Academic journal article Federal Reserve Bulletin

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

Academic journal article Federal Reserve Bulletin

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

Article excerpt

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 Findings

Using 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.

* Unbanked and underbanked consumers are more likely than fully banked consumers to have lower incomes and be younger, minority, female, unmarried, unemployed, and unwilling to take financial risks.

* Unbanked and underbanked consumers are also more likely to use alternative financial service providers, such as check cashers; payday, title, and pawn lenders; or rent-to-own services.

* Sixty-three percent of unbanked consumers have a mobile phone, and 91 percent of underbanked consumers have a mobile phone.

* The most frequent mobile banking activity reported by respondents overall was checking account balances or recent transactions (90 percent), while the most frequent type of mobile payment activity was paying a bill online (47 percent).

* Underbanked consumers make comparatively heavy use of both mobile banking and mobile payments--28 percent have used mobile banking and 17 percent have used mobile payments in the past 12 months, compared with 21 and 12 percent, respectively, of fully banked consumers.

Why the Focus on Financially Underserved Groups?

Consumers' access to financial accounts and inclusion in the mainstream financial marketplace have long been on the minds of policymakers, who have explored ways to reduce barriers and increase access to mainstream financial services in order to encourage cost savings, public safety, disaster preparedness, and asset building for underserved groups. (2) For example, the EFT '99 initiative (developed to implement the Debt Collection Improvement Act of 1996) included a provision requiring selected federal payments to be made by direct deposit, spurring an interest in bringing unbanked households into the financial mainstream. (3) And in December 2010, the Treasury Department's Financial Management Service published rules requiring recipients of federal nontax payments, including many unbanked benefit recipients, to receive payment by electronic funds transfer. Those without a bank account for direct deposit will be issued a prepaid debit card as part of the Go Direct program. (4)

Data from the Federal Reserve Board's 2010 Survey of Consumer Finances (SCF) show that 7.5 percent of households (about 8.8 million households) have no transaction accounts (that is, no checking, savings, money market deposit accounts, money market mutual funds, or call or cash accounts at brokerages). …

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