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Laura Huchzermeyer

Phones could open access for unbanked

by Laura Huchzermeyer | Dun & Bradstreet Editor

December 12, 2013 | 2 Comments »

160810576BIZMOLOGY — More than 1 billion people around the world have a mobile phone but lack a bank account. Many companies are looking to unlock the potential of those consumers by offering financial services through mobile devices.

Providing traditional financial services to people without bank accounts (often referred to as the unbanked or underbanked) continues to be a goal for many within the banking, payments, and retail industry. Experts, banks, and financial services startups have attempted for years to capture the business of unbanked or underbanked people. Despite these efforts, the number of underserved consumers continues to climb. More than 8 percent of US households do not have a checking account, according to the Federal Deposit Insurance Corporation (FDIC). A greater amount, nearly 30 percent of households, is dubbed underbanked, which means they are without access to a savings account.

Reaching this segment is a huge opportunity, and many companies and other organizations are attempting to do just that. Prepaid debit cards (offered through banks and nonbanks) have emerged as a possible solution to help service unbanked customers. Meanwhile, many people without bank accounts routinely use high-cost loans and check-cashing services.

FDIC chairman Martin Gruenberg recently announced that the agency is exploring how mobile phones can help expand access to banks. Convenience is a major reason that people choose to use nonbank financial services. Mobile financial services, which allow people to quickly and easily make payments and transfer money around the clock, have the potential to help bring more people into the banking system, Gruenberg said.

Online and mobile banking is growing in popularity. Almost a quarter (24 percent) of US consumers bank primarily online, via computer or tablet, according to an Ally Bank survey. That represents a 10 percent increase since 2010. Young people are especially drawn to mobile banking options such as GoBank, Simple, and Moven, which offer low-fee or no-fee financial services and have no minimum balance requirements.

Most unbanked and underbanked people already own a cellphone. Now it’s up to companies to leverage the technology’s full potential to meet underserved consumers’ financial services needs. Opening access to the banking system not only will help financial services companies and drive revenues, but it also could help remove barriers to some services.

For example, the bike sharing industry around the US is booming with more than 18,000 shared bikes and counting. However, some of the people who need the service the most lack access to the program because they don’t have a credit or debit card. Bike share ridership is very low among low-income people in major cities such as New York and Washington, DC. The main reason is because you need a card to set up a bike share account. Being able to pay for the service by cellphone and link to a cellphone account could open the service to many more people.

But serving the underserved isn’t as easy as flipping a switch or even designing and building a new app. Companies interested in reaching the unbanked and underbanked through mobile banking and payments should keep their audiences in mind and find out everything possible about their needs, spending habits, and social backgrounds.

According to an FDIC report on the issue, unbanked and underbanked rates are particularly high among lower-income, less educated, younger, and unemployed households, especially non-Asian minorities, and single mothers. Keys to success in providing mobile financial services to these demographics will be keeping fees low, offering around-the-clock service, and providing simple and effective ways to send and receive money.

I got news for you! Those people who have a cell but no bank account simply means they have no money. No money means no profitability. Further, a large percentage of people who bank don’t have any money either, they bank because they have bills to pay. Not a profitable demographic either. Most branch bank consumers are just as much a dinosaur as branch banking itself. Overdraft fees are their credit debt. They lose their paycheck every week due to operating in the red. You know, on the float.

It’s true, unbanked and underbanked rates are particularly high among lower-income, less educated, younger, and unemployed households. So, yes, they likely don’t have much money. And many banks aren’t particularly interested in them. Meanwhile, nontraditional financial services companies and nonbanks are busy making money from them by offering check cashing, prepaid debit cards, and other services.
Banks have to decide for themselves if this demographic is worth chasing after.

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