Saturday, May 18, 2013

Tech Companies Find Greenfield Opps In Underserved Markets

May 18, 2013
There is a common perception that unbanked and underbanked consumers (collectively, the "financially underserved")are poor. This may be the case in some countries (notably those in the developing world). But not in the U.S., where many choose to shun banks and credit unions for some but not all of their financial services needs.

The FDIC's defines an "underbanked" household is one where one or more member has a bank account but they also use prepaid debit cards. And according to new report, released this month by the Center for Financial Services Innovation (CFSI) and Core Innovation Capital, the underbanked market in the U.S. is sizable and robust, and made all the more attractive by an emerging market of financial services technology start ups.

"The underbanked market in the United States is currently estimated at $78 billion in annual revenue, serving 68 million consumers across 22 different financial product types," the two organizations stated in a press release.

The report, Financial Technology Trends in the Underbanked Market, highlights recent innovations in mobile technology, computing power, and data availability that are driving development of high-quality products and services for the underbanked. Morgan Stanley provided both strategic input and financial support for the report.

"The growing number and sophistication of companies point to the incredible opportunity presented by the underbanked market," said Arjan Schutte, Managing Partner at Core. 

The report (click here to download) IDs four key trends impacting the underbanked market, each illustrated with a real case study of companies that successfully leveraged these trends. Success comes with:
  1. Harnessing social networks;
  2. Solving the cash in/out problem;
  3. Leveraging big data for better risk management; and
  4. Scaling up to accommodate B2B2C (business to business to consumer) transactions
Making Cash Pay Easier in an Electronic World
Recently, while attending a payments conference, I witnessed a demonstration of an innovative "electronic" cash product that addresses #2. PayNearMe, is a cash transaction network consumers can use to pay for online purchases, bill payments and the like. Online shoppers and bill payers who have the option of using PayNearMe receive bar-coded receipts which they take to payment locations (such as thousands of 7-Eleven convenience stores) to be scanned and tender their cash. The company claims transactions on the network have been growing at rates in excess of 30% a month.

Danny Shader, PayNearMe's CEO, demonstrated a new smartphone-enabled bar code option for making cash payments the company developed. He said both Progreso Financiero, a provider of financial services to the Hispanic community, and Greyhound, the bus line, were already offering customers PayNearMe mobile.

Dave Leach, President and CEO at Greyhound, said that within days of adding the mobile option 20% of the company's PayNearMe payments were coming in that way. "Our passengers represent a wide cross-section of the public, but the one thing they have in common is their smartphones," he said.

"This is a service that every bank should provide," Shader said.

Monday, May 13, 2013

Understanding the Underbanked

"No sign" over bank cards in the shape of a house.

Atlanta-based FactorTrust is partnering with FICO, the credit scoring folks, to produce a new quarterly report on underbanked Americans  in hopes that it will lead to more and better credit decisions for the financially underserved.

FactorTrust collects and analyzes non-traditional data sources (e.g. prepaid debit card usage and social media) to help lenders assess the risk of lending to consumers who have thin credit files, or none at all. The FactorTrust Underbanked Index uses a variety of data sources and more than 100 million distinct transaction records covering all phases of the consumer credit life cycle, with real-time updates.The first quarterly report is due out this month.

"The demand for alternative financial services continues to grow as consumers look for instant, efficient and secure products that they haven't been able to get from traditional lenders," said Greg Rable, CEO at FactorTrust.

G20 Financial Inclusion Indicators

This is not just a U.S. problem. Worldwide, but especially in developing countries, financial inclusion has been an elusive goal.

Now a group of organizations affiliated with the World Bank has launched a Web site dedicated to Financial Inclusion Indicators. Endorsed by G20 leaders, the Web site is interactive and features basic data on financial inclusion in 192 countries.

The aim is to help countries get a handle on how well financial inclusion initiatives are doing in terms of access and usage. "Over time, new indicators that provide deeper coverage of all financial services and various delivery channels as well as measure of quality will be developed so as to provide a more complete picture of financial inclusion," the group said in a statement.

The Global Partnership for Financial Inclusion is behind the initiative; it's member roster includes CGAP (the Consultative Group to Assist the Poor) and the International Finance Corporation (IFC); both are affiliated with the World Bank.

You can learn more about the Financial Inclusion Indicators at the Partnership's Web site.