June 14, 2012 |
With some of today’s big announcements at the 7th Annual Underbanked Financial Services Forum, it’s clear that the underbanked are on FIs’ minds. So why is it that banks and the underbanked are on such uncertain terms? Is it something banks aren’t doing? Is it that banks don’t listen? Are the underbanked getting their financial needs met elsewhere? Are they getting them met at all? Javelin’s recent report, “Reaching Underbanked and Unbanked Consumers in 2012: Strategies for Connecting with Mobile Financial Services” explores the answers to these questions. By focusing on the underbanked consumer’s needs and characteristics, financial institutions can engage in a mutually beneficial relationship.
First and foremost, there’s the issue of money keeping underbanked under-banked. They just don’t have the funds to maintain an extravagant banking relationship; their income is lower and their budget is tight. In the US, underbanked consumers use cash to transact, followed far behind by prepaid. But transacting with cash is costly to the system – and to the underbanked consumer. They have to pay high fees at the check cashers. There are no safeguards if cash is lost or stolen and it’s difficult or impossible to buy on the web.
So what are the options? Mobile financial services can be revolutionary for the underbanked. Suddenly, they can make a deposit to a mobile prepaid account by using the camera on their smartphone. They can use their smartphone to pay their bills. They can send money to a relative using mobile P2P. They can buy goods on the mobile web.
The underbanked are much less likely than all mobile consumers to own computers and broadband connections; the two elements necessary for a robust online banking experience. But they are much more likely to own feature phones and just as likely to own smartphones as all mobile consumers. They don’t have card habits to change, and they like mobile banking. And finally, there is a large group of core underbanked consumers who are young and tech-savvy, which suggests a high income potential for this specific segment of the underbanked. Neglecting to form a long-term relationship with this group carries a considerable opportunity cost.