Mobile Payments Offer Opportunity to Reach the Unbanked

Effectively meeting the needs of the underbanked -- there are an estimated 40 million unbanked or underbanked consumers in the U.S. alone -- now can be added to the list of potential benefits related to mobile payments. Recent initiatives launched by Visa and m-Via demonstrate the opportunity for banks to reach a new customer base through mobile payments.

In November, San Francisco-based Visa launched a prepaid account targeted to underbanked customers in Africa, Asia and Latin America. The product allows users to access funds through a mobile phone for person-to-person payments, to send and receive international remittances, to make purchases at merchants or online where Visa is accepted, and to withdraw funds at Visa-branded ATMs.

Powered by Fundamo, a Cape Town, South Africa-based mobile money platform that operates in more than 40 developing markets and was acquired by Visa in June 2011, the product is being offered through MTN Mobile Money, a mobile payments service deployed by 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.

A 'Boom' in Prepaid Convenience

Around the same time that product was announced, Palo Alto, Calif.-based mobile payments company m-Via launched its Boom service, a person-to-person mobile payments service targeted to the underbanked. Boom members can use their mobile phones to make money transfers ranging from $5 to $1,000, as well as to make purchases and withdrawals at participating Boom merchants and ATMs. Boom prepaid accounts are issued through Weir, Kan.-based CBW Bank ($8 million in total assets), a wholesale merchant bank.

Given the booming prepaid card market -- the Network Branded Prepaid Card Association (Montvale, N.J.) forecasts that $118.5 billion will be loaded onto prepaid cards in 2012, up from just $18.3 billion in 2009 -- especially in underbanked areas of the world, ventures such as Boom have the potential to be extremely profitable for banks, suggests Rick Oglesby, a senior analyst at Boston-based Aite Group. Because wire transfers have seen success with underbanked customers, he adds, offering them more convenient and less costly ways of transferring money makes a lot of sense.

Boom is especially designed for migrant workers who rely on wire transfers to send money, according to m-Via. These individuals often pay more than $20 per cash wire transaction. In addition, recipients of wire transfers sometimes have to travel for hours to pick up remitted funds. M-Via says Boom aims to be a more convenient and cost-effective alternative. Members can load money, withdraw money and make purchases from their Boom accounts at m-Via's partners, including 7-Eleven, the Allpoint ATM Network, the Diconsa retail network in Mexico, and PayXchange. In total, these partners have in place 150,000 Boom-enabled ATMs throughout the U.S. and Mexico.

But while both the Visa and m-Via initiatives may represent the start of a trend on the supply side toward introducing mobile payment products for the unbanked and underbanked, it's too early to measure customer adoption of these products, says Oglesby. "Whether consumers take it up in great scale is something yet to be seen," he says. "The underbanked tend to be cash-driven; getting them to leverage these types of products can certainly be a challenge."

Bryan Yurcan is associate editor for Bank Systems and Technology. He has worked in various editorial capacities for newspapers and magazines for the past 8 years. After beginning his career as a municipal and courts reporter for daily newspapers in upstate New York, Bryan has ... View Full Bio