The 5th Annual Federal Reserve’s Board of Governors’ Consumers and Mobile Finance Report was released to the public last month. It is chock full of useful insights that speak to how the use of mobile phones is evolving the way consumers bank, make payments and shop in the US.
This Consumers and Mobile Finance Report is the ‘Gold Standard’ in understanding the mobile behaviors of the U.S. consumer and has been published by the Fed annually beginning in 2011 in a partnership with GfK. The Fed uses GfK’s proprietary “Knowledge Panel” to target respondents in the US and GfK is responsible for administering and gathering the surveys, i.e. fieldwork.
GfK’s Knowledge Panel is often used by government agencies, academia and the private sector due to Knowledge Panel being a probability based sample that used the US postal code system, which adds to the validity of the research. The panel consists of a representative sample of the US population which includes; Spanish speaking households, those households without internet access, cell phone only households, etc. thus it can be extrapolated to the US population.
The Fed does the fun part of gleaning insights from the data and publishing the report in the public domain.
Mobile Banking Wins Big
Through 78 pages of the 2015 report, there is lots of great news for mobile banking, mobile payments and mobile shopping. The trends are all headed in the right direction:
- 71% of mobile phones are smart phones which is an increase from 61% the previous year
- 39% of all mobile phone owners with a bank account have used mobile banking vs. only 22% in 2011, with another 11% stating they will probably or definitely use it within the next 12 months.
- 39% of all mobile payment users with smartphones have made a point-of-sale payment using their mobile phone in the past 12 months up from only 23% in 2011
- 29% of all mobile phone users and 38% of smartphone users have used their phone to track purchases and expenses.
The encouraging data included in the report demonstrates how smartphone adoption is influencing behavior across banking, payments and the point of sale.
But there was one glaring opportunity for Payments companies that has seemed to have gone unnoticed in terms of product design, marketing and positioning.
The Underbanked and Unbanked Opportunity
In 2014 the percentage of US consumers that are unbanked and underbanked as defined by the Fed* is 13% and 14% respectively. Combined, these groups represent over 89 million U.S. consumers comprised mostly of the younger generations, minorities, and those with low levels of income. Unbanked are defined as those consumers without a bank account and underbanked are defined as having a bank account but also using an alternative financial service such as a money order, check cashing service, pawn shop loan, auto title loan, paycheck advance/deposit advance, or a payday loan.
The Underbanked Are the Most Connected
44% of unbanked and 66% of underbanked have smart phones which adds up to nearly 50 million consumers who do not use a traditional financial institution and also have a smart phone in the US.
50 Million smartphone users that are unbanked or underbanked in the U.S.!
To boot, the underbanked used mobile banking in the 12 months prior at a 9% higher than the general population, 48% vs. 39%. This screams opportunity.
The enormity of this group coupled with the high penetration of smartphones and preference for online usage make this group a relatively untapped market for P2P transfers, bill pay services, online credit, prepaid cards, and cross boarder remittances. In fact, Latinos had the highest incidence of smart phone ownership, mobile banking and mobile payment usage among all ethnic groups, 82%, 53% and 32% over the past 12 months respectfully.
The smartphone usage and mobile payments blind spot is the unbanked/underbanked and Hispanic population in the U.S. These often overlooked segments of the population present an enormous opportunity for banks, payments companies and retailers. An early mover in this space would have the advantage in capturing this surprisingly large and relatively untapped segment of the population by designing payments offerings, marketing messaging and brand positioning efforts, and rewards that resonate with their unique needs.
The question is, who is going to be the first to understand the potential of these mobile users?
Tim Spenny is Vice President at Financial Services Consulting at GfK Custom Research, North America.