Remarks by
Chairman Donald E. Powell
Federal Deposit Insurance Corporation
"Depository Institutions in the Lead in Building Assets in Emerging Markets"
National Community Investment Fund Annual Network Conference
Washington, DC
March 26, 2003
Good morning. Thank you for inviting me to speak today.
I am here to talk about how all of us can do a better job of ensuring banks provide
access to capital for families who need it. Some banks are already doing this - and
doing it well. They are taking the lead in expanding their bank's presence, activities and
customer base in underserved emerging markets, and they are an inspiration to many
of us who believe deeply in achieving this important goal.
We have been busy for quite some time at the FDIC, and the financial industry as a
whole, grappling with the vexing question of how to better integrate many Americans
into the financial mainstream. I welcome the opportunity to discuss with you how the
financial industry is meeting that challenge and what still remains for us to do.
About seven years ago, Congress passed the Debt Collection Improvement Act. One of
the purposes of this legislation was to provide incentives for individuals to receive
federal payments electronically through direct deposits, and increase their access to
accounts at federally insured financial institutions. An unexpected outcome of this effort
was that it exposed the huge number of people without bank accounts - a number
estimated to exceed 10 million. Over 10 million unbanked people in America. It also
made clear the need for further dialogue among the bankers, policymakers, community
groups, people in academia and others about how to broaden access to the financial
infrastructure many of us take for granted.
Now that we understood the magnitude of the need, many questions followed: Who are
the unbanked? Why are they outside of the financial mainstream? Why does their
absence matter? What are the obstacles that impede their access to bank services?
What are the benefits of bringing them into mainstream banking services? And, what
strategies, products, policies and partnerships can be developed to facilitate a banking
relationship?
Clearly, getting the answers required more research on the unbanked. It also called for
identifying new business opportunities, recognizing the need for creative marketing
efforts and developing innovative initiatives from bankers themselves.
So, seven years later, do we have answers? Some, perhaps, but certainly not all.
Chairman Donald E. Powell
Federal Deposit Insurance Corporation
"Depository Institutions in the Lead in Building Assets in Emerging Markets"
National Community Investment Fund Annual Network Conference
Washington, DC
March 26, 2003
Good morning. Thank you for inviting me to speak today.
I am here to talk about how all of us can do a better job of ensuring banks provide
access to capital for families who need it. Some banks are already doing this - and
doing it well. They are taking the lead in expanding their bank's presence, activities and
customer base in underserved emerging markets, and they are an inspiration to many
of us who believe deeply in achieving this important goal.
We have been busy for quite some time at the FDIC, and the financial industry as a
whole, grappling with the vexing question of how to better integrate many Americans
into the financial mainstream. I welcome the opportunity to discuss with you how the
financial industry is meeting that challenge and what still remains for us to do.
About seven years ago, Congress passed the Debt Collection Improvement Act. One of
the purposes of this legislation was to provide incentives for individuals to receive
federal payments electronically through direct deposits, and increase their access to
accounts at federally insured financial institutions. An unexpected outcome of this effort
was that it exposed the huge number of people without bank accounts - a number
estimated to exceed 10 million. Over 10 million unbanked people in America. It also
made clear the need for further dialogue among the bankers, policymakers, community
groups, people in academia and others about how to broaden access to the financial
infrastructure many of us take for granted.
Now that we understood the magnitude of the need, many questions followed: Who are
the unbanked? Why are they outside of the financial mainstream? Why does their
absence matter? What are the obstacles that impede their access to bank services?
What are the benefits of bringing them into mainstream banking services? And, what
strategies, products, policies and partnerships can be developed to facilitate a banking
relationship?
Clearly, getting the answers required more research on the unbanked. It also called for
identifying new business opportunities, recognizing the need for creative marketing
efforts and developing innovative initiatives from bankers themselves.
So, seven years later, do we have answers? Some, perhaps, but certainly not all.
We now know, for example, that adults without transaction accounts - such as savings,
checking, mutual funds and money markets - are more likely to have low incomes, be
younger than 35, non-white or Hispanic and unemployed. We also know they do not
own their home, they have limited English speaking ability and they have low levels of
wealth.
