The unbanked and underbanked are a growing and increasingly lucrative potential market for financial institutions both globally and in the United States. But banks have to do more than just recognize this is an untapped market; they need to tailor products and services specifically to the unique needs of the customer segment.
Yet in many parts of the world, including Africa, telecommunications companies already have begun to target these groups. While many of these initiatives include financial services partnerships, banks still must be vigilant in protecting their position as the primary trusted service provider as they seek to penetrate the unbanked market. The reward is not just the sale of a single product, but rather an opportunity to turn a consumer with no financial services relationship into a lifelong customer.
According to statistics from the Federal Deposit Insurance Corp., about 25 percent of the U.S. population is unbanked or underbanked. Globally, there are no exact figures, but several estimates suggest that as much as 70 percent of the world's population has limited or no access to financial services.
One common misconception of the unbanked is that they are not tech-savvy, when in fact the opposite is true, says Mary Monahan, EVP and director of mobile research for Pleasanton, Calif.-based Javelin Strategy & Research. According to Monahan, the majority of the unbanked and underbanked own cell phones of some kind, and nearly half are just as likely to own a smartphone as a banked consumer. Monahan adds that they are less likely to own a computer, thus making mobile "a really good way to reach this population."
The underbanked also are frequent users of prepaid cards, Monahan notes, which makes them ideal consumers of mobile banking products tied to a prepaid account. She adds that mobile remote deposit capture and mobile peer-to-peer money transfer services also are highly appreciated services among the underbanked.
A Two-Way Street
South Africa-based First National Bank has built successful relationships with the underbanked by offering some of those services through its eWallet services, says Yolande Van Wyk, CEO of eWallet solutions for the bank. Launched in 2009, the eWallet product -- which allows customers to use their mobile phones to send and receive money, buy prepaid airtime, and purchase goods and services online -- has more than 700,000 users.
FNB recently partnered with South African retailer Pep on an initiative that allows customers to use the eWallet solution to shop at Pep stores, even if they don't have a First National account. "The eWallet is essentially a payment tool; it allows customers to remit money to others, pay bills, pay into bank accounts, as well as purchase airtime and goods," says Van Wyk
"It already offers a full suite of transactional functionality unbanked individuals do not have access to in a pure cash world," she continues. "Once some customers become familiar and confident with the eWallet transactions, evolving into a full bank account is a next step. It is crucial that individuals are given the correct products, that suit their income levels and personal circumstances."
Van Wyk notes that the propensity for the underbanked to use only cash and their unfamiliarity with financial services makes it that much more critical for banks to offer services tailored to the market's needs. "It is a two-way street," she says. "The banks have to offer access to the right products and access mechanisms, but customers also need to adopt it, trust it and use it."
Here Come the Telecoms
Despite the opportunity that exists for banks, in Africa and other regions where a large percentage of the population is underbanked, telecommunications companies have been the first to offer mobile-based financial services targeted to the segment. Some are collaborations between financial institutions and telecommunications companies, such as San Francisco-based Visa's prepaid account targeted to underbanked customers in Africa, Asia and Latin America.
Powered by Fundamo, a Cape Town, South Africa-based mobile money platform that operates in more than 40 developing markets (it was acquired by Visa in June 2011), the product is being offered through MTN Mobile Money, a mobile payments service from Johannesburg, South Africa-based MTN Group, a telecommunications provider in Africa and the Middle East. MTN Mobile Money's 5.7 million registered customers in 12 countries have access to the Visa product.
But other mobile carrier initiatives are less financial institution-friendly. M-PESA is a highly successful mobile phone-based money transfer venture launched in 2003 by telecommunications operator Safaricom, an affiliate of U.K.-based Vodafone.
M-PESA is "almost disintermediating the banks," according to Randall Barker, director of channel strategy and solutions for Falls Church, Va.-based CSC. He says banks must go "head-to-head" with nonbank entities like M-PESA and PayPal, offering products that specifically serve the underbanked market.