A Snarketing post by Ron Shevlin, Director of Research at Cornerstone Advisors
In February 2012 I published a post titled Big Idea: The Debanked, in which I wrote:
“There are many consumers in the ranks of the Underbanked who are going through tough times, find themselves un- or underemployed, in debt, and paying way more for maintaining a checking account than they should be. But there’s a growing subsegment of the Underbanked that doesn’t fit this description—the Debanked. They’re young, highly educated, employed (or employable)—and they’re choosing to manage their financial lives without the help of a checking account, thank you very much.”
At the time, I estimated that just 4% of US households were in the Debanked segment, but that it would grow to 8% in a few years. I also estimated that banks were looking at a US$!.7 billion drop in revenue from losing this business.
Recent news from GreenDot regarding its GoBank product confirms the emergence of Debanked consumers. The company recently reported:
- The most popular method of depositing money is direct deposit
- Active customers deposit an average of $1,000 per month
- ~One in four active users pay bills with their GoBank account
- Account use make, on average, 19 debit card transactions per month
- More than half of account holders are between the ages of 18 and 34
This sounds to me like many of GoBank’s customers are using the account as their primary spending/financial account. And, in fact, GoBank reported that nearly 60% of active account holders say that GoBank is their primary checking account.
[Note the funny terminology–“primary checking account.” Don’t worry, that will go away in the next few years]
I didn’t see any mention in GreenDot’s investor conference of how many GoBank customers there are (if I missed it, please let me know). But one notable comment was the CEO was that among customers who have had a GoBank account for more than 90 days, the company is averaging $132 of annualized revenue per customer.
If my estimate that the short-term growth of Debanked consumers will reach 8% of all US households is reasonable, that would put the number at about 9.2 million households. At a revenue run rate of $132 per year, the potential loss of revenue to banks is US$1.2 billion.
In my original estimate, I included the potential loss of revenue from other products (mortgages, credit cards, etc.) that would be cross-sold to these customers. So I’m sticking with my original forecast.
Ultimately, the real test is how many consumers make an alternative account like GoBank their “primary checking account.”
GoBank’s recent results suggest that the potential is real, and that there are consumers who are truly giving up checking accounts as their primary financial account. Not because they have to, not because they’re under-served, under-class consumers. But because they want to.