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Unbanked banking on mobile: From Kitwe to ClevelandBy
Africa has become a technology poster child for wireless carriers, retailers and financial institutions that are trying to derisk banking for the poor. But can mobile business models and banking solutions from Africa be transported to main street North America, where there are approximately 60 million people unbanked or under banked?
Not if the banks have any say. As one banking colleague explained to me, “there is often a reason why the under banked are under banked.” For the financial institutions it requires a considerable amount of effort to reach and service this population without a robust business case.
However, can Africa provide a build a new business case for North America? Is there an opportunity to provide a viable light-banking footprint that services the cash needs of the poorer communities leveraging their mobile phone?
These questions are particularly interesting for me as I was born in a small mining town in central Africa called Kitwe.
I remember opening my first bank account at the Buteko Branch of the Standard Chartered Bank in Zambia. Banking for the small banked minority was a cumbersome process. Account holders needed to line up for hours simply to get their bank statement.
Most Zambian’s, however, do not have a bank account. The currency that ties Zambian’s together is not their cow-hide wallets but more universally their airtime account. Over one third of the population has a mobile phone in their pocket.
With the ubiquity of mobile phones in Zambia and other countries in the region, services such as mPesa and Xapit have made certain financial services accessible, fluid and dramatically dropped the transaction costs.
They have been successful because they do not focus on mobilizing traditional banking services but rather providing a new type of financial service to the unbanked.
Key services are not bank balance management as we see in mobile applications on our Android and iPhone but mobile-cash services such as:
•Peer-to-peer money transfers
•Airtime Top ups
We know that the phone is becoming the wallet of choice for the unbanked in the region. The GSM Association says that by 2012, nearly 300 million of the previously unbanked in Africa will be using some form of mobile banking (http://hbswk.hbs.edu/item/6729.html).
So, no different back home?
Some may be surprised to find out that approximately 8 percent of U.S. households are unbanked which adds up to 17 million folks.
In addition to the unbanked households, another approximately 18 percent of U.S. households are under banked (people who rely on pawn brokers, loan sharks) which is a further 43 million people.
According to this 2009 Federal Deposit Insurance Corporation (FDIC) survey, roughly 60 million America’s need to use cash to pay bills (http://www.fdic.gov/householdsurvey/executive_summary.pdf).
According to a report by the The Annie E. Casey Foundation, this demographic is young, minority, poorly educated, and extremely low-income (http://www.aecf.org/upload/publicationfiles/rf2022k560.pdf).
Four out of ﬁve of these families make less than $25,000 a year, and two out of ﬁve families have annual incomes of less than $10,000.
Not only is it hard to believe that a family in North America can subsist on 10,000 per year, ironically there is an additional cost to being this poor: a hidden poverty “tax.” The fees this underserviced group pay on borrowing money, cashing a check and paying bills are inordinately high.
A check casher can demand 5 percent or more of the meager paycheck (5 percent of $25,000 is $1,250 per annum). Then add the added penalty of the time that is needed and wasted physically walking around town to pay for utilities or phone bill.
While mobile wallets can reduce these fees and save valuable time.
However, as I argue in my book “The Impulse Economy” foreign mobile models cannot be wholesalely imported. There are different environmental factors globally that determine whether or not it makes sense for a domestic market. Let’s look at two African wallets:
1.Bank M-Wallet: WIZZIT, was developed in partnership with a major bank in South Africa. It provided standard banking services: bank balance and bank statement. This has not been widely successful as it is not servicing the needs of the existing unbanked community.
2.Cash M-Wallet: M-PESA, was not launched by a bank. It was an initiative started by the mobile network operator Safaricom (in conjunction with Vodafone) has been extremely successful as it displaced Kenyans’ standard practice of carrying and paying with cash.
So it seems the unbanked wallet does not necessarily involve the bank. Put banking-as-usual service (account management, interbanking transfer, statement), to the side, can we provide cashless, light-banking wallet, needed mobile-enabled retail service such as:
•International Money Transfers (Moneymart, Walmart)
•Airtime Top up (Sprint, AT&T)
•Basic Bill Payments (Utilities)
•Storing Benefit Payments (Welfare, Medical)
•Possibly retail micro-transactions (Coke, Gas)
Bringing mobile cash to the mass?
Who then is motivated to champion these services?
1.Stored Value Vendors
The post-recession, stored value card is one fastest growing products in the financial industry. Gift cards, prepaid telephone card, and open-loop goods or services with a prepaid debit card all use a stored value card network. Vanilla Visa is a perfect example of a successful open-loop stored value card.
According to NFCrumors.com CorFire (a mobile secure credentials and wallet company) and InComm (a retail prepaid authentication network) are working to provide white-labeled wallets to merchants. There is no question that if retailers don’t proactively support their own wallet, they will be disintermediated by ISIS and Google.
It is inevitable that these services will move into the mobile wallet managed by the same folk who brought you plastic stored value. Walmart for example cashes government and printed payroll checks for the discounted price of $3.
The retailer has expanded services to reloadable, prepaid Visa debit card that does not require a bank account or proof of U.S. citizenship. Virtual or mobile service would expand this further. Look to this retailer to become a big player in mobile banking among the unbanked and unhappily banked.
2.Money Transfer Agents
Money transfer is another huge business opportunity for the unbanked market. Each year, millions of migrant workers transfer hundreds of billions of dollars globally, often paying more than $20 per cash wire transaction with recipients having to travel for hours to pick up remitted funds.
Unbanked money transfer is hefty global business. According to Jason DeParle of The New York Times, more than $300 billion is sent home every year which is three times the total foreign aid internationally.
Companies such as First Data Corp.’s Western Union Financial Services Inc. and MoneyGram International Inc. handle most of the estimated $25 billion a year sent between the United States and Mexico. Banks account for only about 5 percent of that amount.
Emida has developed a mobile wallet called “Cash and Transact” (CAT) that offers cash checking, bill pay and remittance from the phone at or near market rates that has spurred early adoption.
The carriers (that have to date focused on the banked with their ISIS mobile wallet initiative) know that 15 percent of their prepaid top-up accounts are eaten by in-market service providers. The carriers would like a banking wallet relationship with the unbanked to allow for direct top up.
Joint ventures such as clearXchange, which is a Bank of America, JPMorgan Chase and Wells Fargo initiative launched earlier this year allows the banked to move money using a mobile number however this is predicated on an existing banking relationship.
This service is simple but establishing the banking relationship involves considerable complexity for an unbanked person.
5.The Federal Reserve Bank
And of course the key motivated party is the government.
Getting a citizen into a light-banking mobile wallet will help them avoid the fees and build and protect their wealth.
According to the Federal Reserve Bank publication in December 2010 titled Reaching the Unbanked and Under banked states that presently the “Unbanked consumers spend approximately 2.5 to 3 percent of a government benefits check and between 4 percent and 5 percent of payroll check just to cash them.”
Over the next year, much of the focus will be on the NFC-enabled mobile wallet promoted by Google and ISIS. However, the North American market has an opportunity to develop a viable business model for the forgotten 20 percent.
While we wait for retailers and handset manufacturers to move the shopper into contactless wallets, there are many motivated stakeholders ready to service the bankless.
Prepaid services are increasingly popular.
There are global models ready to emulate.
And, while financial institution needs to be in the value chain, it is more likely the carrier, payment vendors, money transfer vendors and government which will innovate in this sector and take the lead in emancipating 60 million hard working Americans by creating and promoting a light-weight cash-focused mobile wallet.
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