KEY POINTS

  • Large adult populations lack access to banking services. Nearly 40% of the world's adults, in both developed and developing nations, have limited or no access to banking services. Cost and accessibility have been the biggest barriers to these individuals accessing financial services.
  • The un- and underbanked provide an important new opportunity for payments companies that can leverage digital technology. Previously, these individuals were not seen as valuable clients because they are typically low income and, therefore, nonlucrative. But with digital technology available that can scale quickly, payments companies can gain significant market share and revenue.
  • Mobile is a key means of bringing the unbanked into the financial system through services like mobile money. In Kenya the mobile money service M-Pesa accounts for 70% of all noncash Kenyan financial transactions. Once mobile finance providers have built up a user base, they also have the opportunity to expand and offer a limited selection of more formalized services, like deposits, remittances, and bank cards. 
  • Among the underbanked in developed regions, mobile provides account access in areas that are underserved by brick-and-mortar bank branches. By engaging with clients more frequently through mobile, it could push some segments of the population to adopt more services, such as mobile check deposit or financial management tools, which could give banks higher balances and increased revenue. 
  • Payment cards are also now becoming a viable way of providing access to financial services in developing nations, where they are not yet common. Cards can be distributed quickly and inexpensively, are safer than cash, and can serve as identification for individuals.
  • Prepaid cards are catching on among the un- and underbanked in developed countries. 27% of US prepaid cardholders who use their cards at least monthly didn't have a checking account at all in 2014, according to Pew. These cards are used similarly to a checking account; they can be swiped in stores and linked with direct deposit.
  • For financial institutions, a small investment in the un- and underbanked can turn into a major revenue stream. Over time, these populations can build up larger balances or provide banks and card networks with interchange or interest-based fee revenue. In the next several years, digital technology will help make these populations a key competitive market.

Introduction

Over 2 billion working-age adults lack access to financial services, according to The World Bank. These [...]