Obopay Hits a Target It Didn't Sight: The Unbanked

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Obopay Inc. says its person-to-person mobile phone payment system has become an unexpected hit among the underbanked.

Though its marketing has focused on young people, whose phones are often a critical link to their social circle, Obopay has discovered that phones are equally important to people without bank accounts, who are just as keen on turning their mobile devices into payment tools.

Carol Realini, Obopay's chief executive, said that when it introduced its namesake payment system in April of last year, "we only targeted the social money," the funds that change hands to settle debts among friends. "We were very specific."

About a quarter of its users fall into this category, she said.

However, another quarter are underbanked, and many of these people use the Obopay system as a prepaid payroll card by funding their Obopay accounts through direct deposit from their employers. "Maybe this is their only bank account," Ms. Realini said.

The use of its product by the underbanked should not come as a complete surprise. Company lore holds that the concept came to Ms. Realini while she was doing volunteer work in Africa, where she noticed that many people carried mobile phones but not wallets.

The centerpiece of Obopay's system is a reloadable account tied to a MasterCard Inc. debit card. Users can make purchases with the card and authorize person-to-person transfers to one another with their phones, either with standard text messages or with specialized software that can be downloaded to some phones.

People can fund their accounts by transferring funds from a bank account, by taking cash to a merchant that offers Obopay reload services, or through direct deposit.

Though the Redwood City, Calif., company was explicitly aiming at a different market, all these capabilities make it appealing to the underbanked as well, Ms. Realini said. "The Obopay service is really designed to meet the needs of that person," she said. "This is a great service for people to reach out to youth and the underbanked."

Ms. Realini would not say how many people use Obopay's service. The remaining half of its users are divided about evenly between family members sending funds to each other and small businesses.

Penny Gillespie, the president of the advisory firm Gillespie International Inc. in Centreville, Va., said Obopay seems to have found a way to provide financial services to the underbanked using a strategy that is the complete opposite of what banks have tried.

Banks typically push payroll cards through employers. By going through the employee, "it's a back-door entry for Obopay to reach the market," Ms. Gillespie said. "It's a multifront attack on the segments that have not been … cared about by PayPal or the banks."

Banks will not be able to emulate Obopay's strategy, she said, because they do not share its connection to a host of mobile phone carriers.

"I'm willing to bet a large portion of the unbanked have mobile phones," Ms. Gillespie said. "Banks don't have easy access to the unbanked, whereas the mobile carriers do."

Banks that wish to compete with Obopay, she said, "are competing with the mobile phone, not a prepaid payroll card."

Red Gillen, a senior banking analyst for the Boston market research firm Celent LLC, said the limited options for people to exchange money electronically through their banks also works to Obopay's advantage. "The problem in the U.S. is that banks don't talk to each other," he said. Obopay is succeeding because it can "leverage this weakness in the U.S. banking system."

He said that Obopay should consider focusing on the unbanked rather than the youth market. "They're kind of off mark with" person-to-person payments "between banked individuals," he said. "I'm not quite sure, with social P-to-P, how big a market that really is."

Though Obopay can function as an alternative to banks, Ms. Realini said it wants to complement traditional financial services and not try to compete against them. In fact, Citigroup Inc. recently began a test of Obopay with its customers in Boston and Chicago.

In that test, Citi is segregating the balances in users' Obopay accounts from their Citi accounts.

This separation could help Citi convert underbanked Obopay users into Citi customers, Mr. Gillen said. "You could go to a Citi branch, pay cash, and reload your Obopay account," he said. That would be a way to get the unbanked into branches and pique their interest in other banking services, he said.

Dave Johnson, Obopay's chief financial officer, echoed this. "We think that we can provide payment services to the unbanked and, perhaps in partnerships with banks, upsell these people into banking relationships."

Despite its success with the underbanked, Obopay is trying to boost its use among young people, still its main target market. It plans a late-August launch of a tool to allow online, peer-to-peer payments that could be used, for example, by bloggers asking for donations to support the creation of their content.

"Marketplaces are evolving or emerging in this category," said Irv Henderson, Obopay's vice president of product management. "We're building out the ecosystem.

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