Use of Financial Services by the Unbanked and Underbanked and the Potential for Mobile Financial Services Adoption

Abstract

Mobile phone use has become a standard aspect of daily life for many Americans in the last decade. The increased use of these devices coupled with the evolution of technologies that enable consumers to conduct financial transactions using their mobile phones has the potential to change how consumers manage their finances as new services and tools emerge. In addition, innovative financial service technologies may help foster financial access and inclusion in the mainstream financial system for underserved consumers-those who are unbanked or underbanked. For these reasons, the Federal Reserve Board has been monitoring trends and developments in mobile financial services such as mobile banking and payments. In late December 2011 and early January 2012, the Board's Division of Consumer and Community Affairs (DCCA) conducted a survey in order to better understand consumers' use of and opinions about mobile financial services. 1 Key FindingsUsing data from the Board's Survey of Consumers and Mobile Financial Services (SCMFS), this article provides a description of unbanked and underbanked consumers, and examines their use of financial products and services (see Appendix A: Survey Data Collection). The article further explores how unbanked and underbanked consumers are making use of emerging mobile financial services technologies. The potential for mobile banking and mobile payments to expand access and inclusion to the mainstream financial system is also examined. Several key findings from the survey stand out: ‰ Approximately 11 percent of U.S. consumers are unbanked, and another 11 percent are underbanked.Note: We gratefully acknowledge the help of Federal Reserve System staff who served on the advisory team for this project:

Adoption of mobile payment systems: a study on mobile wallets

“…However concerns on the perceived security of mobile payment systems, not the actual security, create a barrier in the adoption of these systems (Kim et al, 2010;Linck et al, 2007;Ovum, 2012). Losing mobile phones, which is not an uncommon occurrence and identity theft are the major concerns of the consumers (Gross, Hogarth, & Schmeiser, 2012). In addition, number of parties involved including in mobile payments such as banks, telecom companies, numerous merchants also may lead to increases in the privacy and security related concerns among populace.…”

Financial Inclusion Case Study: Case of Turkey

“…Generally, financial institutions quality's is related with financial inclusion in both developed and developing countries, in particular, the importance of micro-finance institutions is much more important in developing countries. Being financially excluded also implies that people have numerous disadvantages, such as, facing with high cost of borrowing or saving (Gross et al, 2012;Barr, 2004).…”

Much Ado about Nothing? New Evidence on the Effects of Payday Lending on Military Members

“…Third, since all service members are ''banked'' (military payroll is executed electronically), the group provides insight into the effects of payday loan access on low-income individuals whose income stability and electronic payroll may make them potential targets for ''predatory'' lenders (Graves & Peterson, 2005). Gross, Hogarth, and Schmeiser (2012) note that increasing unbanked and underbanked consumers' participation in mainstream financial markets is a policy issue of national importance. Institutions such as the World Bank (Demirguc-Kunt, Beck, & Honohan, 2008) and the U.S. Agency for International Development (2013) are working to expand the number of banked individuals in support of economic development.…”