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Mobile Devices Can Help Bank the Underbanked

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Mobile technologies are revolutionizing financial services in both developing and developed economies, helping bring a wider range of services to a greater number of people than ever before.

As a result of advances in mobile technologies, the way consumers interact with financial institutions is being redefined, providing a new level of access. While potentially revolutionary for everyone, this is particularly so for the underbanked.

As more and more consumers embrace mobile applications using what we still (perhaps, incorrectly) call phones, the demand for financial services through these devices has skyrocketed – with far-reaching implications. These devices are streamlining the distribution chain and offering firms new ways of engaging with customers who can get access to increasingly sophisticated banking services.

The underbanked has been a group that financial firms have long struggled in finding ways to reach in a profitable manner. But mobile banking can provide products and services that would otherwise be out of reach for the bank (from a profitability and risk perspective), and the consumer (for lack of access to physical banking infrastructure and virtual credit ratings).

New mobile innovations have started in emerging markets that have embraced mobile technologies quickly due to the lack of existing banking infrastructure. One example is Kenya, where technologically simple e-payment platforms based on text messaging are thriving. Safaricom's M-PESA, launched in 2007, enables consumers to deposit cash with a certified mobile money agent, who then converts the cash to electronic money that is stored on the phone. The consumer can pay bills, make purchases, transfer money to a family member or friend, receive money and perform a variety of other activities. If the consumer wants cash again, they simply visit the nearest mobile money agent to "cash out." 

This text-based offering has had tremendous success. Since its launch, M-PESA has reached more than 14 million customers in four countries, including nine million in Kenya, or approximately 40% of the adult Kenyan population. A few years ago, most rural Kenyans didn't have any financial services. Then M-PESA began offering bank accounts. Now Kenyans can transfer money from their M-PESA account into a formal savings account. The demand for financial services was there, lying dormant until mobile money provided the means to satisfy it.

Kenya taught us that even the most basic forms of mobile, like text messaging, can establish a foundation for financial services with the underbanked or unbanked. The quality of technology is no longer a barrier.  While the target for most text message-based mobile services is the unbanked in emerging markets, there are plenty of lessons from Kenya that can be applied to developed economies including the U.S. This idea of reverse innovation—where services that are created to meet needs in developing countries are repackaged as a low-cost service in developed countries—is happening with mobile technologies. The success in Kenya can be replicated in the U.S. and other developed countries by providing accessible, low-cost services through mobile devices. 

As Andrea O'Connor, customer experience executive and vice president of State Farm Bank, notes: "Mobile transcends demographics.  Mobile is about behavior. It's about accessing information and transacting business yourself at any time, wherever you are, whatever your age." 

More than two billion people worldwide do not have a bank account but have a mobile phone, making the device a direct conduit to a significant portion of the world's underbanked. With this extraordinary reach, the humble mobile phone has transformed into a ubiquitous data device with the potential to influence economic and social stability worldwide through expanded financial services and is opening up new markets for banks.

Quite simply, the barriers to addressing a significant new demographic have dropped, significantly and quickly, because of mobile. The point is not necessarily that every bank should change their target demographic, but rather that mobile technologies change how the current customer demographic engages with the bank, and potentially offer profitable paths for banks to engage with new customers.

Patrick Molineux is senior principal for strategic development for CSC's Financial Services Group, a financial services technology provider. More of his views on banking can be found at http://www.csc.com/lef/ds/84814-connected_consumer_and_the_future_of_financial_services.

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Comments (2)
But in the United States most community development advocacy groups want banks to open more branches in low and moderate income areas. To these misguided souls, a bank branch is the equivalent of a grocery store. In order for an area to have access to milk, there needs to be a place to buy it. Similarly, in order for there to be access to financial services, there must be a branch in the area for folks to access these services. It's almost as if they haven't heard about the Internet.
Posted by MessengerBoy | Friday, January 11 2013 at 6:30PM ET
This week I met with a local funeral home director client. The conversation turned to how many of his clients were paying in installments for family services. I asked about setting up payments via ACH. He told me that most of the families paid cash. As a Bank that offers free checking, I sensed an opportunity. The director told me that the customers did not want checking accounts due to the fact that most had debts with banks and other businesses and that an account could be garnished.
In other words being underbanked was a choice for these folks - not a limitation of the availablity of bank services.
Posted by Leton Harding | Saturday, January 12 2013 at 8:47AM ET
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