.S. households that are
underbanked or unbanked.
This report analyzes the retail financial services activities and the macro and micro
economic trends that have resulted in the percentage of households that are unbanked
to rise for the first time since the Federal government began tracking consumer banking
relationships. It also provides detailed demographic portraits of both underbanked and
unbanked consumers while diving deeply into their financial behaviors and consumer
psychographics. These consumers, buffeted by both the economy and the profit
maximization strategies of retail banks, have been prime targets of non-traditional
financial services providers offering transparent pricing, convenient retail locations and
bespoke products that can be used according to the consumers’ needs and
preferences.
The report examines the efforts of banks and non-banks to market to underbanked and
unbanked consumers and provides analysis of AFS pure-play and retailer product
introductions, feature enhancements and pricing strategies.
The report also delves deeply into AFS initiatives in international markets and focuses
on the technologies, new products, marketing and branch-level strategies realizing
success abroad and transforming vendors and institutions into must-knowns to U.S.
bank executives, AFS strategists and industry regulators.
Underbanked and Unbanked Consumers in the U.S. presents historical data and 5-
year revenue forecasts for the alternative financial services market and each major AFS
product: Prepaid cards, remittances, money orders, check cashing and payday lending.
We anticipate those revenues increasing from $338 billion in 2010 to $520 billion in
2015.
About the Author: Elizabeth Rowe was the Group Director of Banking Advisory Services

2. at Mercator Advisory Group, a banking and payments consultancy. Previously, she was
the senior banking consultant at Guideline, Inc., a consultancy/business advisory firm.
For the past 17 years, she has worked with the nation's largest banks, retailers and
solutions providers as they assess emerging consumer, technological, regulatory and
competitive challenges, trends and opportunities. She has taught at the ABA School of
Bank Card Management and frequently speaks at industry, federal regulator and client
conferences. She has been widely quoted in the financial press including The
Economist, The Wall Street Journal, American Banker, Forbes, Independent Banker
and CNN.
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TABLE OF CONTENTS
Chapter 1: Executive Summary
Scope and Methodology
Report Methodology
Characteristics of Underbanked and Unbanked Consumers
Who Are the Unbanked?
Which Unbanked Households Can Become Banked?
Why Don’t Unbanked Have a Bank Account?
The Growing Ranks of the Unbanked
Who Are the Underbanked?
Spotting the Underbanked
Baby Boomers and Seniors Heavily Represented Among Underbanked
Alternative Financial Services Products Used by Underbanked
Banking Industry Trends Drove the Growth in the Number of Underbanked
Households?
State of the Economy Is Growing the Ranks of the Underbanked

4. Economic Pressures on Working Americans Have Increased
Long-Term Unemployment
Health Insurance Costs Are Rising
Bankruptcy
Foreclosures
Declining Real Incomes
Number of Americans Living Paycheck-to-Paycheck Increases 53%
The Overall U.S. Economy - 2011 and Beyond
Banks Targeting the Underbanked/Unbanked
Products Banks Can Market to Underbanked and Unbanked Consumers
BB&T Links Its Physical Footprint With Prepaid Card
Large U.S. Retail Banks Offer More Locations than Retailers
Banks Tackle Small Dollar Loans
Even in Programs Targeting Underbanked or Unbanked, Bankers Determined to
Build Traditional Banking Relationships with Participants
Serving Underbanked Consumer While Hitting Fee Income Generation Targets
Regulatory Changes Increase Banks’ Pressure on Fee Income
How Banks Became Dependent on Fee Income From Retail Customers
Overdraft Fee Income - Yesterday’s Cash Cow
Growth of Overdraft Fee Income Spurred Consumer Dissatisfaction With Banks
and Banking Industry
Bank of America Adds High Checking Account Service Charges and Fees to Use
Bank Tellers
Chase Bank Adds Service Charges for Low-Income Customers and Those Who
Are Not Active Debit Card Users
Citibank Keeps Free Checking for Customers Who Perform 5 Types of
Transactions a Month
Consumers Are Opting Out of Overdraft Protection
Debit Card Rewards Programs Are Vanishing

