‘Underbanked’ could be major profit maker for financial institutions
Prepaid cards may be a huge profit maker for financial institutions, research from MarketsandMarkets suggests.
There is a large and untapped market of consumers who are “unbanked” and “underbanked.” These people steer clear of debit and credit cards because they are concerned about undisclosed expenses, research shows. Such consumers do tend to have basic checking and savings accounts.
“Underbanked” and “unbanked” people have major spending power, totaling over $10 billion a year, the research found.
Roughly 21 million American homes were “underbanked” last year, according to the report. Most consumers without a credit or debit card lack a long credit history and may benefit from having a prepaid card.
“A significant proportion of the underbanked in the U.S. prefer prepaid cards to checking accounts for basic financial transactions, provided the costs are equal,” says MarketandMarkets. “Prepaid cards can also help the underbanked enhance their credit scores, provided the card-issuer reports regularly to the three main credit bureaus.”
Prepaid cards also benefit consumers who are concerned about debt. Since money is loaded on prepaid cards up front, consumers don’t have to worry about accruing debt or paying interest.