This report detailed a survey conducted by Premier Insights, Inc. for Community First National Bank to assess community banking needs and usage in a 21-county area. The study analyzed the unbanked and underbanked populations, identifying demographics and reasons for using alternative financial services like check cashing and payday loans. Key findings revealed significant disparities in banking access and attitudes between racial groups and income levels. The research concluded with recommendations for Community First Bank to better serve underserved communities, focusing on improving convenience and access to traditional banking products. Numerous verbatim comments from survey respondents are included to provide qualitative context.
The information in this case study is intended to illustrate Premier Insights, Inc.'s analytical capabilities. The names of the financial institution and market areas have been changed for confidentiality purposes.
Introduction
This case study presents the findings of a comprehensive community survey conducted by Premier Insights, Inc. for a regional financial institution, here named "Community First National Bank” (the “Bank”). The study aimed to provide the Bank with actionable insights into the financial behaviors, perceptions, and needs of underserved populations within its investment area. The research focused on identifying the unbanked and underbanked segments, their utilization of alternative financial services, and their attitudes towards traditional banking institutions. This study demonstrates Premier Insights' capabilities in delivering data-driven analyses to inform strategic decision-making for community-focused organizations.
Project Overview
The project employed a quantitative survey approach, using telephone interviews with a randomly selected sample of 1,808 individuals across 21 counties in the Bank's service area. The service area was segmented into homogeneous communities to ensure statistically valid samples for evaluation. The survey instrument was partly based on the FDIC National Survey of Unbanked and Underbanked Households. Data was analyzed by demographic information, region, and FDIC designations of "Unbanked" and "Underbanked".
Key Definitions
- Unbanked: Households without an active checking or savings account at a bank.
- Underbanked: Households that used alternative deposit-related services (e.g., check cashing, money orders from non-banks) in the last 12 months or loan-related services (e.g., payday loans, tax advances) within the last five years.
Key Findings
- Prevalence of Unbanked and Underbanked: Out of approximately 242,581 households in the surveyed area, an estimated 25,493 were unbanked, and 98,805 were underbanked, totaling 107,707 households considered either unbanked or underbanked.
- The East Central region showed a higher proportion of unbanked and underbanked households compared to other regions.
- Demographics of Underserved Segments: The underserved segments tend to be younger, minority, and earn less than $35,000 annually.
- African Americans were disproportionately more likely to be unbanked or underbanked compared to White respondents.
- Lower-income individuals and younger individuals were more likely to be unbanked or underbanked.
- Alternative Financial Service Usage: The most frequently used alternative financial service among the underbanked was money order purchases from non-banking facilities, with 67% of underbanked respondents reporting such use.
- Check-cashing services were used by 30% of underbanked respondents, followed by payday loan services and rent-to-own services (around 15%).
- Tax anticipation or refund services were the least used at 7%.
- Convenience, ease of use, and ease of qualification were the primary reasons for using alternative financial services.
- Attitudes Toward Banks: Unbanked and underbanked segments exhibited more negative attitudes toward banking institutions compared to the banked population.
- They were five times more likely to rate local banks as "very poor" in meeting community needs.
- Verbatim comments indicated a distrust of banks and dissatisfaction with their services.
- However, these segments preferred in-person banking over other forms of service delivery.
- Financial Needs: Underbanked segments' financial needs mirror the overall population, including basic living expenses and unexpected expenses. Money order use suggests planned expenditures and a need for typical financial services. The need for convenient and quick access to money was also noted in verbatim responses.
- Reasons for Not Having Bank Accounts:
- Many respondents reported closing accounts due to a lack of funds, overdraft fees, and dissatisfaction with services.
- Some respondents closed their accounts because they moved or were unemployed.
- Some respondents indicated a preference for cash or other alternatives.
- Reasons for Using Alternative Financial Services
- Check Cashing: Convenience was the primary reason for using non-bank check cashing, with some respondents noting that banks would not cash checks without an account.
- Money Orders: Convenience and the perception that banks charge more for money orders were the top reasons. Some also preferred the postal service money orders for tracking purposes.
- Payday Loans: Ease of qualification and convenience were the main reasons for using payday loan services over banks. Many respondents indicated they did not qualify for bank loans.
- Banking Preferences: The vast majority of unbanked and underbanked individuals prefer to conduct banking in person at a branch location, either inside the bank or via the drive-through.
Geographic Areas
For the purposes of this case study, the real names of the counties surveyed have been changed to the following fictional names, which have been grouped into regions.
- Central Region: Amber, Emerald, Jasper, and Quartz Counties
- East Central Region: Beryl, Garnet, Jade, Opal, Ruby, and Sapphire Counties
- North Region: Amethyst, Diamond, and Topaz Counties
- Northeast Region: Agate, Coral, Moonstone, Onyx, and Pearl Counties
- South Region: Obsidian and Turquoise Counties
Implications and Recommendations
This research highlights the significant presence of unbanked and underbanked populations within the Bank's service area. The findings suggest the need for strategies focused on convenience, accessibility, and trust-building to engage these segments. Some potential strategies include:
- Prepaid debit cards: Offering prepaid debit cards as an alternative to money orders.
- Small loans/lines of credit: Developing accessible small loan or line of credit options with quick approval processes.
- Expanded in-person banking options: Given the preference for in-person banking, ensuring adequate branch access and service.
- Financial literacy initiatives: Implementing programs to address the distrust of banks and educate the community about banking services.
Conclusion
This case study demonstrates Premier Insights, Inc.'s capability to provide detailed, data-driven insights into community financial behaviors. By understanding the specific needs and preferences of underserved populations, Community First National Bank can develop tailored strategies to better fulfill its mission and expand its reach within its service area. The information provided is designed to inform decision making by community-focused organizations.