Tags: Big Banks | Low-Income | Customers | Profits

NYT: Big Banks Woo Low-Income Customers, but Not for Profit

By    |   Wednesday, 23 Jul 2014 12:13 PM

Big banks are targeting new clientele — Americans with low incomes and troubled financial histories — knowing it won't be profitable, at least not in the short-term.

In the past, banks wouldn't dream of catering to people with little or no savings or those with a record of poor financial management. But an increasing number of the nation's largest financial institutions are now devising low-fee banking especially for those customers, reports the New York Times.

Bank of America developed the SafeBalance account. For $4.95 a month, customers can make direct deposits and pay bills online, but they can't write checks.

Editor's Note: Seniors Scoop Up Unclaimed $20,500 Checks? (See if You qualify)

American Express, known for its focus on the affluent, has introduced a product called Bluebird. Available at Walmart, the card provides customers with banking features, including check-writing abilities.

And JP Morgan Chase has also entered the arena with a prepaid card that costs only $4.95 a month.

These products are not big money makers and, in some cases, the banks barely break even. But the firms aren't focused on financial rewards, explains the Times.

“Banking still ranks among the worst industries in the public's opinion,” Mike Mayo, a banking analyst at the brokerage firm CLSA told the Times.

But bank accounts are considered essential to prudent personal finance. Yet tens of millions of Americans are unbanked, relying on expensive alternatives like check cashing services and money orders, an issue that's a growing concern among regulators.

The most common reasons that unbanked people gave in surveys by the FDIC and the Federal Reserve Board for not having accounts are feelings of not having enough money for an account or simply not needing an account, Thomas W. Miller, finance professor and holder of the Jack R. Lee Chair in Financial Institutions and Consumer Finance at Mississippi State University, noted in a Daily Herald article.

Bank executives hope that catering to these individuals will improve their image and score points with regulators.

And the strategy just may work. Regulators believe the low-fee products will attract the unbanked into the banking system and have praised the banks' efforts.

“I think what you have done is remarkable for the country,” the Times says Martin Eakes, chief executive of the Center for Responsible Lending, told Bank of America executive, referring to its new account.

Bank executives are also considering the potential for a long-term pay off.

The unbanked lack a credit history that qualifies them for bank loans, the Atlantic explained in an article about the costs of being unbanked. So, instead of low-interest loans, they rely on payday lenders whose services can ultimately cost three- or four-times the original loan.

As regulations make it more difficult for banks to turn a profit, executives hope that building a relationship with unprofitable customers now may result in much more valuable relationships once those individuals start taking out auto loans, credit cards and other types of higher-margin credit, says the Times.

Editor's Note: Seniors Scoop Up Unclaimed $20,500 Checks? (See if You qualify)

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Big banks are targeting new clientele - Americans with low incomes and troubled financial histories - knowing it won't be profitable, at least not in the short-term.
Big Banks, Low-Income, Customers, Profits
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2014-13-23
Wednesday, 23 Jul 2014 12:13 PM
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