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The Underbanked - Canada - February 2016

“Disruptive start-ups have the potential to poach future generations of banking customers by offering them lower-cost alternatives to conventional services and becoming a trusted alternative. Conversely, this could also lead to alliances with mainstream financial institutions.”

– Sanjay Sharma, Senior Financial Services Analyst

This report looks at the following issues:

  • Who are the unbanked?
  • Use of alternative financial services providers
  • Unbanked and unbanked under-index on product ownership
  • Unbanked have fewer financial priorities
  • Underbanked have lower amounts of investments but their debt levels are fairly similar to the well-banked

This report seeks to analyse banking consumer behaviour and the attitudes of the unbanked and the underbanked. We examine different facets of the underbanked segment. Starting with the reasons for not having a bank account, we look at the other financial products owned by this segment. Furthermore, we explore their financial priorities, amount of investment/debt held and general attitudes related to personal finance/banking.

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Table of contents

  1. Overview

      • Regional classifications
        • Definitions
          • Income
          • Executive Summary

              • The issues
                • Who are the unbanked?
                  • Figure 1: Unbanked, reasons for not having a bank account, November 2015
                • Use of alternative financial services providers
                  • Figure 2: Use of alternative financial providers, unbanked and underbanked vs overall population, November 2015
                • Unbanked and unbanked under-index on product ownership
                  • Figure 3: Product ownership at bank or credit union, unbanked and underbanked vs well-banked, November 2015
                • Unbanked have fewer financial priorities
                  • Figure 4: Financial priorities, unbanked and underbanked vs well-banked, November 2015
                • Underbanked have lower amounts of investments but their debt levels are fairly similar to the well-banked
                  • The opportunities
                    • Potential solutions for servicing the unbanked and underbanked
                      • Alternative financial services providers: servicing a short-term need at a high cost
                        • Alternative financial users are less financially sophisticated but more open to new products
                          • Figure 5: Attitudes of alternative financial services users vs overall population, November 2015
                        • Online disruptors may pose a competitive threat
                          • What it means
                          • The Market – What You Need to Know

                            • Canada’s population is expected to age in the coming years
                              • The population is growing and ethnically diverse
                                • Proportion of highly indebted households continues to rise
                                  • IMF downgrades 2017 economic forecast for Canada
                                  • Market Factors

                                    • Canada’s population is expected to age in the coming years
                                      • Figure 6: Population aged 65 years and over in Canada, historical and projected (% of total), 1971-2061
                                      • Figure 7: Projected trends in the age structure of the Canada population, 2014-19
                                    • The population is growing and ethnically diverse
                                      • Growth of the LGBT community
                                        • Proportion of highly indebted households continues to rise
                                          • IMF downgrades 2017 economic forecast for Canada
                                          • Market Perspective

                                            • Ontario proposing changes to payday loans and debt collection
                                              • New financial literacy initiatives rolling out across Canada
                                                • Nudging consumers towards better financial habits
                                                  • Bank of the West partners with University of California (UC) – Berkeley for financial literacy education
                                                    • Figure 8: UC Berkeley partnership with Bank of the West
                                                  • Spend more wisely with a prepaid card
                                                    • Figure 9: Navy Federal Credit Union prepaid card
                                                  • Discover helps customers understand credit and take control
                                                    • Figure 10: Discover credit card member support site
                                                  • CreditSecure provides advanced monitoring and financial tools
                                                    • Figure 11: American Express credit monitoring service
                                                • Key Players – What You Need to Know

                                                  • EQ Bank launches mobile app and announces 3% interest rates
                                                    • Tangerine announces the launch of secure chat
                                                      • Mogo and Postmedia announce a strategic collaboration
                                                        • New mobile bank Koho set to join Canada’s FinTech crowd
                                                          • Chase and Bank of America to roll out ATMs that won’t require a card
                                                          • What’s New

                                                              • Tangerine celebrates hard-working Canadians
                                                                • EQ Bank launches mobile app and announces 3% interest rates
                                                                  • Mogo and Postmedia announce a strategic collaboration
                                                                    • Tangerine announces the launch of secure chat
                                                                      • The growth of Credit Karma in the US
                                                                        • Start-ups focus on alternative models of credit scoring
                                                                          • Credit scoring companies test the use of alternative data to determine “new” credit scores
                                                                            • New mobile bank Koho set to join Canada’s FinTech crowd
                                                                              • Chase and Bank of America to roll out ATMs that won’t require a card
                                                                              • The Consumer – What You Need to Know

