Slide 1
CFSI - Center for Financial Services Innovation
An Affiliate of ShoreBank Corporation
Mobile Opportunities: New Customers and the Underbanked
FRB Mobile Payments Forum
Jennifer Tescher, Director
February 23, 2010
Copyright CFSI, 2010. Not for distribution
Slide 2
What CFSI Does: A Crash Course
CFSI is transforming the financial services marketplace in America to better serve underbanked consumers and help them achieve financial prosperity.
Our Work
Inform: We develop “on-the-ground” market and consumer intelligence to spur innovation, providing thought leadership, insight and actionable information.
Connect: We help build new cross-sector relationships with top leaders and changemakers through our industry roundtables, conferences and other events.
Invest: We find, seed and nurture leading ideas and innovation with funding, advice and connections.
Slide 3
Underbanked Opportunity: Large Target Market
FDIC survey confirms CFSI finding that 21 million households are underbanked; FDIC identifies 9 million unbanked households
Pie Chart Image
8 percent - Unbanked (9 million)
18 percent - Underbanked (21 million)
74 percent - Banked (88 million)
Total unbanked and underbanked (Percentage of U.S. Households): 26 pecent*
*Source: FDIC Return to text
Notes:
When comparing CFSI’s findings for unbanked and underbanked individuals with the FDIC’s, the disparity is larger, likely due to methodology (FDIC surveyed households by phone only, CFSI surveyed by mail and phone):
- CFSI: 52 million unbanked, 55 million underbanked
- FDIC: 17 million unbanked, 43 million underbanked
CFSI and four sponsors commissioned Experian Simmons for national segmentation analysis of underbanked consumers’ attitudes, behaviors, preferences, needs and experiences. Goals of the study:
-Help financial services industry deliver relevant messaging and improve acquisition efforts, marketing, and product development activities
-Equip study sponsors to be 'knowledgeable champions' in promoting efforts around underbanked populations
-Telephone and mail survey
Designed jointly by CFSI, Experian Simmons, and sponsors
- January-March of 2008
- English and Spanish
- 2,799 underbanked respondents
- Underbanked universe
- No current checking account and no current savings account (Unbanked)
- Current checking and/or savings accounts, and one or more nonbank financial transactions in the past 30 days (Underbanked)
- Weighted to U.S. adult (18+) population
- Factor and cluster analysis driven by behavior and attitude data
Slide 4
Mobile Banking and the Underbanked
In the U.S., mobile penetration is high and growing
- According to TowerGroup, the U.S. mobile subscriber base amounts to 88% of the population (271 million customers)
- Penetration is expected to reach 97 percent by 2013
While online banking usage is skewed by factors such as income, education, and race, mobile phone usage is consistently high among all demographic and socioeconomic groups
- According to Mintel, 40% of those who earn less than $25,000 a year have a cell phone
The underbanked are uniquely positioned to benefit from mobile financial services
- Underbanked are more likely to be managing cash flow tightly
- Underbanked have greater need for quick feedback on account balances
- Mobile represents a means for entering the mainstream financial system
Notes:
The CDC has found that the number of households with only a cell phone is consistent across income groups.
- Among all U.S. households, 23 percent have only cell phones (and no land line; 2009), compared with 11 percent in 2006
- Among the poor, 33 percent of households are wireless only vs. 16 percent in 2006
Slide 5
Mobile Banking and the Underbanked
The Underbanked demand Control, Convenience, and Reliability from financial services; these demands can be met through mobile banking services
| Consumer Need | Mobile Solution | |
|---|---|---|
| Control | Underbanked consumers need to manage cash flow day-to-day, in real time | Most popular mobile services are balance management, deposit alerts |
| Convenience | 64% of underbanked rate location "extremely important" when choosing a financial institution* | Mobile services provide easy access to accounts any time, anywhere |
| Reliability | Underbanked place high value on fee transparency and transaction security | Mobile services help users avoid overdraft fees by providing instantaneous feedback |
*Source: CFSI Underbanked Consumer Study 2008 Return to table
Notes:
The last two slides demonstrate mistrust and fear about the lack of transparency in checking/savings accounts; mobile addresses these concerns
Slide 6
Mobile Financial Services for the Underbanked
Several mobile applications are equipped to address tangible needs for the underbanked.
- Customer communication: Balance alerts are particularly relevant to the underbanked, who need to carefully manage cash flow. Other important applications exist for financial education via text message.
- Payments: P-2-P, P-2-Merchant, and NFC payments may be luxuries for banked consumers, but for the underbanked, mobile payments represent a safer alternative to cash and a means for entering the financial mainstream
- Bill pay and expedited bill pay: Mobile payments can make bill pay much more convenient for consumers who typically deal in cash
- Remittances: Consumers can use a mobile phone to safely and conveniently send money internationally
- Account access: Signing up for accounts through a mobile phone can help alleviate the anxiety the underbanked often feel about visiting banks in person. Access via mobile phone is also a convenience for customers for whom time may be short and transportation may be difficult.
Notes: Customer communication:
- Study conducted by a team of economists including Jonathan Zinman and Dean Karlan
- Worked with banks in Bolivia, Peru, Philippines
- Text message reminders to deposit money into accounts to work toward savings goals
- Various messages and language
- Savings rate increased 6%
Slide 7
International Lessions
International examples demonstrate successful mobile implementation for financially underserved consumers
Important differences between these markets and the U.S. make some comparisons difficult.
