Underbanked Are Key to Mobile Wallet Success

NEW YORK (MainStreet) -- A leading bill-payment processor has a unique idea - a mobile wallet for the "underbanked."

Here's the deal, and yes, mobile bill payments figure strongly into the equation. Economists define the underbanked as consumers who can’t or won’t use traditional banks to safeguard their money.

But what the underbank population will do is use cellphones and smartphones to make financial transactions. A 2012 study from the Federal Reserve bears that sentiment out. The Federal Reserve’s Division of Community Affairs says that 91% of underbanked consumers have a mobile phone and 57% have a smartphone. That’s greater than the 87% of the general population who have a mobile phone and 44% who use a smartphone.

The underbanked have also shown a propensity to use prepaid cards, which have a strong link to credit card companies and banks (who are the primary distributors of such cards).

Data from Javelin Strategy & Research shows that one in six underbanked consumers own a prepaid card, which are coming on strong in a technology sense, says Javelin. This from the study:

The use of prepaid cards has increased, while ownership of other traditional financial products –including checking accounts, savings accounts, credit cards, and debit cards – has noticeably decreased. The growth of prepaid products has been propelled by a flurry of innovative features such as advanced online and mobile account management, rewards programs, and credit history development. Financial institutions can leverage prepaid cards to establish relationships with young and underbanked consumers, transforming them into loyal customers who can become more profitable as they engage with additional banking products such as checking accounts, credit cards, and loans.

Some financial services are trying to pull all the elements underbanked users want in a banking experience into one easy-to-use mobile phone device.

Take New York-based TIO Networks, a bill payment processor. The company recently released its TIO Wallet, which the company says is “designed to help the estimated 60 million Americans who have limited access to mainstream financial products.”

TIO says consumers can “open up” their mobile wallets through one of TIO’s “expansive retail network of self-service kiosks” or at over-the-counter locations. When users are up and running, they can use the mobile wallet to make bill payments and monitor bills and payments even if they don’t have a bank account. Consumer can load money into the wallet via a cloud-based mobile platform, straight from their cell phone.

TIO chief executive officer Hamed Shahbazi says that the underbanked represent a huge market – TIO made $1 billion transactions last year for that demographic, Shahbazi says.