Thursday, March 29, 2012

Banking Services for the Under Banked

The under banked are not a traditionally a good target for banks. They do not typically have large bank accounts for the banks to make money off of savings accounts. They typically do not have large incomes to support high value loans. They may also not be a good credit risk for the bank’s credit card business. But wireless carrier economics are different. Carriers can leverage a service that nominally increases a customer's charge over a large customer base to increase revenues substantially. Carriers also are looking for services that reduces churn, especially for prepaid customers where churn is high. Banking services create stickiness as people tend to have long relationships with their financial institution. Prepaid wireless carriers are in a position to offer banking services to the under banked population as there is a high correlation between prepaid customers and the unbanked.

Making a Solution Possible

A company Vesta ( has been in the prepaid top up business for years offering a turnkey prepaid top up solutions for a number of carriers around the world including Verizon, AT&T, Boost, Telcel, China Mobile, Vodafone and Telefonica. Vesta is offering a new turn- key financial solution that allows customers to pay their bills and make electronic payments. The customer puts money into a mobile wallet account run by the carrier, Vesta, and a program manager like Fiserv for example. These funds can come from a Green Dot Card, a prepaid card from Visa, MasterCard or others, cash at a retail store, or via direct deposit. The customer is charged $3 for inputting cash into the mobile wallet account. The customer is given an application on their smartphone which they can use to pay bills or transfer money from the phone; and a card which they can use like any prepaid card. The carrier, Vesta and the program manager share in the transaction fee from the merchant or electronic bill pay. The program manager is an accredited financial institution, takes care of the storage of funds, and makes money off of the float.

What has really changed the equation and made this opportunity possible is smartphones, which are getting cheaper and growing in popularity with prepaid customers; along with application stores and easy downloads. A small computer and usable applications are in the hands of people who did not have this access before.

Vesta Smartphone Application

Benefits to the Customer

The benefits to the customer are the convenience of electronic bill payment, electronic money transferring, lower cost money remittance (Vesta works with various money remittance companies in various parts of the world), as well as and maybe more importantly, a good record of income and spending.

Limitation and Potential Opportunities

Currently this is only being offered on Android phones 2.2 and 2.3, and will be offered on the 4.0 Ice Cream Sandwich version of Android 30 days after launch. Android is where the main intersection of smartphones users and prepaid users exist.

At this point in time, creating interest bearing is a small factor because the rates are low. But this could be a good way for people feel good about this service. The unbanked do not typically get interest on their money and would see this as being very attractive especially as interest rates go up.

Other opportunities in the space include:

• Cash back on purchase like PerkStreet Financial ( offers. People in the under banked group will see that as a highly attractive feature.
• Tax preparation with automatic rebates: The under banked typically have simple returns that can be done by imputing the W-2 by the camera on a smartphone. The carrier can advise clients on how to save money on taxes via an easy to use application.
• Offering discounted coupons to merchant stores.

Win Win Scenario

This is a service which will be most attractive to carriers that focus on prepaid services in the US and international carriers everywhere else because of their high % of prepaid customers. This service is not a standard telecom service so carriers will have to promote and put their trusted brand name behind this product. The service has the hallmarks of a good product in that economically it adds revenues for carriers with the additional benefits of increased loyalty. For customer’s it saves time, creates more control around their finances, and offers potential cost savings. This can be a win-win for both parties, the hallmark of any good business transaction.

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