                                                                                • Who are the unbanked and reasons for not having a bank account
                                                                                  • Use of alternative financial services providers
                                                                                    • Unbanked and underbanked have fewer financial priorities
                                                                                      • Underbanked have lower amounts of investments but their debt levels are fairly similar to the well-banked
                                                                                        • Alternative financial users are less financially sophisticated but more open to new products
                                                                                        • Unbanked

                                                                                          • Who are the unbanked?
                                                                                            • About a third of the unbanked prefer not to disclose reasons for not having a bank account
                                                                                              • Figure 12: Unbanked: reasons for not having a bank account, November 2015
                                                                                            • Potential solutions for servicing the unbanked
                                                                                              • Unbanked Canadians are less likely to be knowledgeable about their finances
                                                                                                • Figure 13: Attitudes related to financial sophistication (% agree), unbanked and underbanked vs well-banked, November 2015
                                                                                              • Younger consumers more inclined to look for guidance and be influenced by friends/family
                                                                                                • Unbanked are less inclined to look for the best deals
                                                                                                  • Unbanked are less interested in online/mobile services but, at the same time, are more likely to use virtual banks
                                                                                                    • Figure 14: Attitudes related to use of financial institutions (% agree), unbanked and underbanked vs well-banked, November 2015
                                                                                                  • Using mobile technology to service the underbanked
                                                                                                  • Product Ownership

                                                                                                    • Who are the underbanked?
                                                                                                      • Significant opportunities for product pick-up among the underbanked
                                                                                                        • Figure 15: Product ownership at bank or credit union, unbanked and underbanked vs well-banked, November 2015
                                                                                                      • Credit cards, lines of credit and savings accounts have significant potential
                                                                                                        • Unbanked over-index on ownership of prepaid cards
                                                                                                          • Banks/credit unions strongly favoured by the underbanked for lines of credit
                                                                                                            • Figure 16: Bank/Credit union usage index for each product owned, November 2015
                                                                                                          • Online disruptors more likely to target underbanked and unbanked consumers
                                                                                                            • A third of the well-banked have six or more financial products
                                                                                                              • Figure 17: Repertoire of financial product ownership at all financial institutions, November 2015
                                                                                                          • Use of Alternative Financial Providers

                                                                                                              • Around one in six Canadians, including a third of the unbanked, have used an alternative provider in the past three years
                                                                                                                • Figure 18: Use of alternative financial providers, unbanked and underbanked vs overall population, November 2015
                                                                                                              • Who are alternative financial services users?
                                                                                                                • Reasons for the use of alternative financial services providers
                                                                                                                  • Alternative financial users are less financially sophisticated but more open to new products
                                                                                                                    • Figure 19: Attitudes of alternative financial services users vs overall population, November 2015
                                                                                                                  • Uncomfortable with their debt levels and find it harder to get loans from banks
                                                                                                                    • Lack of financial sophistication tied to higher usage
                                                                                                                    • Financial Priorities

                                                                                                                      • Unbanked and underbanked have fewer financial priorities
                                                                                                                        • Figure 20: Financial priorities, unbanked and underbanked vs well-banked, November 2015
                                                                                                                      • Buying a home and paying off credit card balances are the top priorities for the unbanked
                                                                                                                        • Paying off/reducing credit card debt and building an emergency savings account are the top priorities for the underbanked
                                                                                                                          • Paying off credit card balances, contributing to a retirement account and building an emergency savings account are the top priorities for the well-banked
                                                                                                                            • A third of the unbanked are looking to open a new bank account
                                                                                                                              • Figure 21: Attitudes related to personal finances (% agree), unbanked and underbanked vs. well-banked, November 2015
                                                                                                                          • Financial Snapshot

                                                                                                                              • Underbanked have lower amounts of investments…
                                                                                                                                • Figure 22: Amount of household savings/investments, unbanked and underbanked vs well-banked, November 2015
                                                                                                                              • …and their debt levels are fairly similar to the well-banked
                                                                                                                                • Figure 23: Amount of household debt, unbanked and underbanked vs. well-banked, November 2015
                                                                                                                            • Appendix – Data Sources and Abbreviations

                                                                                                                              • Data sources
                                                                                                                                • Consumer survey data
                                                                                                                                  • Consumer qualitative research
                                                                                                                                    • Abbreviations and terms

                                                                                                                                    Companies Covered

                                                                                                                                    To learn more about the companies covered in this report please contact us.

                                                                                                                                    The Underbanked - Canada - February 2016

                                                                                                                                    £3,277.28 (Excl.Tax)