Financial Services Susan Burhouse Matthew Homer Yazmin Osaki Michael Bachman April 24 2014 Assessing the Economic Inclusion Potential of Mobile Financial Services 1 What are the challenges to ID: 678344
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Assessing the Economic Inclusion Potential of Mobile Financial Services
Susan BurhouseMatthew HomerYazmin OsakiMichael Bachman
April 24, 2014
Assessing the Economic Inclusion Potential of Mobile Financial Services
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What are the challenges to economic inclusion?Industry Perspective
ProfitabilityRegulatory environment (customer ID requirements)FraudConsumers’ lack of knowledge or awareness about financial products and servicesEffective marketing2Slide3
What are the challenges to economic inclusion?
Consumer PerspectiveResearch on factors that influence banking statusMoney/IncomeEmploymentConvenienceTransparency and predictabilityReasons for being unbanked vary – MFS can’t help everyoneMany banking relationships are not sustainable, households cycle in and out of the banking system
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What is MFS?MFS is a mode of accessing financial services, not a product in itself
Characteristics of underlying products are still importantMFS services can include basic transactions (checking account balances) and more advanced, emerging services (mobile check deposit, push alerts, payments)MFS is provided by both banks and nonbanks, but this paper focuses on mobile banking4Slide5
Can MFS meet the challenges?MFS can provide anytime, anyplace, actionable information
The unbanked and underbanked (known collectively as the underserved) value convenience, speed and priceMFS, including advanced features, is widely availableAll of the 26 largest financial institutions offer core MFS capabilities77 percent offer mobile RDC, 31 percent offer PFMBut, commonly offered features are not always economic inclusion-friendly
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The 2013 FDIC National Survey of Unbanked and Underbanked Households collected new data on the use of mobile phones and mobile banking
Who uses mobile phones?
The 2013 FDIC National Survey of Unbanked and Underbanked Households collected new data on the use of mobile phones and mobile banking
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Who uses mobile phones?
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Who uses MFS?
One quarter (25 percent) of mobile phone users have used mobile banking in the last 12 months24 percent of fully banked households31 percent of underbanked householdsOver a third (36 percent) of smartphone users have used mobile banking in the last 12 months34 percent of fully banked households42 percent of underbanked householdsSource: 2013 FDIC National Survey of Unbanked and Underbanked Households
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Who uses MFS?
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How do households access their bank accounts?
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Framework for evaluating economic inclusionACCESS – Drawing consumers into the banking system
SUSTAINABILITY – Keeping consumers in the banking systemGROWTH – Deepening banking relationships and fostering financial empowerment11Slide12
Evaluating MFS Along Access, Sustainability, and Growth
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ACCESS: Banking the Unbanked
Increasing appeal of banking system Penetration of smartphones (33 percent)MFS alone does not address main reasons for being unbanked (e.g., ID, insufficient money, etc.)Depends on available features and functionalitiesAccount openingNot widely Available: Screen sizeIntegration of systems (core, mobile, online)Competing priorities
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ACCESS: Banking the Unbanked
Opportunities:Smartphone penetration is growingAccount opening is being considered and implemented by banks; some seeing resultsTo take advantage of this opportunity, consider:‘Trusted party’ and coachingFinancial literacy that integrates MFSLeverage strategies to address reasons for being unbanked
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SUSTAINABILITY of Banking Relationships: for Consumers
Anytime, anyplace features of MFS are promising, but further adaptation required.Increase consumer awareness of account statusMake timely financial transactions and avoid fees (Check balance, receive alerts/ notifications) (e.g., low balance (avoid fees), fraud alert).Increase convenience of everyday banking transactions Mobile remote deposit capture (mRDC), bill pay, transfers, etc.
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SUSTAINABILITY of Banking Relationships: for Consumers
Issues: Real time information Speed of available funds and paymentsEnrollment and management requires online bankingNeed or preference for cash/paper instruments
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SUSTAINABILITY of Banking Relationships: for Financial Institutions
MFS could change the economics of serving underserved, however, in the short term costs are additive and cost recovery is focused on serving existing well established customers.Potential for increased feasibilityReduce use of more costly channelsIncrease customer engagement (accessing accounts more times, increased retention)New revenue sources (trends should be monitored)
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SUSTAINABILITY of Banking Relationships: for Financial Institutions
Security and FraudNew risk are less understood (limit available functionalities)But, new opportunities to use image capture, biometrics, geo location and other authentication tools to reduce fraudHowever, must consider concerns related to consumer protection / privacy18Slide19
GROWTH of Banking Relationships
Financial CapabilityWhat are the most effective types of personal financial management (PFM) tools for underserved?Customer RelationshipFrequent and brief customer interactionRole of personal interaction and branch banking (particularly for recently banked)Deepening Banking relationships How do MFS customers learn about other products?
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Takeaways
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Integrate MFS into broader economic inclusion strategies
MFS alone is not likely to solve all challenges related to economic inclusionMFS should be connected with broader strategies, particularly for access and growthExample: Partner with community organizations or others to reach out to the underserved and help them learn how to make responsible use of MFS as a replacement for AFS
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Integrate MFS with other delivery channels and incorporate one-on-one interactions
One-on-one interaction is still important for the underserved, particularly for coaching and guidanceExamples: Provide one-on-one assistance to help a customer download an MFS app, sign up for an account, and use MFS features
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Thoughtfully fine-tune risk management strategies associated with features that meet the needs of the underserved
Uncertainties about potential risks with new technologies may inhibit availability or access to features that benefit the underservedRisk management approaches that preserve access should be a goalExample: Implement risk management strategies that enable quicker access to funds from deposited checks
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Address infrastructure challenges to increase the convenience and speed of MFS
Fully meeting underserved preferences related to convenience and speed requires real-time information and faster processingInfrastructure and systems updates may be needed, but in the short-run consumers could benefit from other ways to increase accuracy of account information Example: Move to real-time alerts over the medium-term, while utilizing virtual checking as a short-term stop-gap tool
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Identify opportunities to enable more functionalities
Some consumers rely on their mobile phone for internet access, but there are often gaps between the banking services offered via mobile and a desktop websiteIn some instances this is due to risk management concernsExample: Improve self-sufficiency of MFS features (e.g. billpay and enrolling payees, alert management, account opening)
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Identify case studies demonstrating profitable implementation of MFS for economic inclusion
Although MFS requires upfront investment costs, savings are likely to occur over timeTransaction costs are lower with MFS, which could make the underserved more profitableBusiness models that do not carry prohibitively high fees are likely to be the most successful for economic inclusion
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Bridge mobile service delivery with traditional payment methods
Many underserved, by preference or necessity, conduct transactions using cash or other paper instrumentsSuccessful economic inclusion strategies are likely to recognize these needs in MFS offeringsExamples: Provide mobile billpay that can mail paper checks to payees such as landlords; increase acceptance of electronic payments
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