Bank of America Plaza (Photo credit: Frank Kehren)
Banks must provide a mainstream roadmap to banking access for the underbanked and unbanked to increase the financial health of the communities served. Customers will have the opportunity to prove personal responsibility. Financial Health has a positive on the local, state, and national economy dependent on the number of financially healthy people. More customers in the mainstream is better for all parties involved.
Consumers and Bankers are the two entities examining the relationship one has with the other. Banks are allowing big profits to blind the industry to develop a long-term strategy to insure sustainability in the marketplace along with profitability. The banks are excluding one out of every three Americans over 18 accesses to mainstream banking services. These consumers are locked out of the mainstream financial services industry because of charged off checking account or low credit scores to locked millions into the world of underbanked or unbanked. These consumers become a part of the permanent unwanted with very little change of restoring place into the financial mainstream. Banks look upon these individuals as minimal profit opportunity. The banking industry has lost sight of the value of these consumers in the mainstream financial market. The banking industry is hurting the long term sustainability of the financial system by maximizing profits instead of promoting a financially healthy community, and the consumer is financially sick in number through the community impacting as a drag on the economy leading to a weak job market and long term unemployment in a skilled workforce. The credit crisis was the warning to the industry that a long-term strategy must be implemented for the financial system to be restored back to health. Financially healthy communities provide foundation for a healthy American economy.
In banking, subprime, unbanked, credit worthy, unprofitable clients are examples of terms to justify a business practice of operating a traditional bank in a community but inclusive to a segment of the community. The post-World War II period was dominated by the community bank presence in large and small communities throughout America, and the community bank did serve the entire community. The bank was a safe haven for consumer deposits and those deposits did fund consumers, business, and community or local government loan requests.
The strategy of the banks in the 1970′s when the economy being pushed to the abyss was a catalyst to keeping the economy from unraveling. The banks knew that success of the institutions was co-dependent on the financial sustainability of the community and the success of the consumers in meeting the financial goals or providing financing for small business opportunities and innovation in America. This community banking presence gave the Baby Boomers access to a financial partner at the bank that would provide financing for awesome business opportunities to impoverished individuals based on the merit of the business plan. This relationship was essential in maintaining confidence in basic principles of America in the importance of community. The bank strategy was focused long-term sustainability and profitability of the bank was relative to the success of the community and consumer. They are the in the same boat, because one failure will lead to all three entities failing. The country did escape the 1970′s to be restored to economic prosperity because of the community banking system.
In our current situation, the confidence in our financial is broken. The banks have priorities outside the traditional banking deposits and loans in communities served. Profits are pinnacle of morality in the banks, but the result is a consumer base with zero education in personal finance. The financial education was the community banks and the interaction with consumers and businesses, but that is no longer the reality. Then scores people are being shuffled into the underclass of the unbanked. The community would benefit from these individuals to be counseled and empowered in personal finance to become financial health consumers in the system. The economic impact would be substantial, and banks would benefit from a surge in long-term growth by offer a huge group of educated and innovated consumers in personal finance. The would require more complex financial service offerings and lending services with much higher margins of profitability and long term loyalty to the bank.
The banking industry does not grasp that the exit strategy out our current economic crisis is the implementation of a long-term strategy to bring consumer into the financial mainstream and make the consumer the center of financial business model. A financially health consumer base is a driver to sustainability economic growth, and the more unhealthy and illiterate the consumer base. The economic challenges and struggles are more dominant in America.
In the current environment, the executive managers do not understand the banking 101 principle in the people are the foundation. Every other venture into new business segments or revenue streams is because of the people or consumer. Banking can deny the importance of the consumer to the bottom line, but the overall deterioration in the economy and financial health of the consumer base will begin tear all the institutions apart. The value of immediate profits now and personal financially educated consumers in the future are not a top priority of strategy or discussion in the industry. Until the financial system changes to make this possible, The American economy and consumer struggles. All banking segments are not able to ignore the needs of the consumer in the mainstream or out.
The Community Banks are in trouble with the pending regulatory environment, and the banks have one option out is consolidate. Open your doors and minds in the Community Banking sector, the credit unions are laughing on how the smallest credit union survives and the many customers are requiring small institutions to meet lending needs especially small business. Consolidation is easier than collaborate or cooperate in Community Banking.
As a former banker, I was an advocate of alternatives to consolidation with a high level of success….Please contact me with additional information.