I ran across an interesting article last week in Business Insider. It was about a survey released in December of last year concerning financial services done by the Federal Deposit Insurance Corporation (FDIC). The survey found that roughly 1 in every 12 US households, or some 17 million adult Americans, are “unbanked”. That means they lack a current checking or savings account.
The survey also found that 1 in every 5 is considered “underbanked”. That means they may have a bank account but also must rely on alternative services such as payday loans, check-cashing services, non-bank money orders or pawn shops.
Not all the unbanked are poor, nor do all poor people lack bank accounts. But the rate of the unbanked among low-income households (defined in the FDIC survey as those with an annual income below $15,000) is more than three times the overall rate. That means that as many as 25% of typical Buy Here – Pay Here customers may not have access to a bank account or may not have access to such services as debit cards, check cashing or money orders.
The unbanked usually have no alternative but to use cash for all their transactions. Without an account to put paychecks into, they have to use check cashers. This does not mean only that hey must incur a fee; carrying large amounts of cash also increases the risk of theft and potential harm. To pay their utility bills the unbanked need either a non-bank money order, for which they have to pay a fee, or a place that accepts utility payments in cash.
Unfortunately, recent federal legislation has made it even more difficult or not economical for banks to do business with these poorer, higher-risk customers. The Durbin amendment–passed as part of the Dodd-Frank act in July 2010–capped interchange fees, the commission that merchants pay, on debit cards. One year earlier Congress passed the Credit Card Accountability, Responsibility and Disclosure Act (Credit CARD Act), which reduced interest-rate increases and late fees on credit cards. The CFPB is also looking at overdraft fees. Add in persistently low interest rates, which have eaten into banks’ net interest margins, and the economics of banking the poor is far less attractive than it was.
As I looked at the data from this survey, I was reminded of why we had partnered with Sure Pay, LLC and made their Platinum Preferred card a part of our Pay System +. Many of our dealer clients enrolled in our Pay System + program to take advantage of the integrated merchant services portion of the program so they could accept credit and debit card payments from their customer directly through their MSP dealership management software. In fact, in December we processed more than 2 million dollars in car payments for our dealer’s customers.
Sure Pay’s Platinum Preferred card allows dealers to extend the same services to a dealership’s unbanked and underbanked customers. The Platinum Preferred Card is a payroll-loaded debit card specifically designed to help the nation’s unbanked and underbanked Buy Here Pay Here (BHPH) customers. Over 50% of the payments made at a BHPH dealership are still being made in cash. This is because many of your customers do not have a bank account or access to a credit or traditional debit card. The Platinum Preferred Card allows them to make payments in person, by phone or by ACH debit; saving both the dealer and customer time and money.
David Gershuny, at Sure Pay, says, “We designed this card specifically for the growing number of working Americans who do not qualify for a bank account or are currently underbanked. We believe the Buy Here Pay Here industry is a particularly attractive market for this product. Customers in this market have been underserved by the banking industry and we are pleased to make the Platinum Preferred Card available to them. Constellation’s network of BHPH software dealers are a perfect fit for distributing our card. We know from experience that use of our card can help those dealers reduce delinquency, eliminate cash handling and improve collections by making it easier for their customers to pay.”Gershuny continued “Under our program the customer can save up to $120.00 per month in check cashing fees. This is literally a WIN-WIN situation that benefits both the dealer and the customer.”