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BAI Banking Strategies | Serving the Underbanked with Short Term Loans

By Larry Edgar-Smith 25 Aug 2015

Larry Edgar-Smith | SVP, Product Evangelism

My apologies for going dark on you, dear readers. July and August have been months of vacations, service trips, and oh… that’s right! Business trips across the country as well. The three photos below are evidence of my many journeys the past weeks. Hopefully things will slow down. You know, business always slows down in September… Oh wait…

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Between journeys, though, I had the chance to look at an article last week, “Serving the Underbanked with Short Term Loans“, from BAI Banking Strategies. I was likely reminiscing from the service trip that some youth, adult volunteers and I did to New Orleans (see the smiling faces in the photo above), when I was drawn to that title.

This article presents a topic about which I feel passionate, both professionally and personally: Financial institutions have the opportunity to safely expand their customer base, gain additional deposit and loan accounts while serving a valuable part of our community. Some may posit that it is not only just an opportunity, but a corporate obligation; that may be another discussion for another day. The article presented an added surprise at the end.

The opening paragraph had a great hook:

According to the FDIC, the collective population of underbanked Americans is approximately 34.4 million households, more than a quarter of the total.

Wow. That means that, if it could be done safely, financial institutions could have 25% new account holders.

At this point, the reader is likely thinking three things: These account holders may not be profitable, is this segment right for my reputation, and what about the audit risk?

Mr. Morales directly addresses these three issues head-on in the article. While I will not parrot all that he said (knowing that you’ll soon read it), there are a few important quotes that need to be highlighted:

  • From the ‘There’s gold in them thar hills‘ category: “Payday lenders have found ways to make working with this segment profitable. Traditional financial institutions have the ability to offer similar products at a lower cost.”
  • From the ‘Hope for the future‘ category: “Ignoring and alienating such a large demographic is harmful for banks’ health in the future, as many of the underbanked population will eventually transition to more traditional bank products.”
  • And finally taking a page from the McDonalds business model category: “… if [Financial Institutions] offer short-term loans compliant with these CFPB standards, they can do so more cheaply than payday lenders…”

The surprise at the end was that it was written by Mr. Morales, the CEO of Olympia, Washington-based Q-Cash Financial, which is a great concept that was actually started by a current Akcelerant customer, WSECU (Washington State Employees Credit Union).

In an earlier post (09/26/14 – I know you can do better than that…), I challenged all of us to do better. We’ve done it in small ways: We drop change in the plastic box at Wawas here in the Philadelphia suburbs. We give change to the Salvation Army at holiday time, and donate time, talent and treasure weekly to our churches, synagogues and civic organizations. We do half-day service trips sponsored by our employers, or week long trips using holiday time. Those are great activities… Keep them up!

And now is the time to consider how we can make serving the underbanked part of our financial institutions’ DNA. You have a million ideas on how to do so. Now is the time to implement them.

Thanks for a great article, Mr. Morales.

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