Mobile Money for the Unbanked

Mobile Money for the Unbanked Presented by: Ingrid Sturgis, SNCR Fellow, Howard University 7th Annual SNCR Research Symposium November 8-9, Stanford Park Hotel www.sncr.org

Background  2009 article in the Economist  How to monetize the black press.  Incorporated in a proposal for News Entrepreneur Boot Camp at U.C. Berkeley  Topic: Sustainability of the press  The trainers: Regulatory and security issues?  How will mobile transform communications and communities in unexpected and unintended ways?

How does MM work?  Customers deposit funds by giving cash to agents who credit the accounts using a special text-messaging system.  Subscribers can make payments from their accounts to retailers or transfer money to others.  Subscribers can withdraw cash from any agent in the system.

Brief History  Began about 10 years ago to purchased airtime minutes to exchange for cash; used text messages to send  In Kenya -- 13 million low income, rural Kenyans use M-Pesa as primary means of transactions  In 2007, pilot co-funded by Vodafone and the International Development Challenge Fund, Safaricom (the Kenyan Vodafone affiliate) launched M-PESA, a mobile-based payment service.  Within first year, 111,000 people registered. Year later, 1.6 million registered users and a network of 1,200 agents  By August 2010, M-PESA had registered about 20,000 agents and nearly 13 million subscribers – larger than Western Union

Impact  Revolutionized local economies in Africa and Asia  Alternative methods to buy and sell, send remittances  Use inexpensive, low-tech cell phones  Still relatively expensive

Why do the research?  Expand the literature on communications technology   Add to information about factors that contribute to the adoption of new technology by African Americans   Build information about how new communications technology contributes to local entrepreneurship   How low income people can use new tech to support families, communities and institutions   Models of sustainable development. Useful to policy makers and funding sources   Monetizing content, developments in mobile news platforms

Who are unbanked?  People impacted by severe recession  One in four U.S. households, or 28.3%, are either unbanked or underbanked  8.2% of U.S. households, or nearly 10 million, lack a bank account  Up from 7.7%, or about 9 million households, in 2009.

Who are unbanked?  8.2% of all households dont have   21% of blacks are unbanked a checking account or a primary banking relationship   22% of foreign-born non-citizens  Minority (Black, Latino)   23% of households with unemployed members  Unemployed   28% of households earning less  Young than $15,000.  Lower-income households

Who are underbanked?  Less likely to own computers and broadband connections  More likely to own smartphones  Have bank accounts but use alternative ways of getting cash  20.1%, or 24 million, U.S. households  Up from 18.2% in 2009  Average income $52,000  18-24, young, first time workers  Unemployed  Black, Latino

Why no bank account? If youre poor and dont have a steady  " income and arent able to keep a high balance in a bank account, you might feel youre saving money by not paying a monthly fee, since it might be just one fee at the check-cashing store.”

Why no bank account?  Didn’t need or want an account  Didnt trust banks  High bounced check fees  High minimum balance requirements  Denied accounts because of ID issues or bad bank track records

Alternatives  Subprime credit cards (39.4% of the market)  Prepaid cards (21.8% of the market)  Payday loans (32.4% of the market)  Pawnshops  Check-cashing services (Wells Fargo invested in MoneyMart)  Check-cashing fees =$1,000 a year  Interest rates for payday loans as high as 425 percent

Cost of being unbanked  Cannot rent a car  Cannot buy plane tickets online  Cannot get a mortgage  Vulnerable to theft and losses  Cannot build credit history  Cannot access credit  Cannot save for emergency and long-term security needs

Size of market  Unbankedconsumers are $78 billion market, an increase of 7% over 2010.

Who’s interested  Biggest players: Paypal mobile payments; Obopay global mobile payments company; Western Union  MasterCard suite of advanced mobile and payment options that include: SMS/pay by text, mobile compatible payment sites and eBills  Merchant Customer Exchange = Wal-Mart, Target, 7-11 and Best Buy  Bluebird = Wal-Mart and American Express  Google Wallet  Mopay – charged to phone bill  Cell phone providers

Mobile banking -- “killerapp” for next generation of mobile technology -- German mobile operator Mobilcom

Mobile transactions toexceed $1 trillion by 2014 -- Yankee Group

Person-to-person paymentshuge unexploited market in U.S. -- Samee Zafar, director at Edgar Dunn, payments industry expert

Why go mobile?  5 billion mobile users  Only 1.5 billion have access to banking services  In the U.S., African-Americans leapfrogged from the desktop to mobile phones  292 million people using mobile phones in the U.S  Usage to exceed PC Internet access  Mobile phones outnumber ATMs

Alternatives to banksHarvard Business Review: Do you have bank account may not be the right question to ask low-income financial consumers Instead: Is there access to low-cost, predictable, reliable services?

Focus of research  In U.S., number of foreign-born blacks tripled from 125,000 to 2.8M over three decades  About two-thirds from the Caribbean (Jamaica, Haiti) and Latin America  One-third from Africa  Haitians—the second-largest Caribbean group   85 percent have mobile phones   Few hold bank accounts   2010 earthquake: Red Cross received $5 million in $10 text messages

Focus of research  Young blacks as early adapters (use technology in unintended ways)  African-Americans use cell phones at a greater rate (Pew)  Minorities send more text messages

Research questionsWhat are the challenges and likely effects of implementing mobilebanking among low-income African Americans without bank accounts inthe United State? R1:Has the U.S. banking crisis created a level of consumer distrustthat opens the door to alternative means of transactions such as mobilebanking among those without current services? R2: Does the high cost of maintaining a bank account create anopportunity for low-cost alternatives like mobile money?

Research questions  R3: What regulatory issues need to be resolved to implement mobile money?  R4: What investment incentives could lead to development of mobile banking?  Survey link: http://sncr.us.qualtrics.com/SE/ ?SID=SV_cIx5yYkYBVCDY32

Addressing needsTreasury Dept. looking at options/alternatives for low-income consumers The MyMoneyAppUp Challenge by the Treasury Dept. in partnershipwith the D2D Fund and Center for Financial Services Innovation,  HelpAmericans control and shape their financial futures. Challengecalls for mobile app ideas (IdeaBank) and designs (App Design), Incorporate data to empower consumers, as part of Treasury’s initiativeto promote Smart Disclosure.

Thank you!For more information, contact me at ingridsturgis@hotmail.com Twitter: isturgis http://www.facebook.com/isturgis isturgis@howard.edu Visit http://sncr.org

Mobile Money for the Unbanked

by Society for New Communications Research (SNCR) on Nov 13, 2012

Accessibility

Categories

Upload Details

Usage Rights

Statistics