Underbanked consumers fall into several market segments, each with different needs and desires for financial services, according to the findings of a study released by the Center for Financial Services Innovation.

 That means companies looking for underbanked consumers as customers need to think more broadly about the kinds of services they offer to those consumers, Jennifer Tescher, director of the center, tells Prepaid Trends.

 "What people need are financial-services relationships," Tescher says, because they want and need to do more than just make transactions such as bill payments.

 The center released preliminary findings from its market-segmentation research at SourceMedia's third annual Underbanked Financial Services Forum in Miami last week. (SourceMedia publishes Prepaid Trends.) It found about 40 million households, or about 106 million individuals, that it considers underbanked, according to a fact sheet on the study.

 A survey of 2,799 underbanked adults 18 years old or older found that underbanked consumers had a median annual household income of $26,390 and a ean household income of $47, 500.

 "Unlike a lot of surveys in this space, we decided not to have an income cutoff, instead letting attitude and behavior drive it," Tescher tells Prepaid Trends.

 The center defines unbanked consumers as those who have no checking or savings accounts. Underbanked consumers may have bank accounts, but they make financial transactions outside of banks through companies that include check cashers, payday lenders and retail stores.

 Though underbanked consumers conduct transactions outside traditional banks and credit unions, they have traditional goals and concerns. For example, 70% of the survey's respondents said that saving for emergencies is "extremely important" or "very important," 65% rated saving for retirement as "extremely important" or "very important," and 49% said the same about saving for college costs.

 Companies wanting to reach underbanked consumers need to understand the different market segments so they can design better products and market and distribute them effectively, Michael Herrmann, the Center's research director, told an audience at the conference.

 Almost half (47%) of the respondents said they held full-time jobs, and 11% said they hold part time jobs.

 The survey found 52% of the unemployed respondents are retired or homemakers, Herrmann said.

 The center gathered enough information to find out credit scores for 79% of the respondents. It found 25% had a prime credit score, 42% had a thin or no credit file, and 33% had subprime credit scores. That shows financial-services companies should not equate underbanked with subprime, Tescher, said during a conference presentation.

 She tells Prepaid Trends that subprime lending has a negative image, especially after the mortgage crisis, but subprime lending is not all bad.

 "Subprime lending, when done responsibly, can be and is a very important tool for providing consumers credit," Tescher says.

 Unbanked consumers in the center's survey cited not having enough money as the No. 1 reason for living without a bank account, Herrmann told the audience. About 80% of respondents said they were happy with their financial-services provider.

 Citigroup Inc., Fidelity National Information Services, H&R Block Inc., KeyCorp and MasterCard Worldwideco-sponsored the study. Experian Consumer Research conducted the research.

 During a conference panel discussion devoted to the study, Alexander A. Liu, MasterCard vice president of global prepaid product development, said the brand considers bringing consumers into the financial mainstream part of its core business strategy. He said the study would help make a business case for designing and marketing products to underbanked consumers.

 "We are dependent on doing as much research as possible to build the business case and dispel the myths senior management might hold about the space," Liu says. "They have a historical connotation that certain populations are risky and others are fine."

 Bruce Murphy, executive vice president of KeyBank, a KeyCorp subsidiary, said during the panel discussion that his company is trying to find "real answers" about who makes up the underbanked market segment, so it can offer better products to them.

 "Our company thinks about them as a market segment like the emerging affluent and mass affluent," Murphy said.

Tescher tells Prepaid Trends that over the past three years, she has seen a shift in the way companies think about consumers without bank accounts and those who use alternative financial services. Companies used to speak of the underbanked "graduating" into bank accounts and using banks and credit unions for their financial needs.

 Now companies have begun thinking about how to offer underbanked consumers products that meet their needs for long-term financial services. She says while many alternative financial services meet short-term consumer needs, they cost the consumer too much to remain good for the user or provider long-term. 

 Financial services that help consumers and companies build relationships with one another become profitable for everyone involved, Tescher tells Prepaid Trends.

 "More and more providers are thinking about relationships-that's when things start to get interesting," Tescher says.

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