Ebook Distributing Prepaid Cards through Worker Centers: A Gateway to Asset Building for Low-Income Households
In today’s financial services marketplace, there is a dramatic mismatch between the consumer needs of low wage immigrant unbanked and underbanked populations and existing financial products and vendor strategies. Drawing upon both consumer and vendor data, this paper will explore the mismatch and detail the promise and challenges of a new strategy for delivering financial services on a prepaid debit card platform.
Despite their low incomes, immigrant workers in the United States today are managing to save and send money home at remarkable rates. In a survey of 480 workers recently conducted by the Center for Community Change and Community Financial Resources, while we found the median annual income to be just $15,600, the median monthly remittance was $293, and savings (after paying bills and sending money home) was $289. In effect, low wage immigrant workers are managing to set aside more than a third of their annual income. Yet, close to half of respondents were unbanked entirely, despite many being in possession of identification (birth certificates and matriculas) that could qualify them to open some type of bank account. In addition, many of those with bank accounts still regularly used check-cashing services and money orders. Clearly, mainstream financial institutions are not meeting the needs of low wage immigrants: they are not offering the right type of products, their services are perceived as too expensive, they are not convenient, and they are not culturally attuned.
It would seem that prepaid debit cards, with the right features and product program tie-ins, marketed through trusted community institutions and coupled with financial education would be a powerful tool for unbanked and underbanked immigrant workers. They can be loaded through payroll direct deposit, government benefits or tax refunds, or over-the-counter at designated locations. Although up until now they have been viewed largely as a payment transaction tool, a prepaid debit card could act as a virtual checking account, a purchase card, a remittance tool, a front-end to other payment mechanisms such as on-line financial services, as well as, a savings instrument and an introduction for low wage immigrant workers to asset-building strategies.
Given such a powerful product value proposition and the myriad of vendor offers in the marketplace today, why haven’t we seen greater product utilization of prepaid debit cards in low income communities? First, existing prepaid debit products have not offered a good value: they are too expensive and lack the right product configurations. Second, the marketing approach, rather than tapping into social networks, utilizing word of mouth strategies and working through trusted community organizations has been overly broad and impersonal.
To initiate this project, we have joined with eight worker centers around the country, and the three national networks of worker centers: Enlace, Interfaith Worker Justice, and the National Day Laborer Organizing Network. Worker Centers have emerged in recent years to be an important voice of low wage workers. We believe that they offer fertile ground to begin the process of developing a marketing and distribution network for a new, premium prepaid debit card. Centers directly provide some key services such as legal advice and intervention on unpaid wage claims, ESL, workers’ rights and computer classes, and act as match-makers to an even broader array of services such as health care.
In a national study of these worker centers just completed by one of the project principals, 140 organizations across 31 states, in over 80 cities, suburbs, and rural areas were identified. The worker centers involved in the project offer information and training for employment, legal assistance in labor and immigration matters, and advocacy with employers. Like the mutual aid societies, labor unions and settlement houses of the last century, worker centers are emerging as essential components of local immigrant communities. When it comes to delivering financial services, our view is that community-based organizations, if properly incentivized, have the potential to solve important market failures for low wage workers.
Our project has three stages: market research, pilot programs at eight sites, benchmarking and evaluation. The first stage, extensive consumer and vendor research, and the resulting structure of the pilot program is the subject of this paper. This paper begins with some history of the prepaid card industry and a discussion of the market potential of prepaid debit cards. We will then summarize the intensive market research on worker centers’ constituents financial practices and needs conducted by the Center for Community Change and Community Financial Resources in conjunction with eight local worker centers in Austin, Los Angeles (3-sites), Denver, Long Island, New Jersey and Chicago. Next the paper will provide an overview of the product/vendor research conducted by Community Financial Resources during the 4 th quarter of 2005 through May of 2006.
CFR utilized data from the consumer research to prioritize consumer aspirations, product configuration requirements and pricing structures in its vendor due diligence. Through this process of comparing the data to current market offerings, CFR identified three areas that generate consumer adoption obstacles: pricing structures, product delivery strategies, and consumer education. Finally, we will outline the structure of the pilot product roll-out, that will be executed by 8 worker centers starting September, 2006, that is designed to address and overcome existing market obstacles.
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