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The Federal Reserve has released a report on the state of mobile banking that reveals striking demographic gaps in the use of the technology. Predictably, the young are more likely to use their smartphones to do banking. More interesting, according to experts, is the finding that the people who don’t use banks much, the so-called underbanked, use mobile banking far more than average.

“They are typically unbanked individuals who have no banking relationship with financial institutions – in other words, no checking accounts, no savings accounts, no lines of credit. Or they are part of the underbanked population, those who have limited relationship with financial institutions,” according to Nasreen Quibria, a payments expert at Locgica. ”The positive aspect of mobile devices is that they are enabling the underserved to conduct financial transactions and facilitate the inclusion of the informal economy. ”

The underbanked are much more likely to use mobile banking services than the average American, the Fed said. A full 29 percent of underbanked respondents used mobile banking in the last 12 months compared to just 21 percent across the board. They’re much more likely to use mobile banking to move money between accounts than the average user, too — 55 percent of underbanked use this service, compared to 42 percent overall.

The underbanked are also “substantially more likely to make bill payments using their mobile phones,” according to the Fed. About 62 percent of the underbanked who use their phones to make payments reported that they made bill payments with this functionality. This number was just 47 percent in the overall population.
Enabling technology

This was no surprise to Jim Wells, President of Wellspring Consulting, a group that seeks to expand financial services to the un- and underbanked. “Low-income and moderate-income consumers are transaction-oriented” when it comes to financial services. Unlike the “Mass Affluent” demographics banks are currently courting, low-income people need much simpler mobile services from financial institutions, like bill payment, remittances, text alerts and the like.

Banks have tended to focus their marketing of mobile banking on the affluent, said Wells, citing the Chase commercial where a group of friends split a restaurant bill using Chase’s mobile payments app as evidence. Wells finds this somewhat silly. If Wells were surrounded by friends who wanted to split a restaurant bill this way, he said: “I think I’d find new friends.”

For the underbanked this isn’t the case, however. Mobile banking services are “far more enabling and empowering for them.”

“Although you and I might think them rudimentary, [these services] are revolutionary” for people who have been left out of the system, said Wells. Instead of having to travel to “institutions they don’t want to use in locations that are not convenient to them,” the underbanked use their phones, he explained.

The Fed’s research seems to back this up, at least in part. A full quarter of underbanked people say they stay away from banking because they simply do not like dealing with banks. Perhaps banks have an opportunity to win them over with better mobile banking services.
Few and far between

When discussing mobile banking — specifically app-based mobile banking — it’s important to maintain perspective on just how small the adoption of smartphones actually is. While 87 percent of American have mobile phones, only 44 percent of mobile-phone owners have smartphones.

So, roughly speaking, a little more than a third (38 percent) of the United States’ population is even capable of using their phones to access their bank accounts.
Young people, underbanked use their phones more

Use of mobile banking services skews young. Of those who had used mobile banking in the last 12 months — just 21 percent of respondents — 43.5 percent were between 18 and 29 years of age. Mobile banking declines sharply as you climb the age ranks. The 30-44 demographic made up 35.7 percent of mobile bank users. The 45-59 group represented just shy of 15 percent, and the 60+ group was just over 6 percent. Not surprisingly, the people who grew up long after the death of the passbook were more likely to use their phones to do banking, while those for whom banking was a more grounded business did not.

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