Here’s how payments companies are using digital technology to reach the un- and underbanked

BI Intelligence

More than 2 billion adults worldwide, in both developed and developing countries, lack adequate access to banking services. Of this group, the majority isn’t excluded by choice; rather, cost, distance, need, and other variables make it challenging or impossible to access banking services.

Historically, banks and financial institutions haven’t seen this population as a lucrative group, because they tend to be low-income, drift in and out of the banking system, and don’t adopt high-value products, like credit. However, these populations are now becoming easier to access and, as a result, more attractive to financial institutions, because if products are scaled appropriately, they could represent a massive revenue stream.

In response, financial institutions, mobile network operators (MNOs), and card networks are using digital technology like mobile phones and payment cards to access these populations in the hopes of building new streams of revenue in an increasingly competitive banking system. By leveraging phones and cards to build out financial ecosystems, hand financial access to broad swaths of people without it, and expand the range of services available to large populations, these firms have the opportunity to profit immensely.

In a new report from BI Intelligence, we take a close look at who the un- and underbanked are, the way financial institutions are using mobile phones and payment cards to access these populations, and whether there’s a profit opportunity for these stakeholders.

Here are some key takeaways from the report.

• 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 phones are a key way of bringing the unbanked into the financial system through services like mobile money. And among the underbanked in developed countries, mobile provides account access in areas underserved by brick-and-mortar branches.
• Multiple players are teaming up to build payment card and point-of-sale (POS) infrastructure in developing countries in order to provide citizens without mobile phones secure, simple access to the banking system. In developed countries, prepaid cards are functioning as checking accounts for the un- and underbanked.
• 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.