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Banking the Unbanked
Posted by
Bradburn Young
Friday, Nov.06.2009, 11:25 AM PT
In one of the most interesting sessions here at PayPal X Innovate 09, two banking experts and a telecom business CIO from South Africa made presentations about financial services for the unbanked and underbanked populations of the U.S. and the developing world. They presented a vision of huge populations who manage their financial needs by paying billions of dollars in fees, penalties, interest, punitive interest, marked up transaction costs, cash-related losses, loss of time, and transportation costs.
In the U.S., about forty million households are underbanked or unbanked. People in these categories use financial services for transactions, savings,
lending, and investing, but instead of banks and credit cards, they use
check-cashing places, payday loan stores, money orders, tax refund
anticipation loans, and services for sending money abroad.
In the rest of the world, the unbanked are the majority of the population. The world is full of people who pay their electricity bills by bringing
cash with them on long bus rides and then wait in long
lines for their turn to pay, and merchants who lose money and time because they don't
have the financial instruments to plan their inventory, distribution,
and costs ahead of time.
One helpful and profitable solution has been microfinance, which generally serves people with very small businesses. That population
of vendors (about 100 million people) is an important part of microfinance, but
there are other larger markets: about 600 million people whose wages, often for casual labor, are paid in
cash, and another 600 million small farmers.
In Kenya, where 80% of the population have access to mobile phones but only 20% have bank accounts, Safaricom's M-PESA program enables people to transfer money P2P by mobile phone. Three years after its launch, 25% of adult Kenyans have adopted it.
As the population of the developing world comes online, which it is doing very quickly, digital methods of payment, and online markets, will meet many of its needs. Whoever provides these markets and payment methods will profit by improving the lives of billions of people.
