Community banks are under a lot of pressure to compete with national institutions. Their salvation may lie in catering to an unlikely group — the 68 million low- and middle-income consumers who have relationships with banks but also rely on money orders, check cashers, payday lenders and pawn shops for other financial services.

Financially underserved customers are a natural fit for community banks. The segment greatly resembles the original populations that gave birth to many Main Street banks and savings & loans. Smaller banks and credit unions can tap into this booming market by rethinking their concept of checking accounts and offering a low-cost, low-maintenance product.

If your perceptions of the underbanked have stayed the same for the past 30 years, it’s time to hit the reset button. The underbanked population now includes more than 20% of all U.S. households, according to a May 2013 report by the Center for Financial Services Innovation and Core Innovation Capital. Nearly a third of underbanked consumers exhibit financial behaviors that could make them eligible for products aimed at prime-credit markets, according to Experian research, and 18% earn more than $75,000 per year, according to a 2011 government study.

All this is to say that the underbanked population includes a wide range of customers who have been driven away from mainstream financial institutions by high balance requirements, overdrafts and monthly fees. Others feel intimidated or uncomfortable in bank lobbies. Non-native English speakers can find language to be a barrier, too.

With the right product, these customers can be won back. But many big banks have deemed the cost of carrying low-balance checking accounts too high. Instead they funnel underbanked customers into prepaid cards, which may carry expensive fees.

Community banks can offer underbanked customers a far better alternative with entirely electronic checking — that is, checking accounts without the paper checks. A number of banks have recently launched all-digital accounts targeting millennials and the underbanked (markets that tend to overlap). Most accounts feature no minimum balance and no monthly fees, along with virtually free access to sticky electronic services such as direct deposit, bill pay and person-to-person transfers. Further differentiation can be achieved by adding accidental death insurance, frequent user programs or identity theft protection services.

Because debit products are affordable for both the bank and account-holders, they can be an excellent way to attract new customers, demonstrate personal service and cross-market other products. Banks that try this out might also consider launching an automatic statement savings account, which is an unmet need for many prepaid customers.

Underbanked customers may need more individualized advice and guidance than traditional account-holders. But taking the time to help customers is something that community banks do well — and a service that breeds loyalty. Our job is to get in the game before it’s too late.

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