Slide 1

CFSI - Center for Financial Services Innovation
An Affiliate of ShoreBank Corporation

Mobile Opportunities: New Customers and the Underbanked

FRB Mobile Payments Forum
Jennifer Tescher, Director
February 23, 2010

Copyright CFSI, 2010. Not for distribution

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What CFSI Does: A Crash Course

CFSI is transforming the financial services marketplace in America to better serve underbanked consumers and help them achieve financial prosperity.

Our Work

Inform: We develop “on-the-ground” market and consumer intelligence to spur innovation, providing thought leadership, insight and actionable information.

Connect: We help build new cross-sector relationships with top leaders and changemakers through our industry roundtables, conferences and other events.

Invest: We find, seed and nurture leading ideas and innovation with funding, advice and connections.

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Underbanked Opportunity: Large Target Market

FDIC survey confirms CFSI finding that 21 million households are underbanked; FDIC identifies 9 million unbanked households

Pie Chart Image
8 percent - Unbanked (9 million)
18 percent - Underbanked (21 million)
74 percent - Banked (88 million)
Total unbanked and underbanked (Percentage of U.S. Households): 26 pecent*
*Source: FDIC Return to text

When comparing CFSI’s findings for unbanked and underbanked individuals with the FDIC’s, the disparity is larger, likely due to methodology (FDIC surveyed households by phone only, CFSI surveyed by mail and phone):
- CFSI: 52 million unbanked, 55 million underbanked
- FDIC: 17 million unbanked, 43 million underbanked

CFSI and four sponsors commissioned Experian Simmons for national segmentation analysis of underbanked consumers’ attitudes, behaviors, preferences, needs and experiences. Goals of the study:
-Help financial services industry deliver relevant messaging and improve acquisition efforts, marketing, and product development activities
-Equip study sponsors to be 'knowledgeable champions' in promoting efforts around underbanked populations
-Telephone and mail survey

Designed jointly by CFSI, Experian Simmons, and sponsors
- January-March of 2008
- English and Spanish
- 2,799 underbanked respondents
- Underbanked universe
  - No current checking account and no current savings account (Unbanked)
  - Current checking and/or savings accounts, and one or more nonbank financial transactions in the past 30 days (Underbanked)
- Weighted to U.S. adult (18+) population
- Factor and cluster analysis driven by behavior and attitude data

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Mobile Banking and the Underbanked

In the U.S., mobile penetration is high and growing

While online banking usage is skewed by factors such as income, education, and race, mobile phone usage is consistently high among all demographic and socioeconomic groups

The underbanked are uniquely positioned to benefit from mobile financial services

The CDC has found that the number of households with only a cell phone is consistent across income groups.
- Among all U.S. households, 23 percent have only cell phones (and no land line; 2009), compared with 11 percent in 2006
- Among the poor, 33 percent of households are wireless only vs. 16 percent in 2006

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Mobile Banking and the Underbanked

The Underbanked demand Control, Convenience, and Reliability from financial services; these demands can be met through mobile banking services

  Consumer Need Mobile Solution
Control Underbanked consumers need to manage cash flow day-to-day, in real time Most popular mobile services are balance management, deposit alerts
Convenience 64% of underbanked rate location "extremely important" when choosing a financial institution* Mobile services provide easy access to accounts any time, anywhere
Reliability Underbanked place high value on fee transparency and transaction security Mobile services help users avoid overdraft fees by providing instantaneous feedback

*Source: CFSI Underbanked Consumer Study 2008 Return to table

The last two slides demonstrate mistrust and fear about the lack of transparency in checking/savings accounts; mobile addresses these concerns

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Mobile Financial Services for the Underbanked

Several mobile applications are equipped to address tangible needs for the underbanked.

Notes: Customer communication:
- Study conducted by a team of economists including Jonathan Zinman and Dean Karlan
- Worked with banks in Bolivia, Peru, Philippines
- Text message reminders to deposit money into accounts to work toward savings goals
- Various messages and language
- Savings rate increased 6%

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International Lessions

International examples demonstrate successful mobile implementation for financially underserved consumers

Important differences between these markets and the U.S. make some comparisons difficult.

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International Lessons

Kenya: Safaricom’s M-Pesa

South Africa: WIZZIT

*Source: CGAP. Mobile operator-centric payment schemes Return to text

What makes global mobile exciting is NEW ACCESS – not just yet another channel for existing customer. The phone can actually be used to OPEN new accounts, enroll new customers, and then fully access the account. The phone is packaged with a prepaid card to provide cash access.

Wizzit is of particular interest because of its marketing – Wizz Kids – cadre of young kids who are stationed in booths in the townships to sign people up and help them learn how to use the service – guerrilla style marketing; kids get commission

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Mobile Innovators in the U. S.

MVIA (Mobile Money)image

Trumpet Mobile Image

- Company started about 2 years ago with goal of providing transactional services to the unbanked
- Launched the remittance service about 5 months ago and now in 100s of stores
- Finding that customers are remitting smaller amounts, since they can conduct unlimited remittances with the subscription model
- Average remitter conducts 3-4 remittances per month vs. one every six months for most remittance companies (according to mVia)

- Owned by Affinity Mobile
- Through partnership with Western Union, can remit funds abroad through cell phone
- Individual and Family mobile plans available
- Trumpet has partnership with Sprint, so mobile access is through Sprint network

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Consumer-centric challenges:

Industry-centric challenges:

- Education/information is needed to help the underbanked (and all consumers, really) understand the service offering and know how to use it. Necessary for the underbanked in particular, as they may be less comfortable with the banking system generally.

- Trust issues – using mobile financial services necessitates entry into a banking system, which underbanked consumers may be purposely avoiding by dealing in cash

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Paradigm Changers/Creators in Other Areas

Personal Financial Management
Group of Personal Financial Management Images such as:

Online Brokerage Firms
Online Brokerage Firms Images:

Alternative payment Channels
Alternative payment Channels Images:

Prepaid Images:

It may take a third-party provider to jump ahead of banks and telecoms and create a new paradigm for mobile financial services

It may take some third-party provider to jump ahead of banks and telecoms and create a new paradigm for mobile financial services.

- Online brokerages enabling day trading for anyone
- Entry of personal financial management programs
- Alternative payment channels such as Paypal
- Innovators in prepaid have found a way to meet the underbanked halfway

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CFSI - Center for Financial Services Innovation
An Affiliate of ShoreBank Corporation

Jennifer Tescher, Director

The Center for Financial Services Innovation
A Nonprofit Affiliate of ShoreBank Corporation
2230 S. Michigan Ave., Suite 200
Chicago, IL 60616