This is Part 2 of a two-part series exploring the opportunity to service the large unbanked and underbanked population in North America through innovative new banking services. Part 1 discussed the need for “mobile wallets” in North America, and how they could benefit lower-income communities in the same region. Part 2 takes a closer look at the stakeholders that are poised to offer mobile banking services.

Post economic downturn, there is a healthy demand for prepaid cash services in the United States. In 2012, $118.5 billion will be loaded onto prepaid cards, accounting for 650 per cent growth since 2009. Establishing a light mobile wallet will grow this existing market and add valuable services to the U.S. economy, helping members of the lower-income, cash-dependent community build and protect their wealth while avoiding fees associated with traditional banking services.

According to a Federal Reserve Bank publication from 2010, “Unbanked consumers spend approximately 2.5 to 3 percent of a government benefits check and between 4 percent and 5 percent of payroll check just to cash them.” Clearly, there is a need for services that would reduce this “poverty tax” on unbanked consumers. But what solutions are currently on the table, and which players in the value chain are motivated to champion mobile-cash services?

To date, providers of mobile payment methods (namely, AT&T, Verizon, and T-Mobile with their Isis mobile-wallet initiative, and Google, in partnership with Sprint, with its Google Wallet) have focused on their banked subscribers. Are the wireless carriers the shining bullet that could enable services for the unbanked (like direct top-up) that allow for more convenient, reliable, and direct payment capabilities? Below, I outline the various services we can expect to see, as well as the providers that will likely take to the market to service the unbanked.

1. Stored-value vendors

The stored-value card is one of the fastest-growing products in the financial industry. Gift cards, prepaid telephone cards, and open-loop cards all use a stored-value-card network. Vanilla Visa is a perfect example of a successful open-loop stored-value card.

Rumour has it that mobile-commerce companies CorFire and InComm are working to provide white-label mobile-wallet apps, allowing merchants to issue prepaid virtual gift cards to customers under their own retail brand. Customers will be able to use the stored value by bringing their mobile phones (with the downloaded app) to the register.

It is inevitable that the same companies that brought you plastic stored value will also make use of these virtual services. Walmart, for example, cashes government and printed payroll cheques for the discounted price of $3, and has expanded services to a reloadable, prepaid Visa debit card that does not require a bank account or proof of U.S. citizenship. Virtual or mobile services would expand this further. Look to this retailer to become a big player in mobile banking among the unbanked and unhappily banked.

2. Money-transfer agents

Money transfer is another huge business opportunity in the unbanked market. According to Jason DeParle of The New York Times, “Globally, the tally is huge: migrants from poor countries send home about $300 billion a year. That is more than three times the global total in foreign aid.” Such migrants often pay more than $20 per transfer, and their recipients frequently have to travel for hours to pick up the remitted funds.

Companies such as First Data Corp.’s Western Union Financial Services Inc. and MoneyGram International Inc. handle most of the estimated $25 billion a year sent between the United States and Mexico, while banks are responsible for transferring only about five per cent of that amount.

Services such as “PayNearMe” allow cash customers to complete simple or complex transactions easily at 7-Eleven. Emida, a prepayment and transfer technology provider, has developed a mobile wallet called “Cash and Transact” (CAT) that allows users to “pay bills, buy groceries, transfer money to family and friends in remote locations and much more.” Finally, in late 2011, m-Via, a Palo Alto-based company, launched a peer-to-peer money-transfer service called “Boom,” in which users use mobile phones to make money transfers through a retail network including 7-Eleven and ATM networks in the U.S. and Mexico.

3. Wireless Carriers

Verizon Wireless planned to introduce a $2 “convenience fee” for those who made onetime bill payments online or over the phone, but, after a barrage of protest from those who accused it of exploiting low-income subscribers who live paycheque to paycheque, the carrier dropped this proposed fee. Verizon and other wireless carriers are actually some of the players that are most interested in providing cash wallets to their prepaid customers, as prepaid-card networks currently eat up 15 per cent of their prepaid top-up revenue.

AT&T Inc. has tried to move on-demand payment subscribers to an automatic payment system by promising them a $10 gift card if they make the switch. However, whether carrot or stick, the only real solution for wireless carriers is to step outside of the traditional banking structure and use mobile media to provide long-term solutions.

4. Financial institutions

In November 2011, Visa announced it is offering a prepaid mobile product, developed in South Africa, which is designed to serve the underbanked in developing countries – particularly those who have previously lacked access to formal financial services. The new product allows customers to send and receive international remittances via mobile phone, to make purchases at stores or online, and to access cash through an ATM where Visa is accepted.

Thus far in North America, financial institutions have not taken advantage of the opportunity to offer mobile services to the unbanked. Earlier this year, Bank of America, JPMorgan Chase, and Wells Fargo launched clearXchange, an initiative that allows the banked to move money using a mobile number. However, this is predicated on an existing banking relationship. The service is simple to use, but establishing the necessary banking relationship is a considerably complex process for an unbanked person.

Over the next year, much of the industry focus will be on the NFC-enabled mobile-wallet platform promoted by Google Wallet and Isis. However, the North American market has an opportunity to develop a viable business model for the forgotten 20 per cent – those citizens who remain unbanked and underbanked.

While we wait for retailers and handset manufacturers to transition shoppers into the use of mobile wallets, there are many motivated stakeholders ready to service the unbanked. Prepaid services are increasingly popular, there are global models ready to emulate, and, while financial institutions need to be in the value chain, it is more likely that wireless carriers, payment vendors, money-transfer vendors, and perhaps government will innovate in this sector and take the lead in emancipating 60 million hard-working Americans by creating and promoting a light-weight cash-focused mobile wallet.

Photo courtesy of Reuters.