5. Savings Strategies of Underbanked
Prize-Linked Savings
Consumer Interest in PLS Accounts
Why Would PLS Accounts Be Attractive to Banks?
Barriers to Widespread Deployment of PLS
What If Consumer Savings Were Prioritized?
Michigan Credit Unions Partner to Offer PLS
How Successful Are the Michigan Programs in Growing Savings?
Can Banks Offer the Products Unbanked and Underbanked Consumers Want?
Cashing Payroll Checks Is Important to the 27% of Employees Not Using Direct
Deposit
Bill Payment
Alternative Financial Services
Introduction
Check Cashing
Checks Still a Popular Choice on Payday
Ace Cash Express
Ace Cash’s New Partnerships and New Services
Dollar Financial
Chexar - Bring Check Cashing to Small Retailers
Wal-Mart - Transformer of Check Cashing Fees
Payday Lending
Profitability of Payday Lending Business
Payday Lending Legislation
Federal Payday Lending Legislation
Payday Lending Regulations at the State Level
Impact of Banning Payday Loans on Consumers’ Debt Management Behaviors
Payday Lending Regulations in Hawaii - A Contrasting Experience

6. Fragmented, Embattled Industry May Benefit From Turmoil in Banking Industry
Advance America
QC Holdings
Payments
Prepaid Cards
Challenges Facing the Prepaid Card Industry
Green Dot
Netspend
Remittances
Remitters Are Satisfied With Their Current Money Transfer Provider
Remittances and Emerging Technologies: Can Price Drive Channel Adoption?
How Much Are Individuals in the U.S. Sending Abroad?
Structural and Regulatory Challenge Hinder the Use of New Remittance
Channels
Global Wire Transfer Trends
Global Remittance Volumes
Remittance Flows Are Critical to the Economies of Many Nations
Remittance Operators
MoneyGram
MoneyGram Bill Payment Services
Western Union
Western Union Takes on Wal-Mart
Western Union Experiments with Mobile Technology
Challenging the Spread
Remittance Channels
Hampering the Uptake of New Channels in the U.S
Western Union’s Account-to-Account Remittances
Western Hemisphere Banks Bypass U.S. MTOs to Facilitate Remittances

7. Money Orders
U.S. Postal Service Is Largest Seller of U.S. Money Orders
Where Are the Banks?
International Leaders Offer Roadmaps for U.S. Service Providers
U.S. Bankers Face Structurally Endemic Challenges as They Consider Future
Customers
U.S. Bank Branch Network Build for Previous Generation of Banking Customers
Meeting Mass Market Financial Services Needs in Africa
Smart Phones and SMS Capability Fuel Growth of Retail Financial Transaction in
Africa
Mobile Payments: The Intersection of Cards, Banks and the Unbanked
Cash + Mobile = Economic Growth
Mobile Remittances Threaten African Banks
Airtel / MasterCard and M-Pesa / Visa: Virtual Payment Cards
Central Bank Mobile Payments Platform May Increase Mobile Competition in
Kenya
M-Pesa: Biography of a Market Leader
Mass Market Savings Strategies
British Premium Bonds - Mainstream Prize-Linked Savings
South African Million-a-Month PLS
Rethinking the Branch: Hub-and-Spokes Organization Should Be Considered
Capitec - Profits From the Previously Unbanked
The Shot Heard Round the Cape: Capitec Raises the Performance Bar for Its
Competitors
First National Bank Uses Product-Branches Branches to Sell Specific Products
WIZZIT Uses Its Independent Sales Force and Door-to-Door Sales to Sign Up
New Bank Customers
South African Regulators Create KYC and AML Exemptions to Allow Providers to
Target Low-Balance Customers
Chapter 2: Characteristics of Underbanked and Unbanked Consumers

