This analysis is a review of First Community Bank CDFI Community Tracking Survey of 503 individuals across 25 counties. The study assessed community perceptions of banks, bank service usage, and opportunities to expand services to underserved populations. Key findings revealed that unbanked and underbanked households, disproportionately minority and lower-income, utilized alternative financial services due to factors like convenience and ease of qualification. The research also explored attitudes toward banks, identifying distrust and dissatisfaction among underserved groups. Finally, the report analyzed banking preferences, revealing a strong preference for in-person banking across all demographic groups.
The information in this case study is based on the provided report and 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
Premier Insights, Inc. conducted a comprehensive community research program for First Community Bank (a fictional bank) to help them better serve underserved populations in their market area. This initiative was developed to align with the Community Development Financial Institution (CDFI) mission of providing credit, capital, and financial services to these communities. The research aimed to assess local market perceptions, measure the use of banking services, identify opportunities for expansion, and evaluate the bank's performance in fulfilling the CDFI mission. This case study outlined the research methodology, key findings, and insights gained through this project, demonstrating Premier Insights, Inc.’s expertise in community financial analysis.
Research Methodology
The study employed survey research methods, using telephone interviews with a randomized sample of the population. A total of 503 individuals were interviewed across 25 counties in the bank’s service area. The bank's service area was segmented into homogeneous communities to ensure statistically valid samples for evaluation. This approach allowed for quantifiable data to evaluate bank usage versus alternative financial services and assess overall community perceptions. The survey design was partially based on the FDIC National Survey of Unbanked and Underbanked Households of that year.
Key Findings
The survey provided precise measures to help First Community Bank formulate strategies to fulfill the CDFI mission. The data was cross-tabulated by demographics, region, and FDIC designations of "Unbanked" and "Underbanked".
- Unbanked and Underbanked Populations: The research identified approximately 422,507 households in the 25-county area as either Unbanked or Underbanked.
- Unbanked households were defined as those without an active checking or savings account.
- Underbanked households were those using alternative financial services, such as check-cashing or money orders (not from a bank), or loan-related services like payday loans within the last five years.
- Demographics of Underserved Segments: These segments were more likely to be younger, minorities, and earn less than $35,000 annually.
- Alternative Financial Services Usage:
- Money orders from non-bank facilities were the most used alternative financial service by the Underbanked. Roughly 2 out of 3 Underbanked respondents had used such services.
- Other services used were check-cashing (37%), payday loans (21%), and rent-to-own services (15%). Tax anticipation services were the least used at 6%.
- Convenience, ease of use, and ease of qualification were the primary reasons for using alternative financial services.
- Convenience was the main reason cited for cashing checks outside of a bank (53.74%).
- Convenience and higher bank fees were the main reasons for purchasing money orders outside of a bank.
- The most often cited reasons for using payday loans were ease of qualification (35.29%) and not qualifying for a bank loan (19.61%).
- Attitudes Toward Banks:
- Unbanked and Underbanked segments had more negative attitudes toward banking institutions.
- They were more likely to rate local banks' performance as "poorly" or "average" compared to "Banked" segments.
- There was distrust of banking institutions and dissatisfaction with their services among the Unbanked and Underbanked.
- African American respondents were more likely to rate banks as "poorly" compared to White respondents.
- Older respondents were more likely to give positive ratings to local banks, with roughly 1 in 4 respondents over 65 stating their opinion was "excellent".
- Financial Needs:
- The financial needs of the Underbanked were similar to the overall population.
- These needs included covering basic living expenses and unexpected expenses like car and home repairs.
- The use of money orders implied expenditures for fixed or planned expenses, suggesting a need for typical financial services.
- Banking Preferences:
- Despite negative attitudes, the Unbanked and Underbanked preferred in-person banking inside a bank or facility.
- They prefer in-person interactions over drive-through or online banking.
- Checking and Savings Account Usage:
- Nine out of ten respondents indicated that someone in their household had a checking or savings account.
- Of those without an account, roughly 54% had never had one before.
- The main reason given for not having a bank account was a lack of money.
- Specific Segment Analysis:
- African American respondents were more likely to be unbanked when compared to White respondents.
- Respondents with an income of less than $25,000 were more likely to be unbanked.
- Minorities were more likely to be underbanked than non-minorities.
- The likelihood of being underbanked decreased with age.
Insights and Implications
The research identified several key insights for First Community Bank:
- Need for Convenient and Accessible Services: The underserved segments need quick and convenient access to money. Strategies should focus on alternatives that substitute the services they are currently using, such as pre-paid debit cards instead of money orders, and small loans or lines of credit that can be quickly and conveniently accessed.
- Importance of Financial Education: The distrust of financial institutions indicates a need for financial education among these populations regarding financial services and their usage.
- Preference for Personal Interaction: Alternate forms of service delivery, such as online banking, may prove ineffective since these segments prefer face-to-face interaction for financial transactions.
Conclusion
This case study demonstrated Premier Insights, Inc.’s expertise in conducting comprehensive research focused on consumer financial behavior and preferences. The findings provided First Community Bank with valuable insights into the needs and preferences of underserved populations, enabling them to develop targeted strategies to better fulfill and enhance their CDFI mission. By identifying key issues of respective target populations, such as distrust of financial institutions, the need for convenient services, and the preference for in-person banking, Premier’s research helps to bridge the gap between a financial institution and the communities they serve. The information and strategic recommendations outlined in this case study demonstrate the value of Premier research in helping financial institutions better understand and serve their communities.