Archive for November, 2012

Applying Developing-Market Mobile Banking Models in the Developed World

November 27, 2012 in Uncategorized | Comments (0)

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A U.S. federal report released in September found that 8.2 percent of households in the country are unbanked. That’s nearly 10 million households, and 17 million adults. Another 20.4 percent are underbanked—or 24 million households, and 51 million adults. Those numbers add up to more than a quarter of the population of the U.S.

The percentage of both unbanked and underbanked has increased slightly since the last survey (conducted in 2009). Americans are also using alternative financial services more, including payday loans, check cashing, money orders, pawn shops, etc. Both increases are most likely due to the economic recession and resulting high unemployment rates.

Given that the recession is global, I’m guessing that if other countries were to conduct similar surveys, they would see similar results. And that has me thinking.

With mobile financial services bringing more people into the formal banking system in emerging markets around the world like South Africa, Mexico, Peru, Colombia, Pakistan, Sri Lanka, India, and Indonesia, etc., I’m wondering if the same models could be applied in developed markets.

Lack of access is often the major hurdle in emerging markets. Bank branches are few and far between. Roads are poor or nonexistent. Transportation options are slow (walking) and/or unreliable. That’s obviously not the issue in most of the developed world. In fact, the U.S. survey respondents cited insufficient funds, and the fact that they don’t need or want an account.

Prepaid debit cards and payroll cards are relatively new products. With a prepaid debit card, you load an amount of money on the card, and then use it for purchases at points of sale. Payroll cards are similar, but can receive payroll funds directly from employers. Neither card was considered an “alternative financial service” in this survey, but continue to be increasingly popular especially among the unbanked and underbanked.

Some banks are offering these cards now—and they’re smart. Everyone else is missing a market opportunity. The business model is similar to what we’re seeing work in emerging markets with simple accounts accepted by a wide range of merchants. More important, almost half (49.2 percent) of unbanked households that have used a prepaid card report being likely to open a bank account in the future.

Prepaid cards don’t build a credit history like secured credit cards do. That’s a drawback, for sure. They also have a myriad of fees. But they do help create financial literacy and a familiarity with credit that can be a step in the right direction.

As we move away from cash and toward mobile payments, I think we need to consider that those without bank accounts will get left even farther behind unless there are mobile services that meet their unique needs. There are sufficient numbers to create a real opportunity, and we have already seen such success with programs like Standard Bank’s AccessAccount in South Africa, which can be opened in less than 8 minutes via mobile at a local sales agent with no minimum balance and a low fee structure. Launched in March of this year, the bank reports opening 140,000 of these accounts every month.

Battle at the POS Heats Up

November 13, 2012 in Uncategorized | Comments (0)

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In September of this year, mobile payments provider Square announced that it had raised $200 million. Investors included, among others, Starbucks Coffee Company—a surprise for many in the mobile payments industry, as Starbucks has been so successful with its own app.

The press release about the funding includes some impressive numbers. Last fall (2011), Square had about 150 employees and processed about $1 billion in payments (annualized). This fall, it has over 400 employees and processes over $8 billion in payments (again, annualized). Talk about explosive growth.

Square pioneered a new point of sale (POS) by allowing small businesses and consumers to accept credit card payments via their mobile devices. Several Square-like equivalents have popped up lately, including PayPay Here, iZettle in Europe and Tortuga in Asia.

Now it’s clear that Square is onto something new. Its Pay With Square app allows consumers to pay for purchases by simply telling the cashier their name. GPS and a few apps cooperate behind the scenes to take care of the rest—no credit card swipe required. (See my earlier post for details.)

Square’s success is certainly helping to fuel the battle at the POS not only in terms of where the payment is taken, but also in the method of payment. Back in May, Visa and MasterCard both entered the ring in an effort to defend their long-established market dominance. Each launched its own “digital” wallet service—not “mobile” wallet, mind you. Yet.

Visa’s solution, called V.me, is made for online transactions. It stores your credit card, billing and shipping details, allowing you to pay for online purchases by providing only your V.me email address and password to the merchant. It’s not tap-and-pay, but it’s a start. And the company says it plans to introduce the mobile aspect soon via NFC, QR codes or other technology that would allow tap-and-pay, scan-and-pay or something similar.

MasterCard’s answer is PayPass Wallet, which expands on the PayPass brand that does currently offer tap-and-go NFC payments (i.e. Google Wallet). The new addition, PayPass Wallet, is also geared toward online purchases, storing the necessary card, shipping and billing details and allowing you to check out faster, though via a special button on the websites of participating merchants (or in their mobile apps). And like Visa, MasterCard says it has plans to roll out to points of sale at some point in the future, but offers no specifics regarding timeframe or technology.

POS rookie Google Wallet continues to march on, working out the kinks, adding more credit cards, and steadily signing up merchants and users. One stumbling block continues to be the small range of compatible consumer devices. Isis, the NFC mobile payment joint venture between AT&T, Verizon and T-Mobile, just launched its pilots in Salt Lake City and Austin in October.

It’s an interesting battle to watch, and not only because of the different companies vying for control. Technology is developing so fast that NFC may already be yesterday’s news. We’re clearly still in the learning phase, with each solution providing valuable lessons for the next. Offerings are also moving from payment only to payment + additional value. And I think that “additional value” is the key to making mobile payments work. Check back soon for my follow-up post about how QR codes are entering the fray and may give NFC a run for it’s money.