Applying Developing-Market Mobile Banking Models in the Developed World
A U.S. federal report released in September found that 8.2 percent of households in the country are unbanked. That’s nearly 10 million households, and 17 million adults. Another 20.4 percent are underbanked—or 24 million households, and 51 million adults. Those numbers add up to more than a quarter of the population of the U.S.
The percentage of both unbanked and underbanked has increased slightly since the last survey (conducted in 2009). Americans are also using alternative financial services more, including payday loans, check cashing, money orders, pawn shops, etc. Both increases are most likely due to the economic recession and resulting high unemployment rates.
Given that the recession is global, I’m guessing that if other countries were to conduct similar surveys, they would see similar results. And that has me thinking.
With mobile financial services bringing more people into the formal banking system in emerging markets around the world like South Africa, Mexico, Peru, Colombia, Pakistan, Sri Lanka, India, and Indonesia, etc., I’m wondering if the same models could be applied in developed markets.
Lack of access is often the major hurdle in emerging markets. Bank branches are few and far between. Roads are poor or nonexistent. Transportation options are slow (walking) and/or unreliable. That’s obviously not the issue in most of the developed world. In fact, the U.S. survey respondents cited insufficient funds, and the fact that they don’t need or want an account.
Prepaid debit cards and payroll cards are relatively new products. With a prepaid debit card, you load an amount of money on the card, and then use it for purchases at points of sale. Payroll cards are similar, but can receive payroll funds directly from employers. Neither card was considered an “alternative financial service” in this survey, but continue to be increasingly popular especially among the unbanked and underbanked.
Some banks are offering these cards now—and they’re smart. Everyone else is missing a market opportunity. The business model is similar to what we’re seeing work in emerging markets with simple accounts accepted by a wide range of merchants. More important, almost half (49.2 percent) of unbanked households that have used a prepaid card report being likely to open a bank account in the future.
Prepaid cards don’t build a credit history like secured credit cards do. That’s a drawback, for sure. They also have a myriad of fees. But they do help create financial literacy and a familiarity with credit that can be a step in the right direction.
As we move away from cash and toward mobile payments, I think we need to consider that those without bank accounts will get left even farther behind unless there are mobile services that meet their unique needs. There are sufficient numbers to create a real opportunity, and we have already seen such success with programs like Standard Bank’s AccessAccount in South Africa, which can be opened in less than 8 minutes via mobile at a local sales agent with no minimum balance and a low fee structure. Launched in March of this year, the bank reports opening 140,000 of these accounts every month.