How Financial Services Firms Are Innovating for Lower-Income Americans
Low-income consumers in the U.S. may not qualify as a developing market per se, but for a financial-services industry that's spent many of the past several years driving them away, the segment is starting to resemble one.
American Express, which for decades positioned itself as the most exclusive of credit-card issuers, last year turned its focus to what it called "unbanked, under-banked and unhappily banked," who also tend to be lower-income. In fact, it's now directing some people turned down for its credit cards to its debit cards.
The American Express Bluebird debit and payment card, launched with Walmart, is a low- and, in many cases, no-fee alternative to other prepaid debit cards. Of its 575,000 enrollees to date, 85% are new to the AmEx franchise, Chairman-CEO Kenneth Chenault told an investor meeting Feb. 6.
Bluebird swooped in to capitalize on some of the success Moneygram has seen in recent years serving the so-called under-banked. Moneygram International saw global revenue rise 7% to $1.3 billion last year, and accelerate to a 13% increase in the fourth quarter.
As Moneygram has increasingly muscled in on the $50 billion cross-border money-transfer market led by Western Union, the latter is tapping expertise gained in developing markets to build alternative financial services within the U.S.
An ad campaign breaking next week for Western Union from Moroch, Dallas, focuses on the company's full range of financial services, including money transfers, online bill paying, prepaid cards and mobile-wallet services, all around the tagline: "We believe the best person to manage your money is you."
Western Union owns Pago Facil, a payment service ubiquitous in much of Latin America, which informs efforts in the U.S.
Unlike with bank services, competition for the under-banked is driving fees down. Responding to stepped up competition from Moneygram and others, Western Union cut prices on transfers to Mexico and elsewhere in December. Moneygram reduced prices for services at Walmart to address competition there.
Western Union was also the first player to offer financial services through low-cost feature phones in Kenya, an approach Laston Charriez, senior VP-marketing of Western Union, said has potential here, though it faces hurdles.
The federal government last year shut down such a service in Florida, modeled on one in Kenya, for illegally offering small-dollar loans, said Jim Wells of Wellspring Consulting, who focuses on financial services for the "undersaved."