Mobile Financial Services: Can the Underbanked Bank on It? Rob Levy - Manager, Innovation and Research, CFSI Center for Financial Services Innovation

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1 Center Center for for Financial Financial Services Services Innovation Innovation Mobile Financial Services: Can the Underbanked Bank on It? Rob Levy - Manager, Innovation and Research, CFSI Center for Financial Services Innovation

2 About CFSI The Center for Financial Services Innovation works to transform the U.S. financial services marketplace to help underserved consumers achieve financial prosperity Inform: Making the Case for the Underbanked CFSI leads the industry with actionable market & consumer research, new ideas and thought leadership Advise: Providing Ideas, Dialogue and Guidance CFSI brings like-minded companies together to facilitate an exchange of ideas and to foster partnerships Invest: Seeding Innovative Solutions CFSI promotes double bottom line innovation through grants and investments Advocate: Informing and Influencing Federal Policy CFSI generates new ideas and provides underbanked expertise to shape and inform policies affecting financial products and services for underbanked consumers

3 Why Mobile Matters for the Underbanked Mobile Financial Services (MFS) can have positive impact on underbanked AND offer new revenue streams and enhanced customer loyalty to providers Fact: Many American consumers are underserved by existing financial services system 8% of American households are unbanked 18% of American households are underbanked Fact: Underbanked consumers use mobile phones and MFS, in greater numbers than the general population* 91% of underbanked consumers have a mobile phone, and 57% have a smartphone (compared to 87% and 44% of all consumers) Mobile banking use: 29% of underbanked, 21% of all consumers Slightly lower, but meaningful, usage by unbanked Smartphone prices dropping, coming to prepaid mobile carriers Fact: Mobile phones are deeply functional, and have growing potential to provide sophisticated financial management and transaction tools 74% 8% 18% *Federal Reserve, 2012

4 Benefits of MFS for the Underbanked Today, MFS tools can: Drive increased financial capability Offer greater convenience As MFS grow more sophisticated, these tools may eventually: Transition customers from cash to electronic transactions Lead to improved security and fraud protection Improve access to basic financial accounts

5 A Usage-Based MFS Framework Informational Services Transaction Services Payments Financial Capability Cash Electronic Payments Convenience Access to Basic Accounts Security/Fraud Protection

6 Drive Increased Financial Capability Timely access to account information through alerts, reminders, and more can empower consumers to make more informed choices about how and when they spend, borrow, and save Mobile Service Account Alerts Balance Inquiries Messaging/ Reminders Description Text message alerts triggered when account reaches a threshold balance level; 66% of mobile banking users receive low-balance alerts, and nearly all of these took action in response to the alert* Account holders can request various types of information via text message Using phones to transmit educational information (e.g., tips on how to reduce costs, reminders about a pre-defined savings goal) Bill Pay/Bill Pay Alerts ATM Location Reminders about bills coming due Requesting information about the nearest ATM, or nearest ATM with the most favorable fee structure *Federal Reserve, 2012

7 Offer Greater Convenience

8 Lead to Increased Security and Fraud Protection Potential Fraud Prevention Benefits: Alerting customers about unauthorized transactions Authentication through dynamic PIN code Dynamic account numbers through virtual prepaid cards Use of great depth of customer information available through phone location, purchasing behaviors, interest, contact with friends and family Increased mutual trust between provider and customer

9 Transition from Cash to Electronic Payments Consumer benefits Safety Convenience Potential for cost savings Budgeting and expense tracking Interest on money saved Provider benefits New revenue without cannibalization Payment Acceptance for Small Businesses Public Benefits Disbursement Transit

10 Improve Access to Basic Financial Accounts Prepaid debit accounts are often well suited to the needs of the underbanked, and yet only 12% of unbanked households and 16% of underbanked households have used a general spending prepaid card Prepaid Mobile Phone Access Increased financial inclusion

11 Recent News Suggests More Innovation Ahead

12 What s your idea? MyMoneyAppUp.challenge.gov

13 Rob Levy - Manager, Innovation and Research rlevy@cfsinnovation.com