- Significant pre-existing mobile and banking infrastructure in the U.S.
- Relative convenience and availability of various mainstream and alternative financial services in the U.S. compared to developing markets
- Heterogeneity of the American un- and underbanked market
Slide 8
International Lessons
Kenya: Safaricom’s M-Pesa
- Before launch of M-Pesa, Safaricom possessed 79% of the Kenyan mobile market*
- Large network of M-Pesa agents register new users and provide customer support and product information
- Mobile capabilities include money transfer, account management, airtime purchase, deposits, and withdrawals
- Key lessons: Broad agent network demonstrates importance of human element in helping customers use service
South Africa: WIZZIT
- Transaction banking services available to unbanked, low-income clients
- Customers use mobile phone and MasterCard debit card to conduct transactions; charges rendered per transaction
- Service marketed and sold through WIZZKids
- Key lessons: Reaching the underbanked through community members; transparent fee structure and pairing with prepaid card enable more sophisticated use of financial services
*Source: CGAP. Mobile operator-centric payment schemes Return to text
Notes: WIZZIT
What makes global mobile exciting is NEW ACCESS – not just yet another channel for existing customer. The
phone can actually be used to OPEN new accounts, enroll new customers, and then fully access the account. The phone is packaged with a prepaid card to provide cash access.
Wizzit is of particular interest because of its marketing – Wizz Kids – cadre of young kids who are stationed in booths in the townships to sign people up and help them learn how to use the service – guerrilla style marketing; kids get commission
Slide 9
Mobile Innovators in the U. S.
MVIA (Mobile Money)image
- Remittance company offering subscription model for mobile money transfers
- First month $9.95, then $14.95; unlimited transfers
- Opportunity to bring customers into the financial mainstream; getting them closer to being banked
- Reaches a customer base that overlaps significantly with the underbanked
Trumpet Mobile Image
- Array of financial products and services available to underbanked via mobile
- Sold through Walgreens, RadioShack, and Casey’s General Stores
- Prepaid phone packaged and sold with prepaid card, which is how consumers load funds
Notes:
mVia:
- Company started about 2 years ago with goal of providing transactional services to the unbanked
- Launched the remittance service about 5 months ago and now in 100s of stores
- Finding that customers are remitting smaller amounts, since they can conduct unlimited remittances with
the subscription model
- Average remitter conducts 3-4 remittances per month vs. one every six months for most remittance
companies (according to mVia)
Trumpet:
- Owned by Affinity Mobile
- Through partnership with Western Union, can remit funds abroad through cell phone
- Individual and Family mobile plans available
- Trumpet has partnership with Sprint, so mobile access is through Sprint network
Slide 10
Challenges
Consumer-centric challenges:
- Service providers must supply education to underbanked consumers to make them more comfortable with mobile financial services.
- Offerings must present a significant value proposition to customers, providing an incentive to change established behaviors. Simply adapting an existing online platform for mobile will be insufficient.
- Providers need to overcome trust issues among underbanked consumers.
Industry-centric challenges:
- Financial services providers and mobile operators are heavily entrenched in their ways of conducting business and lack incentive to work together.
- Many large banks are taking a defensive approach, providing service to existing customers rather than using mobile as an acquisition channel. This will have to change for mobile to become a more significant revenue driver.
- There are many players in the payment ecosystem: merchant, merchant-acquiring bank, card issuer, association. Each of these is currently part of the revenue chain and likely are not willing to give up their piece.
Notes:
Consumer-centric:
- Education/information is needed to help the underbanked (and all consumers, really) understand the
service offering and know how to use it. Necessary for the underbanked in particular, as they may be
less comfortable with the banking system generally.
- Trust issues – using mobile financial services necessitates entry into a banking system, which underbanked
consumers may be purposely avoiding by dealing in cash
Slide 11
Paradigm Changers/Creators in Other Areas
Personal Financial Management
Group of Personal Financial Management Images such as:
- Smartypig graphic image
- Mint.com graphic image
- Credit Karma graphic image
Online Brokerage Firms
Online Brokerage Firms Images:
- Ameritrade image
- E*Trade image
- Zecco image
Alternative payment Channels
Alternative payment Channels Images:
- PayPal image
- Google Checkout image
Prepaid
Prepaid Images:
- netSpend image
- Greendot image
It may take a third-party provider to jump ahead of banks and telecoms and create a new paradigm for mobile financial services
Notes:
It may take some third-party provider to jump ahead of banks and telecoms and create a new paradigm for mobile financial services.
Examples:
- Online brokerages enabling day trading for anyone
- Entry of personal financial management programs
- Alternative payment channels such as Paypal
- Innovators in prepaid have found a way to meet the underbanked halfway
Slide 12
CFSI - Center for Financial Services Innovation
An Affiliate of ShoreBank Corporation
Jennifer Tescher, Director
312.881.5818
Email [email protected]
The Center for Financial Services Innovation
A Nonprofit Affiliate of ShoreBank Corporation
2230 S. Michigan Ave., Suite 200
Chicago, IL 60616
website: www.cfsinnovation.com