A fter more than a decade of unfulfilled promises, mobile technology is beginning to influence the way U.S. consumers shop and bank, especially the young and the financially underserved. I drew that conclusion after reviewing the Federal Reserve Board’s latest report on mobile banking and payments.
Consumers and Mobile Financial Services March 2013 is the second mobile report released by the Fed in as many years. “The ubiquity of the mobile phone is changing the way consumers access financial services,” the Fed wrote. For example:
• Twenty-eight percent of all mobile phone owners used those devices to conduct banking transactions in 2012, up from 21 percent in 2011. Primarily, they checked balances and transferred funds.
• Among nonusers, 10 percent expect they will probably try mobile banking this year.
• Smart-phone users are the most prolific mobile bankers; 48 percent told the Fed they had used mobile banking applications last year, up from 42 percent in 2011.
• Twenty-one percent of mobile banking customers deposited checks to their bank accounts via mobile phones (called mobile remote deposit, or mRDC) last year; that’s twice as many as in 2011.
In addition, the Fed reported the following about mobile payments:
• Fifteen percent of mobile phone owners made payments using those devices last year, up from 12 percent in 2011; bill payments were the most common transactions.
• Twenty-two percent of mobile phone users expressed interest in using their phones to make POS purchases.
• At 24 percent, the share of smart-phone users who made mobile payments in 2012 was unchanged from 2011.
• Six percent of smart-phone owners used their phones to make POS payments in 2012, up from 1 percent the year before.
The Fed also found skepticism about the benefits and security of using mobile devices for banking and payments. For example, more than half of mobile phone owners who don’t use mobile banking applications said they weren’t apt to use them in the future either.
“Consumers are similarly skeptical of the benefits and security of mobile payments, or believe it is simply easier to use another method of payment,” the Fed wrote. After all, mobile payments are appealing in theory, but in practice they’re cumbersome and not as easy as pulling a credit or debit card out of a pocket and swiping it through a POS device.
The making of educated consumers
Mobile shopping – now that’s a different story. “Smartphones are changing the way people shop,” the Fed wrote. According to the Fed’s data, 42 percent of smart-phone users have used those devices to comparison shop while inside stores, and 32 percent have used their smart phones to scan product bar codes to search for the best prices on items. (This latter statistic struck me because it is a relatively new phenomenon, and I’ve yet to see anyone inside a store scanning a product’s two dimensional bar code or quick response code with a smart phone.)
Even more telling, 64 percent of smart-phone owners who used their phones for in-store comparison shopping told the Fed’s researchers they purchased products elsewhere based on the information they accessed while inside stores.
In addition, 44 percent said they had used their phones to browse product reviews or other product information while shopping in-store, and 70 percent of those folks said they had changed their purchase decisions based on those reviews and information.
Reaching the underserved
The Fed’s latest data also demonstrates the power of mobile technology to dismantle myths and physical barriers to financial inclusion. The share of U.S. adults considered to be unbanked dropped slightly, from 11 percent in 2011 to 10 percent last year; those identified as underbanked remained unchanged at 10 percent, the Fed said.
But here’s where the data gets really interesting: underbanked adults are more likely to own smart phones than the general population, as 90 percent of underbanked respondents polled by the Fed said they had mobiles, and 56 percent of those devices are smart phones.
One explanation: younger adults, especially those considered “millennials” (also sometimes referred to as generation Y or echo-boomers), are more likely to be underbanked than their parents (whether their parents are baby boomers or members of generation X). Having grown up with PCs, mobile devices and the Internet, 45 percent of the estimated 80 million Americans who fall into this demographic have opted out of traditional banking relationships, according to Aite Group LLC. On the other hand, just 27 percent of gen X is underbanked.
The company Think Finance, which specializes in online financial products for the underbanked, surveyed millennials in 2012 and found 51 percent had used prepaid cards in the prior 12 months, regardless of income level.
Think Finance also found millennials are frequent users of other alternatives to banks, such as check cashing services (used by about one third) and emergency cash companies like payday lenders (62 percent).
Meanwhile, among millennials with bank accounts, 33 percent are more likely to use mobile banking services than are older consumers, according to data collected by Diebold Inc., the terminal manufacturer.
Increasing bank awareness
Banks seem to comprehend that the financial services market is moving toward greater reliance on mobile and prepaid transactions. However, they still need to adopt a new outlook on the unbanked and underbanked – one that’s not deemed synonymous with poor and unprofitable.
Some are getting the message, but not enough. I realized this while attending the recent Bank Administration Institute’s Payments Connect conference. There were plenty of sessions on mobile banking, but nary a mention of the unbanked and underbanked, and how mobile technologies can help banks reach these underserved demographics.
Some banks and payment companies are bucking the trend. Regions Financial Corp. and Visa Inc., for example, have been working with Chexar Networks Inc. to support check-cashing to prepaid debit cards.
Chexar, which develops check cashing solutions and uses sophisticated tools for managing risk, reported last month that it’s been seeing double digit growth in its mobile check cashing volumes, month over month, since the spring of 2012. Chexar said most of the checks it sees are printed payroll and government checks (three out of 10 checks cashed) and third-party personal checks (nearly four out of 10).