What if America's unbanked had mobile wallets?

February 28, 2014: 12:09 PM ET

Wireless companies see the unbanked masses in the United States as prime targets for mobile financial services.

By Erik Heinrich


FORTUNE -- Delivering financial services to the world's unbanked masses is not a topic that usually includes a developed economy like the United States.

That's because Africa is the global leader in this area. Its mobile network operators are boosting their bottom lines and raising standards of living by offering mobile wallets to the unbanked -- making it possible to conduct a variety of transactions from person-to-person money transfers to bill payments and point-of-sale purchases.

But the stark reality is that there are as many as 68 million Americans without a bank account or debit card, according to the Federal Deposit Insurance Corporation. So perhaps it's not surprising that U.S. wireless carriers are finally waking up to the opportunity of offering financial services over cellular phones in lower-income zip codes -- not only to make life easier for the people living in them, but also to reduce churn and increase customer loyalty.

The latest entrant into this emerging market is Bellevue, Wash.-based T-Mobile, which last month launched its Mobile Money product. The service combines a smartphone app that makes it possible to deposit checks with camera-enabled phones, make retail purchases, and pay bills. Subscribers can also withdraw cash using a prepaid Visa card, issued by partner bank Bankcorp, at 42,000 ATMs nationwide.

MORE: Are Kenya's mobile banking services unfair?

"Millions of Americans pay outrageous fees to check cashers, payday lenders, and other predatory businesses, just for the right to use their own money," said John Legere, president and chief executive officer of T-Mobile, in the press release announcing the service. "Mobile Money shifts the balance of power for T-Mobile customers and keeps more money in their pockets."

Deutsche Telekom-owned T-Mobile (TMUS), the fourth-largest U.S. carrier with 46.7 million wireless subscribers, estimates households using companies such as Western Union (WU) or MoneyGram (MGI) to cash paychecks could save about $1,500 per year.

Last year Irvine, Calif.-based Sprint (S), the third-largest mobile carrier in the U.S. with 55 million customers, launched a similar service for prepaid customers called Boost Mobile Wallet.

"We learned that there was an overlap between prepaid telecom customers and consumers in the U.S. who rely on alternative financial services to help with their banking needs," says Amy Johnsonbaugh, a manager with Sprint's apps and services team. "With that in mind, we set our goal to bring cost-effective and convenient financial services to this market."

MORE: Zimbabwe: Could it be Africa's first cashless economy?

Sprint won't disclose how many subscribers it has signed up for its mobile wallet since launching in May. Late last year, it also made mobile-money services available to its post-paid subscribers.

"We are not competing with banks," Johnsonbaugh says. "What we are doing is leveraging our partners' financial regulatory and security expertise."

U.S. banks might not see it that way -- especially as wireless carriers move up the food chain by offering mobile money to higher-income subscribers that typically have a relationship with a financial institution.

Could the U.S. ever rival a country like Kenya, where more than 60% of that country's gross domestic product is transacted over mobile money platforms operated by wireless carriers? The size of Kenya's unbanked population prior to the arrival seven years ago of the M-Pesa -- the category-killing mobile wallet offered by wireless carrier Safaricom -- was roughly equal to that of the U.S. But there are important differences.

MORE: Bringing financial inclusion to the Horn of Africa

"The m-money revolution has difficulty in penetrating the U.S., partly because the cellphone market is much more fragmented than in Kenya," says Michael Fuchs, a veteran of the World Bank, referring to Safaricom's dominant position. "But more importantly other convenient and cost-effective payments services are already available."

Mobile network operators in the U.S. and other developed countries may never rival their counterparts in places like Tanzania and Zimbabwe, as providers of financial services. But alternative payments systems outside traditional banking are nonetheless emerging, with Gartner estimating that North American mobile transactions increased 53% to $37 billion in 2013.

"Merchandise purchases account for over 60% of the total," says research director Sandy Shen at Gartner's Shanghai office. She adds that PayPal, owned by eBay (EBAY), and Amazon (AMZN) are North America's biggest purveyors of mobile money services.

Those technology companies are now joined by several wireless carriers. But why not the country's banks? The institutions have stubbornly refused to join the mobile-money revolution sweeping the world -- not just in the G7 group of developed nations but also in West African countries such as Nigeria and Togo -- because they seek to protect their profits and the status quo. With one look at the numbers, they may reconsider.

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