Targeting the Low-Income Consumer: Financial Services

Christopher Berry, Harvard University

This paper describes a consumer segmentation system based on the use of financial products and services by low-income households. While much prior work has been focused on segmentation of the affluent market, this is, to our knowledge, the first attempt to segment consumers at the other end of the income distribution. The work is also novel in its consideration of the use of "fringe banking" services, such as check cashing and payday lending. We find great variety in the consumer profiles of low-income households, ranging from the "unbanked," who have no relationships with traditional financial institutions, to the "cosmopolitans," who use complex combinations of overlapping services provided by fringe and mainstream institutions. Our analysis is based on a survey of 1500 low-income households in Chicago, Los Angeles, and Washington, DC, the largest survey ever conducted for this income segment.