8. Table 2-1: Banked, Underbanked and Unbanked Status of U.S. Households,
2009
Who Are the Unbanked?
Table 2-2: Percentages of Major Racial and Ethnic Groups That Are Unbanked,
2010
Table 2-3: Race, Ethnicity, Income and Household Types of Unbanked, 2010
Which Unbanked Households Can Become Banked?
Table 2-4: Previously Banked Status of Unbanked Households, 2009
Figure 2-1: Number of Adults Living in Unbanked Households by Previously
Banked Status, 2009
Why Don’t Unbanked Have a Bank Account?
Figure 2-2: Leading Reasons Cited For Not Owning A Checking Account, 1989-
2007
The Growing Ranks of the Unbanked
Who Are the Underbanked?
Table 2-5: Percent of Households Underbanked, by Race/Ethnicity, 2009
Spotting the Underbanked
Table 2-6: Percent of Households Underbanked by Marital Status of
Householder, 2009
Baby Boomers and Seniors Heavily Represented Among Underbanked
Figure 2-3: Oldest Americans Most Likely to Be Unbanked/Underbanked Than
Baby Boomers
Baby Boomers Joining Ranks of Unbanked and Underbanked
Seniors Are More Likely To Be Underbanked and Unbanked Than Other Cohorts
Alternative Financial Services Products Used by Underbanked
Table 2-7: Alternative Financial Services Products Used by the Underbanked
Figure 2-4: AFS Products Used by Underbanked Households
Banking Industry Trends Drove the Growth on the Number of Underbanked
Households?
Economy Is Growing the Ranks of the Underbanked

9. Since 2007, Economic Pressures on Working Americans Have Increased
Long-Term Unemployment
Figure 2-5: Slow Growth GDP Linked to High Rates of Unemployment, 2005-
2015
Health Insurance Costs Are Rising
Figure 2-6: Rising Cost of Employee Participation in PPO Healthcare Plans,
2007-2011
Table 2-8: Employer and Employee Medical Costs Allocation, PPO Plans, 2007-
2011
Bankruptcy
Figure 2-7: Personal Bankruptcy Filings Show CAGR of 25.6%, 2007-2010
Soaring Number of Senior Citizen Bankruptcies Fueled by Medical Expenses
Foreclosures
Figure 2-8: Foreclosure Filings, 2005-2010
Declining Real Incomes
Figure 2-9: Real Median Household Income, 1999-2009
More Americans Living Paycheck-to-Paycheck
Table 2-9: Since 2006, the Number of Americans Living Paycheck-to-Paycheck
has Increased 53%
Household Strategies for Dealing With Financial Insecurity
Figure 2-10: Median Value of Transaction Accounts for Families with Holdings,
1989-2007
The Overall U.S. Economy - 2011 and Beyond
Conclusion
Chapter 3: Banks Targeting the Underbanked/Unbanked
Introduction
Table 3-1: Types of Payment Instruments Used by Banked, Unbanked and
Underbanked Consumers
Bankers’ Messages About the Importance of Credit Increasingly Falling on Deaf
Ears

10. Products Banks Can Market to Underbanked and Unbanked Consumers
BB&T Links Its Physical Footprint With Prepaid Card
Large U.S. Retail Banks Offer Many More Locations than Even the Largest
Retailers
Table 3-2: Comparison of the Convenience of Bank Braches and ATM Locations
versus the Location of Major U.S. Retail Locations
Banks Tackle Small Dollar Loans
Even in Programs Targeting Underbanked or Unbanked, Bankers Determined to
Build Traditional Banking Relationships with Participants
Serving Underbanked Consumers While Hitting Fee Income Generation Targets
Table 3-3: Issues Retail Banking Executives are Focusing on in the Next 2 Years
Regulatory Changes Increase Banks’ Pressure on Fee Income
Table 3-4: Bankers’ Greatest Challenges in Serving or Targeting Underbanked
and Unbanked Consumers
How Banks Became Dependent on Fee Income From Retail Customers
Overdraft Fee Income - Yesterday’s Cash Cow
Growth of Overdraft Fee Income Spurred Consumer Dissatisfaction With Banks
and Banking Industry
Table 3-5: How Check Clearing Order Affects the Number of Overdrafts For
Items Received on the Same Day
Bank of America Adds High Checking Account Service Charges and Fees to Use
Bank Tellers
Chase Bank Adds Service Charges for Low-Income Customers and Those Who
are Not Active Debit Card Users
Citibank Keeps Free Checking for Customers Who Perform 5 Types of
Transactions a Month
Consumers Are Opting Out of Overdraft Protection
Table 3-6: Number of Noncash Payments
Debit Card Rewards Programs Are Vanishing
Savings Strategies of Underbanked
Figure 3-1: Snapshot of Piggymojo App

