Results from the sixth annual Financial Underserved Market Size Study show underserved Americans paid $141 billion in fees in 2015.
The study, conducted by the Center for Financial Services Innovation (CFSI) and Core Innovation Capital, determined those Americans generated $1.6 trillion of economic activity. The financially underserved are defined as the 67 million adults who do not have bank accounts or who use alternative financial services.
Trends identified include a shift from storefront and online payday lenders, gains for consumer and small business marketplace lenders, and the high cost the underserved pay for auto insurance.
“Even as financial providers embrace improved consumer financial health, a large percentage of Americans remain financially underserved – a status that confers much higher financial costs,” CFSI president and CEO Jennifer Tescher said. “This year’s study reveals a shifting mix of marketplace trends and pressures driving those costs as an ever increasing percentage of total financial activity. In particular, auto insurance and subprime installment lending present enormous opportunity for financial providers and innovators.”
While overall financial activity for the underserved rose four percent to $1.6 trillion in 2015. spending on fees and interest grew by six percent. Use of marketplace loans rose by 210 percent while online and storefront payday loan use fell 23 percent.
The underserved have a vastly different automobile expenses than mainstream customers. They spent $36.5 billion on auto insurance premiums but only $24 billion on subprime auto loan interest and fees. The average underserved driver paid premiums 26.5 percent higher than the fully served to insure similarly valued vehicles.
The largest chunk of interest and fees, at close to a two-to-one clip, go to long-term credit, which attracts $55.2 billion in spending. Subprime auto and student loans account for the majority of the activity. Shorter-term products such as subprime credit cards and marketplace loans account for $26.2 billion and growing.