FDIC Releases Report on the Unbanked; Captures Movement to Online Banking

On October 20, the FDIC released a report on the use of the traditional banking system in the United States. According to the FDIC’s executive summary of the report, the percentage of U.S. households in which no one had a checking or savings account (the “unbanked”) dropped to 7.0 in 2015. This is the lowest unbanked percentage since 2009, the year the FDIC began conducting an annual survey of unbanked and underbanked households. The FDIC cited several reasons why some households remain unbanked, the most common of which was the cost of maintaining an account, with an estimated 57.4% of respondents citing it as a factor in their decision not to maintain an account, and 37.8% of respondents citing it as the main reason underlying their decision not to maintain an account. Consistent with past survey results, the report notes that unbanked and underbanked rates are higher among lower-income households, less-educated households, younger households, minority households, and working-age disabled households. Additional findings highlighted in the report include: (i) a 1.9% increase from 2013-2015 in the use of prepaid cards; (ii) rapid growth (31.9% of users in 2015 compared to 23.2% in 2013) in the use of mobile and online banking, reflecting “promising opportunities to use the mobile platform to increase economic inclusion”; and (iii) an opportunity for banks to meet the credit needs of some households with an “unmet demand” for credit by “promoting the importance of building credit history, incorporating nontraditional data into underwriting, and increasing households’ awareness of personal credit products.”

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FDIC Issues White Paper on Mobile Financial Services

On May 25, the FDIC published a report titled “Opportunities for Mobile Financial Services to Engage Underserved Consumers.” The report is the product of FDIC qualitative research with consumers and industry stakeholders regarding mobile financial services’ (MFS) potential to increase economic inclusion. The report identifies the following areas as core financial needs for underserved consumers: (i) control over finances, noting that consumers want to know precisely when and why money is withdrawn from an account; (ii) access to money, stressing that consumers expect financial providers to make funds available as quickly as possible; (iii) convenience, emphasizing the value consumers place on features that save time or effort when making a transaction; (iv) affordability, commenting that consumers aim to “minimize or avoid fees for account maintenance and everyday transactions”; (v) security, emphasizing consumers’ need for protection from theft of funds or personal information; (vi) customer service, with a consumer expectation for having access to live help through their preferred banking channel; and (vii) long-term financial management (i.e., advice on money management or the availability of tools to meet financial goals). According to the report, mobile banking “helps meet consumer needs in areas where traditional banking is perceived to be weak.” Specifically, the report states that mobile banking improves the convenience of banking services, helps consumers maintain better control of their finances, and, in some cases, is more affordable than traditional banking. The FDIC concluded that “consumers make tradeoffs when selecting financial services on certain financial needs.” As such, the report makes suggestions based off consumer feedback as to how both MFS and traditional banking services can better streamline their products to best benefit the underserved, and how to address consumers’ real and perceived fears about the security risks of using MFS.

The FDIC’s report follows a May 3 letter seeking input regarding the FDIC’s plans to explore the economic inclusion potential of MFS. The FDIC requested that all feedback be submitted by June 15, 2016.

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CFPB Reports on Underserved Consumers’ Use of Mobile Financial Services

On November 5, the CFPB published a report titled “Mobile Financial Services” to summarize the results of its June 2014 Request for Information on the opportunities and challenges associated with the use of mobile financial services (MFS) by traditionally underserved consumers. With 44% of unbanked individuals owning a smartphone, the report notes that MFS has the potential to be a promising tool for underbanked and unbanked consumers to manage their finances. According to the report, consumers using MFS save time and money because they can check their balances any time and have access to certain tools that help them manage their money. The report highlights mobile Remote Deposit Capture as particularly attractive to unbanked consumers because it allows them to take a picture of and deposit checks remotely, reducing the limitations of branch hours and locations. Additional key takeaways from the report include: (i) MFS would likely be most effective for underserved consumers if paired with consultative or assistance services; (ii) privacy and security concerns remain a significant risk; and (iii) digital access and digital financial literacy need improvement, such as enhancing affordable access to technology and educating consumers and intermediaries about safe and effective use of the technology.

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Federal Reserve Bank of Boston’s Payment Strategies Team Provides Snapshot of Mobile Banking Landscape

On August 17, the Federal Reserve Bank of Boston published a report that outlines the results of a 2014 survey intended to capture “a point-in-time snapshot of mobile banking and payments at [financial institutions]” across five Federal Reserve bank districts. One of the largest U.S. surveys completed on mobile banking and payment services at financial institutions, the collected data mostly came from banks and credit unions – a combined total of more than 600 – with less than $500 million in assets. The survey showed that with the rise of smartphones, consumers are more easily able to use mobile devices for payments, and they demonstrate “growing comfort with mobile and digital wallets as well as willingness to pay with mobile-based solutions.” As competing mobile technologies emerge, such as non-bank technology service providers, the report found the need for financial institutions to “create mobile banking and payment strategies to respond to [the] changing environment” becomes more relevant. The report highlighted that roughly 75 percent of the financial institutions surveyed offer the following mobile services, with a majority of the remaining 25 percent planning to offer them by 2016: (i) checking balances; (ii) transferring funds between a single owner’s account; (iii) viewing statements and transaction history; (iv) ATM / branch locator; and (v) bill payment. The report further suggested that financial institutions should “keep pace” with the growing mobile banking market and “be proactive and help make the best solutions succeed.”

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FDIC Study: Branch Banking Still Prevalent Despite Increase in Online and Mobile Banking

On February 19, the FDIC released a study showing that brick-and-mortar banking offices continue to be the principal means through which banks deliver services to customers, despite increased growth in the use of online and mobile banking. The study found that four main factors have contributed to the changes in the number and distribution of banking offices since 1935: (i) population growth and geographic shifts in population; (ii) banking crises; (iii) legislative changes to branching laws; and (iv) technological innovation and increased use of electronic banking. Notwithstanding the increase of online and mobile banking, the study found that visiting brick-and-mortar banking offices continues to be the most common way for customers to access their accounts and obtain financial services.

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