11. Prize-Linked Savings
Consumer Interest in PLS Accounts
Why Would PLS Accounts Be Attractive to Banks?
Barriers to Widespread Deployment of PLS
What If Consumer Savings Were Prioritized?
Michigan Credit Unions Partner to Offer PLS
How Successful Are the Michigan Programs in Growing Savings?
Can Banks Offer the Products Unbanked and Underbanked Consumers Want?
Check Cashing
Table 3-7: Banks Offering Products/Services to Unbanked/Underbanked
Consumers
Most Banks Will Only Cash On-Us Checks or Payroll Checks for Their Own
Customers
Cashing Payroll Checks Is Important to the 27% of Employees Not Using Direct
Deposit
Table 3-8: Why Do You Choose Against Direct Deposit?
Bill Payment
Table 3-9: How Do Unbanked/Underbanked Consumers Pay Their Bills?
Chapter 4: Alternative Financial Services
Introduction
The Market for Alternative Financial Services Product, 2007-2015
Table 4-1: AFS Industry Revenues by Product Line, 2007-2015
Check Cashing
Checks Still a Popular Choice on Payday
Ace Cash Express
Ace Cash’s New Partnerships and New Services
Table 4-2: Ace Cash Express Store Growth, 2006-2011
Dollar Financial
Table 4-3: Dollar Financial’s Check Cashing Income, 2006-2010

12. Competitors in the Check Cashing Sector
Chexar - Bring Check Cashing to Small Retailers
How Chexar Works
Wal-Mart - Transformer of Check Cashing Fees
Payday Lending
Table 4-4: Use of Payday Loans by Banked Status, 2009
Table 4-5: Among Users of Payday Loans, Frequency of Use by Banked Status,
2009
Profitability of Payday Lending Business
Table 4-6: PDA Revenue, Cost and Profit (pre-tax basis), 2009
Payday Lending Legislation
Federal Payday Lending Legislation
Payday Lending Regulations at the State Level
Payday Lending Regulations in Mississippi
Payday Lending Regulations in Colorado
Impact of Banning Payday Loans on Consumers’ Debt Behaviors
Payday Lending Regulations in Washington State
Payday Lending Regulations in Hawaii - A Contrasting Experience
Figure 4-1: Revenues of Publicly-Traded Payday Lenders, 2006-2010
Table 4-7: Revenues of Publicly-Traded Payday Lenders, 2006-2010 ($ in
Millions)
Fragmented, Embattled Industry May Benefit From Turmoil in Banking Industry
Table 4-8: Number of Retail Locations of Largest Payday Lenders, 2010
Advance America
QC Holdings
Figure 4-2: Payday Loan Industry Revenues, 2006-2015 (public companies)
Payments
Table 4-9: Number of Noncash Payments

13. Prepaid Cards
Figure 4-3: Prepaid Card Load Volumes, 2008-2012
Challenges Facing the Prepaid Card Industry
Entry Points Into Prepaid Market
Green Dot
Figure 4-4: Green Dot: Key Business Metrics, Quarterly, and 2010
Table 4-10: Green Dot: Quarterly Key Business Metrics, 2009 and 2010 (in
millions)
Netspend
Table 4-11: Netspend, Total Revenues, 2006-2010 ($ in millions)
Remittances
International Remittances Originating in the U.S.— Who Is Sending Money and
How Often?
Table 4-12: Number of Times Money Transferred to Relatives and Friends
Outside the U.S. During the Previous 12 Months, by Nativity of Household
Table 4-13: Total Dollars Remitted to Relatives and Friends During Previous 12
Months
Table 4-14: How Immigrants in the U.S. Send Money Home
Remitters Are Satisfied With Their Current Money Transfer Provider
Table 4-15: Satisfaction Levels With Remittance Channels, 2010
Remittances and Emerging Technologies: Can Price Drive Channel Adoption?
How Much Are Individuals in the U.S. Sending Abroad?
Table 4-16: Remittance Sizing Estimates Significantly Vary From One U.S.
Government Agency and NGO to Another
Structural and Regulatory Challenge Hinder the Use of New Remittance
Channels
Global Wire Transfer Trends
Table 4-17: Global Remittance Volumes to Developing Countries, 2005-2015 ($
billion)
Figure 4-5: Remittance Inflows to Developing Countries, 2005-2015

