October 30, 2013

The 'UnderBanked' Are Connected

By Hisham Isa, Vice President (Marketing)

At a time when mobile phones are becoming more and more intricately linked with our lives, across all sectors of society, the mobile industry is driving Financial Inclusion, providing consumers who have been left out of the financial system with new ways to pay bills, buy goods and services, make remittances and even store their savings.

At the same time, these people without bank accounts – the 'UnderBanked' – have become the driving force behind a growing market for mobile payments.

These are two of the key findings of a recent BuzzCity survey of 17,000 consumers across 22 countries.
Who are the 'UnderBanked'?

The UnderBanked are people and businesses who have poor access to mainstream financial services. Some don't have enough cash to open an account (43% according to our survey), others don't trust or like dealing with banks (12%), while for some retail banking is simply not convenient because there are no banks near their home or place of work (8%).

Traditionally, the UnderBanked rely on cheque cashiers, pawn brokers and loan sharks for liquidity. However, with the advent of cheaper smartphones, this is changing. Some thirty percent of adult mobile consumers – working individuals over the age of twenty – do not have a bank account. But their phones provide access to financial tools like never before.

Financial Inclusion

Take the case of Afghanistan, for example, where the government now pays teachers and policemen via mobile, instead of cash. “It's not at all unusual to see an Afghan policeman on Kabul's security cordon . . . checking his Nokia 1101 to verify that his monthly salary has been transferred to his mobile wallet,” writes Time magazine's Erik Heinrich, “Then, just as quickly, texting a sum of money to his wife's mobile phone in rural Afghanistan so she can buy groceries for the family or a new propane tank for the kitchen.”

The policeman is likely using a service called M-Paisa, which offers bill payments, airtime purchases and even microloans as well as money transfers. More than 1.2 million Afghans subscribe to M-Paisa's service. The salary remittance programme, by the way, has also given Afghan policeman an effective raise, as corrupt middlemen no longer have a chance to skim cash off the top.

BuzzCity's survey shows that at least 12% of the UnderBanked are using mobile to transfer funds. When Indonesians working overseas use mobile to send money home, their families can collect the money at a Post Office or store it on a SIM card, to cash later at an agent, while the French company Tagattitude enables mobile users to withdraw remittances from an ATM. Tagattitude also works with Afrimarket on a service that that allows overseas workers in Europe and North America to directly pay for school supplies, groceries, medical care and pharmaceuticals back home.

Driving Mobile Payments

Not only are the UnderBanked using their phones to purchase things and pay bills, they're also much more likely to do so than someone with a bank account.

When we asked consumers how they most often pay bills, 19% of the UnderBanked replied that they make a mobile payment, versus 13% of consumers with a bank account. That's nearly a 50% difference.

Sixty percent of the UnderBanked meanwhile are shopping with their phones. Mobile content is the most popular item, but UnderBanked consumers are also using their phones to shop for groceries, pre-paid utilities, electronics and more.

You may be wondering how someone without a bank account or credit card can shop online and use their phone to pay bills, because if you're like me, your credit card and bank account are your most important financial tools. Well, in addition to money transfer services like Tagattitude, there are several other possibilities:

1. Operator Billing ("one-click billing")

Consumers use their phones to make a purchase and the charges either show up on their monthly bill or are deducted from a pre-paid account. 
2. Pre-Paid Cards

Most of us are accustomed to taking out a credit card to pay for stuff when we shop. Stored value cards function in the same way, except there are no bills to pay at the end of the month. Many banks now sell pre-paid cards as do supermarkets and convenience stores. 

From a consumer perspective, the cards are really like cash and money can easily be transferred from one mobile to another. At least 10% of the UnderBanked are using pre-paid cards to buy things with their phones. It's worth noting that a lot of consumers are also using airtime and phone credits now as a store of money, rather than for voice and data.

3. Premium SMS

Mobile content providers – from ringtone vendors to game-makers – use premium SMS to charge consumers. You might also recognise this payment method from American Idol and other media contests, where viewers vote via SMS for their favourite contestant.


A large portion of the UnderBanked, some forty percent, consciously choose not to have a bank account because the services are not convenient or too expensive. Yet the men and women in this market segment clearly show a demand for financial services:
  • Nearly one in three UnderBanked consumers need fast cheque cashing services.
  • One in two could use small loans. 
  • And 37% would like to start a bank account to save money for the future.
Now you might think the UnderBanked pose a credit risk. Grameen Bank and other microloan groups will tell you differently.

The UnderBanked constitute a commercially viable market segment. And as handset and data prices continue to drop, you can count on them to increasingly use smartphones for shopping and as a financial tool.

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