- Posted by FT Admin
- On November 14, 2013
In November of 2012 the Center for Financial Services Innovation (CFSI) released its Underbanked Market Sizing Study for the year 2011. The study provides insight into the consumer population and key trends within the underserved consumer segment. The CFSI defines underbanked consumers as those whose financial services needs are not being fully met by traditional financial services institutions. The primary takeaway is that consumer demand for alternative financial products is exploding. In 2011, principal loaned from alternative providers grew 7% to a total of $682 billion. That number is projected to grow by an additional 9% in 2012.
Unsurprisingly, as the underbanked consumer marketplace continues to grow so does the number of available products. The study indicates that underbanked consumers are now able to access almost two dozen product types. That said the key growth products are familiar. The figures below reflect year-over-year growth percentages:
- Subprime credit cards = 39.4%
- Internet Payday Loans = 32.4%
- Prepaid Cards – payroll = 21.8%
- Prepaid Cards – General purpose reloadable = 21.6%
The most telling statistic comes from subprime auto lending. According to the CFSI, in 2011 consumers held 27% of the outstanding dollars loaned however nearly 50% of all interest paid. The conclusion becomes that the potentially riskiest consumers are also the most profitable. The study reinforces our knowledge that underbanked consumers require unique underwriting strategies that are not met via traditional underwriting means. Just as traditional financial institutions are failing to serve underbanked consumers traditional underwriting methods are unable to assess their risk.
At FactorTrust we have been solely focused on underbanked consumers for the past seven years. The growth in the marketplace, speed of service required, and the sophistication of the consumer come as no surprise. It is our purpose to continue to grow our proprietary data assets while continuing to build and enhance our underbanked credit scoring models.