14. Where Does the Money Flow?
Table 4-18: Countries Receiving Most Remittances, 2010
Remittance Flows Are Critical to the Economies of Many Nations
Remittance Operators
MoneyGram
Table 4-19: MoneyGram, Total Revenue and Gross Profits, 2006-2010 ($ in
millions)
Cash-to-Visa
MoneyGram Bill Payment Services
Western Union
Table 4-20: Western Union, Total Revenue and Gross Profits, 2006-2010 ($ in
millions)
Western Union Takes on Wal-Mart
Table 4-21: Comparison of Fees Charged by Wal-Mart Money Card and Western
Union MoneyWise Card
Western Union Experiments with Mobile Technology
Challenging the Spread
Remittance Channels
Hampering the Uptake of New Channels in the U.S.
Western Union’s Account-to-Account Remittances
Figure 4-6: Western Union Remains Preferred Remitter for U.S. Hispanics
Western Hemisphere Banks Bypass U.S. MTOs to Facilitate Remittances
Money Orders
U.S. Postal Service Is Largest Seller of U.S. Money Orders
Table 4-22: U.S. Postal Service Money Orders, 2000-2010 (Processed by the
Federal Reserve)
Table 4-23: Size of Non-Bank U.S. Money Order Market, 2007-2015
Western Union’s Money Order Business Adversely Effected by End of IPS
Partnership

15. Table 4-24: Financials of Western Union’s Money Order Business Unit, 2008-
2010 ($Millions)
Where Are the Banks?
Conclusion
Chapter 5: International Leaders Offer Roadmaps for U.S. Financial Services
Providers
Introduction
Table 5-1: Income Equality in Selected Countries (Gini Coefficient)
U.S. Bankers Face Structurally Endemic Challenges as They Consider Future
Customers
U.S. Bank Branch Network Build for Previous Generation of Banking Customers
Meeting Mass Market Financial Services Needs in Africa
Figure 5-1: African Banking Industry, Changing Revenue Structure, 2009-2020
Smart Phones and SMS Capability Fuel Growth of Retail Financial Transaction in
Africa
Mobile Payments: The Intersection of Cards, Banks and the Unbanked
Figure 5-2: Number of African Countries with Mobile Penetration Rates Above
50%
Table 5-2: Number of African Countries with Mobile Penetration Rates Above
50%, 2005-2012
Cash + Mobile = Economic Growth
Figure 5-3: African Money Vendors’ Employment Advertising
Mobile Remittances Threaten African Banks
Airtel / MasterCard and M-Pesa / Visa: Virtual Payment Cards
Central Bank Mobile Payments Platform May Increase Mobile Competition in
Kenya
Table 5-3: Market Share of Mobile Operators in Kenya, 2011
Figure 5-4: Number of African Countries with Mobile Penetration Rates Above
50%, 2005-2012
Table 5-4: Number of African Countries with Mobile Penetration Rates Above
50%, 2005-2012

16. M-Pesa: Biography of a Market Leader
Mass Market Savings Strategies
British Premium Bonds - Mainstream Prize-Linked Savings
South African Million-a-Month PLS
Rethinking the Branch: Hub-and-Spokes Organization Should Be Considered
Capitec - Profits From the Previously Unbanked
Table 5-5: Total Consumer Unsecured Lending, Capitec and South African
Banking Industry, 2007 and 2011
Figure 5-5: Capitec’s Unsecured Load Portfolio Has Grown Almost Four Times
Faster Than That of Its Peers
The Shot Heard Round the Cape: Capitec Raises the Performance Bar for Its
Competitors
First National Bank Uses Product-Branches Branches to Sell Specific Products
Table 5-6: Financial Inclusion Rates Are Slowly Increasing in South Africa, 2008-
2010
Figure 5-6: Financial Inclusion in Africa
WIZZIT Uses Its Independent Sales Force and Door-to-Door Sales to Sign Up
New Bank Customers
Figure 5-7: WIZZkids’ Method for Marketing the Bank’s Services in the
Community and Workplace
Conclusion
Figure 5-8: South African Regulators Create KYC and AML Exemptions to Allow
Providers to Target Low-Balance Customers
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