Beyond M-Pesa: Innovations in Mobile Financial Services

Beyond M-Pesa: Innovations in Mobile Financial Services

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By Colleen Poynton ’14

This is part one of a two-part series.

It’s difficult to discuss mobile technology for Bottom of the Pyramid (BOP) markets without mentioning the revolutionary Kenyan company M-Pesa in the same breath. This company began as a simple peer-to-peer money transfer tool and is now widely recognized as pioneering the concept of mobile and branchless banking for the poor. Given this notoriety, it’s not surprising that most innovation in mobile technology for BOP consumers has occurred in financial services. But we seem to be approaching an inflection point, in which mobile banking innovations developed in nations like Kenya are spreading to more mature markets, and influencing diversified industries. So what’s the implication of this mobile tech dissemination? BOP consumers across the world are increasingly engaged on mobile, and in the process they are generating data and “digital footprints” for the first time – and unlocking a vast potential for new business models which have never been possible before.

Consider Wipit. A Los Angeles-based mobile tech company, Wipit is focused on serving emerging market consumers in a somewhat unusual place: the United States.  Yes, you read that correctly – the U.S! Surprising as it seems, there is a $78 bn emerging market right here.  Over 68 million Americans (28%) are underserved by mainstream financial services. Classified as “unbanked” or “underbanked” these Americans lack savings or checking accounts, have minimal (“thin-file”) or no credit history, struggle to access mainstream credit, and spend over $78bn a year in interest and fees on “alternative financial services” (AFS) – i.e.  payday lending, pawn shops, check cashing, money orders and remittances, and bill pay services that typically charge exorbitant rates.

These consumers face liquidity constraints and live day to day on a financial edge where temporary disruptions in cash flow or unforeseen expenses can trigger a downward financial spiral. Yet they are not uniformly poor (56% earn more than $30k/year and 33% earn more than $50k/year)[1] and they are not unprofitable to serve. Despite relying on high cost brick and mortar infrastructure, capital intensive operations, and antiquated risk analytics, AFS providers boast profit margins in the range of 17-30%[2]. But most underbanked consumers are low-to-moderate income, and they are struggling to make the jump from financial uncertainty to middle class stability. They are, potentially, an emerging middle class. What Core Innovation Capital and a growing population of visionary entrepreneurs have realized is that mobile technology can play a catalytic role in disrupting the AFS industry -  not only delivering cost-savings across the board, but actually enhancing financial wellness and upward mobility.

Wipit, which just secured series A financing from Core Innovation Capital, is a mobile wallet app that is tailored to the specific needs of underbanked Americans. Not only does Wipit provide short-term savings and convenience through lower cost real-time features like mobile bill pay and remittances, but it also enhances financial well-being by facilitating users’ transition into the mainstream financial system. By linking the mobile wallet to a reloadable prepaid card, Wipit offers unbanked consumers access to a world of online payments, direct deposit functionality, and ATM networks. By offering mobile remote check deposit and instant peer-to-peer transfers, Wipit eliminates the need for check cashing services. All of this helps users transition from cash-based transactions to card-based/ digital transactions that, unlike cash, can be used to build credit history – a fundamental financial stepping stone, whether you live in Kenya or the US.

In addition to offering functionality that underbanked consumers truly need, Wipit, like M-Pesa, is delivered through a unique channel that facilitates market adoption: mobile carriers. The app comes pre-installed on Boost Mobile Phones (a carrier with deep penetration in target markets), and will be sold to customers through the mobile agent channel – a channel that underbanked consumers trust and visit frequently. What better way to switch engrained customer behavior away from the check casher across the street than through a pre-existing personal carrier agent relationship?

So how are innovations from mobile banking influencing industries beyond financial services? Stay tuned for our next post, when I’ll consider how a taxi-hailing app in Mexico City is using mobile-enabled payments, financing, and traditional savings accounts to create a competitive advantage in the market….

[1]2011 National Survey of Unbanked and Underbanked Households. FDIC. September 2012.

[2] Analysis by Core Innovation Capital.

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