Why America’s “underbanked” are key to the growth of mobile payments

Gigaom

At the height of the first Great Depression, President Roosevelt signed the Banking Act of 1933, which established the Federal Deposit Insurance Corp. This was meant to insure account holders and protect them from losing everything in the event of another crash. While the majority of Americans conformed to the new banking system, a smaller percentage did not and instead rely on a cash-based economy – a group that came to be known in the financial industry as the “underbanked.”

Fast forward to 2013 and America’s underbanked population has swelled to some 68 million people. Research from the Federal Reserve Board shows, surprisingly, that the underbanked have adopted mobile and smartphones at a higher rate than the average American. And not only are they more likely to own a cellphone, but because these low-to-moderate income consumers are less likely to have in-home internet access, they rely more on their phones for…

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Comments

  • Rosaliene Bacchus  On 06/10/2013 at 3:46 pm

    “Underbanked consumers now represent one in every five American households (and growing). What has fueled the adoption rate of mobile among this population is a lack of service options from traditional banks, which have long viewed them as too risky thanks to their low incomes and poor credit scores. (While this is true for a percentage of the underbanked, it is certainly not the case for all.) They are accustomed to going through great and sometimes costly measures simply in order to accomplish often very basic transactions; collectively the underbanked paid some $78 billion in interest and financial service fees in 2011 alone. This lack of service options has in turn spawned a slew of overpriced check-cashing and remittance-payment industries that prey specifically on the underbanked’s compromised position.”

    Thanks for sharing this article. Those who have no bank account or choose not to be part of the banking system pay the price with a low credit score. I’m pleased to learn that these “underbanked consumers” are finding ways to pay their bills.

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