We know that many of these individuals live from paycheck to paycheck and remain
unbanked for reasons ranging from problem credit histories and debt burdens, to
distrust of financial institutions, to the lack of financial education.
We also know that these households, when cut off from mainstream credit, will try to
find it informally by turning to high-cost lenders such as pawnshops, car-title lenders,
payday lenders, check-cashiers and wire-transfer companies.
We also are aware that unbanked households represent a category of customers that
can be potentially profitable to depository institutions. According to the Financial
Services Centers of America, check cashiers process 180 million checks annually with a
face value of $55 billion. According to a recent article in the American Banker the wire-
transfer market generated more than $122 billion in remittances. There is certainly a lot
of activity in this area, and this would support the premise that these might be profitable
bank customers.
Banks that reach out to establish relationships with consumers participating in fringe
financial services may be able to reap the rewards of cultivating new, full-service
customers; building relationships that will improve with their economic circumstances.
A lot of industry discussion and media attention has been generated recently regarding
the unbanked in general and the rapidly growing segments of ethnically diverse
consumers who are either unbanked or underbanked. These population groups include
immigrants, as well as African-Americans. They represent emerging markets for new
and expanded bank products and services.
Interest in multi-cultural markets has skyrocketed since the release of the 2000 census
demographics. The statistics that have stimulated such keen interest are well known.
Asians make up 4% of the U.S. population, and that percentage is expected to grow to
6.5% by 2025. The Hispanic population, currently around 13%, is expected to reach
18% in that same period.
According to estimates cited by the Research & Advisory Group, by 2007 we could see
spending on investment products by Asian-Americans climb 77% and spending by
Hispanics should surge by over 90%. In addition, the rise in homeownership among
African-Americans by 89% between 1993 and 2000, make them an attractive market
segment for bank products and services. The growing economic clout of these groups
represents new untapped markets. For banks that successfully reach them, these
groups represent a significant business opportunity.
checking, mutual funds and money markets - are more likely to have low incomes, be
younger than 35, non-white or Hispanic and unemployed. We also know they do not
own their home, they have limited English speaking ability and they have low levels of
wealth.
We know that many of these individuals live from paycheck to paycheck and remain
unbanked for reasons ranging from problem credit histories and debt burdens, to
distrust of financial institutions, to the lack of financial education.
We also know that these households, when cut off from mainstream credit, will try to
find it informally by turning to high-cost lenders such as pawnshops, car-title lenders,
payday lenders, check-cashiers and wire-transfer companies.
We also are aware that unbanked households represent a category of customers that
can be potentially profitable to depository institutions. According to the Financial
Services Centers of America, check cashiers process 180 million checks annually with a
face value of $55 billion. According to a recent article in the American Banker the wire-
transfer market generated more than $122 billion in remittances. There is certainly a lot
of activity in this area, and this would support the premise that these might be profitable
bank customers.
Banks that reach out to establish relationships with consumers participating in fringe
financial services may be able to reap the rewards of cultivating new, full-service
customers; building relationships that will improve with their economic circumstances.
A lot of industry discussion and media attention has been generated recently regarding
the unbanked in general and the rapidly growing segments of ethnically diverse
consumers who are either unbanked or underbanked. These population groups include
immigrants, as well as African-Americans. They represent emerging markets for new
and expanded bank products and services.
Interest in multi-cultural markets has skyrocketed since the release of the 2000 census
demographics. The statistics that have stimulated such keen interest are well known.
Asians make up 4% of the U.S. population, and that percentage is expected to grow to
6.5% by 2025. The Hispanic population, currently around 13%, is expected to reach
18% in that same period.
According to estimates cited by the Research & Advisory Group, by 2007 we could see
spending on investment products by Asian-Americans climb 77% and spending by
Hispanics should surge by over 90%. In addition, the rise in homeownership among
African-Americans by 89% between 1993 and 2000, make them an attractive market
segment for bank products and services. The growing economic clout of these groups
represents new untapped markets. For banks that successfully reach them, these
groups represent a significant business opportunity.