Most Americans have little or no cash. Most, it appears live paycheck to paycheck. Schwab’s OnInvesting magazine published a story summarizing the findings of a Bankrate survey conducted in June 2012 which shows that just 25% of Americans have enough cash to support at least 6 months of living expenses.
Why is this relevant to Banks and Credit Unions? Well, for one, it validates other findings that suggest that most consumers hold less than $1,000 in deposits. But perhaps more importantly, it suggests that the vast majority of consumers are unlikely to be interested or approvable for the vast majority of products and services that Banks and Credit Unions wish to sell.
For example, we all recognize that Banks and Credit Unions typically have a good track record in lending to individuals with high credit scores, ample income, and high net worth — the traditional ‘A paper’ credit. On the other hand, Chief Credit Officers tend to frown upon applications that slip into the realm of ‘B paper’ or below which are the credit ratings occupied by the majority of Americans.
The key point – it is essential for Banks and Credit Unions to proactively and deliberatively focus on specific customer (or member) segments that are likely to result in robust, mutually beneficial relationship. Offering a checking account to an average consumer results in a so-so experience for the consumer and an operating loss for the Bank or Credit Union that only worsens over the course of that relationship.
Community Banks and Credit Unions need a) develop strategies that are likely to lead to growth and profitability, and b) they need to aggressively execute on said strategies.