The new frontier for UK Banking – just look at your phone (Part two)

We have a large unbanked population in the UK. There are around 1.25 million unbanked households in the UK , equating to around 4.5 million unbanked individuals. There is real need here, and the unbanked could form a valuable element of a broader strategy for a bank. And you can bet that, in modern Britain, the vast majority of these people have a mobile phone, writes Paul Makin.

Read part one here!

Why it Applies to the UK

We have a large unbanked population in the UK. There are around 1.25 million unbanked households in the UK , equating to around 4.5 million unbanked individuals. There is real need here, and the unbanked could form a valuable element of a broader strategy for a bank. And you can bet that, in modern Britain, the vast majority of these people have a mobile phone.

The Opportunity

To those who would say that the unbanked have no money, and cannot therefore be of interest, I would point out that they pay significantly more for financial and other services than any other segment: domestic fuel, cheque cashing, and short term loans are all examples of services that are expensive for the unbanked, and which the mainstream gets either for free or at relatively low cost.

By definition, unbanked people do not have access to the conventional banking system, and there is an opportunity for a farsighted bank to facilitate that access and so enhance their own proposition, building deposits and generating new transactions. Such a proposition would encompass:

  • The customer’s own mobile phone for account servicing;
  • A companion card, for purchases;
  • A strictly-enforced policy of no overdrafts – any lending to be formally approved on a case by case basis, with agreed repayment schedules;
  • Banking facilities such as direct debits, in order to address issues around fuel poverty;
  • Provision of access to loans at reasonable cost. The media have highlighted issues around payday lenders, which is to some degree unfair, since the only alternative for these customers is the loan sharks -the banks have, until now, turned their backs on this market, believing it unprofitable. But in 2012 Wonga, a prominent payday lender, reported a margin of 25%. So a bank could attract favourable media coverage by entering this market, undercut the payday lenders, and still be confident of a profit;
  • Work with Government to facilitate social payments to the 4.5 million currently unbanked recipients;
  • Improve access to cash, particu- larly in the poorer areas of the UK where the only ATMs are privately-operated and which charge for withdrawals – charging is not a bad idea per se, but it needs to be proportionate. When there is little money in an account, budgeting needs to be careful, and small withdrawals are part of that. So charging someone £2 for a £10 withdrawal is not sensible.

Mobile opens a new market

In summary, I believe there is an opportunity for a bank to enhance both their balance sheet and their corporate reputation by extending financial services to the UK unbanked population through the medium of the mobile phone and the related mobile money account. This is the right time to embrace this opportunity, both in terms of the mobile phone usage of the target market and in terms of the needs of the UK banking sector.