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:
- Harnessing social networks;
- Solving the cash in/out problem;
- Leveraging big data for better risk management; and
- Scaling up to accommodate B2B2C (business to business to consumer) transactions
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.