Mobile Banking--Is it for the Un- and Underbanked?

Mobile bankingIn the search for new creative ways to expand access to banking among the un- and underbanked, the idea of mobile banking has generated momentum among asset building advocates.  

Currently 34 million Americans are either unbanked or underbanked constituting more than one in four (28.3%) of households. Consumers who are “unbanked” do not have a checking or savings account, while those who are “underbanked” may have a checking or savings account but rely primarily on alternative financial services for their financial needs. Unbanked and underbanked Americans pay a high price for not being banked—they pay high fees to cash checks and are unable to earn interest on savings, develop credit, or obtain loans from mainstream financial institutions. This population is forced to use expensive alternative financial service products such as payday loans, refund anticipation checks, check cashiers, and auto title loans.

Yet this population does have cell phones. Approximately 83% of U.S. adults have mobile phones; last month, a new report indicated that by 2013 smartphones will account for half of the mobile phone market. While mobile phone penetration is less in lower income levels, nearly 75% of U.S. adults in households earning less than $20,000 a year have a mobile phone, and 20% have a smartphone. Among individuals who are unbanked, 65% have access to a mobile phone, and 91% of the underbanked have a mobile phone. Thus, mobile banking has taken on a new urgency in the U.S.

In fact, over the last five years, mobile banking options offered by large banks and other companies have proliferated. In general, electronic or mobile banking refers to a broad spectrum of services and products that are delivered electronically. Often a distinction is made between “mobile banking,” which refers to using a mobile phone to access a bank account, credit card account, or other financial account, and “mobile payments,” which refers to any type of payment made using a mobile phone including purchases and bill payments

Currently 92% of the top twenty-five banks in the United States offer mobile banking services.  Under the bank-based model, established banks offer mobile banking as another way for existing customers to access their accounts. The most frequent services used by bank-based mobile banking customers were checking financial account balances or transaction inquiries (90%), followed by transferring money between accounts (2%), or receiving text alerts from banks (33%). Unfortunately, since these uses are tied to an already existing account, this type of mobile banking does nothing to help bank the un- and underbanked.

Linking existing programs and strategies to bank the unbanked to mobile access technologies would yield increased opportunities for reaching the unbanked and underbanked. For example, Bank On programs, which are available in many cities and states across the country, offer low- or no-cost bank accounts to individuals who are unbanked as an incentive to bring them into the financial mainstream. Offering Bank On USA accounts through mobile phones could significantly reduce the number of unbanked and underbanked Americans.

The growth in digital technology and the use of technological advancements to expand banking options will continue to expand access to the financial mainstream. However, unless special care is taken to make sure that such access is also available to the un- and underbanked, this technology could potentially create an even greater divide between the banked and the unbanked, thereby decreasing opportunities for financial security among the un- and underbanked.

To learn more about mobile banking and its implications for low-income and un/underbanked communities view our webinar and read our law review article.

This post was coauthored by Alex Hoffman.

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