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A $36 Billion Opportunity Big Banks Are Chasing Away

Unbanked Americans are a cash cow for several stocks

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It’s an interesting irony. Banks like Citigroup (NYSE:C) or U.S. Bancorp (NYSE:USB) generally don’t want this segment of consumers as their customers because they’re not profitable enough to bother with. Yet, this same segment of consumers can be stunningly fruitful for other financial service companies.

That segment of consumers is simply called the “unbanked” … people who don’t have any sort of bank account with which to deposit, store or withdraw money. Some are unbanked by choice, while others are unbanked because they can’t meet the banks’ minimum deposit requirements without incurring ridiculous fees.

Either way, these folks still need cash and spending flexibility, and those who are providing that service are doing surprisingly well.

Investors should be interested in the “surprisingly well” part.

The Industry Is Worth How Much?

The statistics are stunning. According to a recent FDIC report, nearly 10 million households don’t have any sort of bank account. That’s about a million more households that didn’t have bank accounts in 2009.

The numbers get even crazier when you expand the category to “underbanked.” That description covers 24 million U.S. households that may or may not have bank accounts, but still use an alternative means to meet at least some of the cash and check-cashing needs.

The craziest number of all: $36 billion. That’s how much the underbanked spend on check cashing, payday lending, prepaid credit cards and the like every year.

And just to clarify, that’s not the amount of money being handled or passed through by the industry. That’s the amount these consumers are paying in fees and interest to facilitate these loans and cashed checks that goes directly into the purveyors’ pockets.

It’s a number that’s getting bigger every year, too, as the economic recovery continues to widen the distance between the haves and have-nots.

So how are companies tapping into that growth? Two ways:

#1: Prepaid Debit/Credit Cards

They’re not new, but prepaid debit cards and credit cards had not become prolific until very recently thanks to a company called Green Dot (NASDAQ:GDOT) and its smaller rival NetSpend (NASDAQ:NTSP).

On the surface, they look and feel like the bank-issued credit card you carry around in your wallet. For that matter, they appear to be akin to the gift cards you see at the front of your favorite big-box retailer or grocer … the kind that can be activated by the cashier in the amount of your choosing, once you pay for it.

A Green Dot card is so much more than that, though.

Article printed from InvestorPlace Media,

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