By Patti Murphy
ProScribes Inc
More people are banking today than just a few years ago. A report just released by The World Bank Group revealed that 700 million adults worldwide – including U.S. residents – became bank account holders between 2011 and 2014. During that three-year period, the number of adults with bank accounts rose from 51 percent to 62 percent, driven largely by greater numbers of account holders in developing countries and the proliferation of mobile banking applications, the World Bank said.
"Access to financial services can serve as a bridge out of poverty," said World Bank President Jim Yong Kim. The report, the latest edition of the World Bank's Global Findex, measures progress toward financial inclusion in developed and developing countries. It defines banked adults as those with access to accounts that allow them to store money, as well as make and receive electronic payments.
Global Findex was launched in 2011 with funding from the Bill & Melinda Gates Foundation and in partnership with Gallup Inc. The project tracks how adults save, borrow, make payments and manage risk in 143 economies, including those of developed countries.
In the United States, the banked population grew from 88 percent of residents over the age of 15 in 2011 to 93.6 percent in 2014. Among the poorest 40 percent of Americans, 87.1 percent have accounts at financial institutions, the World Bank reported. This data is in line with Federal Deposit Insurance Corp. assessments of unbanked and underbanked Americans.
The World Bank has several programs directed at bringing more people into the financial mainstream. Among them is a coalition of financial institutions, leading card brands, microfinance institutions and telecommunications companies brought together to pursue a goal of universal financial access by the year 2020, the bank stated.
The World Bank said it wants to add as many as 1 billion adults to the rolls of the world's banked populations over the next five years. Visa Inc. and MasterCard Worldwide have committed to reaching 500 million people across the globe who are now considered to be unbanked.
"Providing greater access to Visa's payments network is both core to our business growth and consistent with our vision to be the best way to pay and be paid for everyone, everywhere," said Visa Chief Executive Officer Charles Scharf. The World Council of Credit Unions committed to helping its members expand their rolls by at least another 50 million people. Also, a group of microfinance organizations said its members will work to add 70 million new account holders by 2020.
The World Bank stated in its report that mobile technology has played a huge role in expanding financial inclusion. In Sub-Saharan Africa, for example, 34 percent of adults now have bank accounts, up from 24 percent in 2011. And mobile banking adoption rates there outpace global adoption: 12 percent of adults in the region have mobile money accounts compared with just 2 percent of adults globally. Kenya leads with mobile account ownership at 58 percent; 13 countries in the region have mobile account penetration rates of 10 percent or more, according to the latest Global Findex.
In the United States, mobile phones generally, and smartphones in particular, are to the generation now coming of age – the millennials – what ATMs were to my generation. The Federal Reserve reported in Consumers and Mobile Financial Services 2015 that 87 percent of adult Americans had mobile phones in 2014; 71 percent of those were smartphones. And among smartphone users with bank accounts, 52 percent used the phones last year to conduct banking transactions.
Even the underbanked use their mobiles for banking activities; the Fed reported that 48 percent did so in 2014. The Fed also found that younger consumers are far more likely to use mobile banking and payments than their elders.
It's not surprising, of course. Most of the millennials I know are practically glued to their mobiles. Many of them are contemptuous of banks, also. Viacom Media Networks, which regularly polls millennials for its Millennial Disruption Index, reported in 2014 that 71 percent of respondents would rather go to the dentist than listen to what banks are saying; 33 percent believe they'll never need a bank. The index also indicates that most millennials (70 percent) expect that in five years the way they pay for things will be totally different.
Several prepaid debit card companies and a handful of financial institutions have seized on this change in attitudes and built mobile banking apps around prepaid debit card accounts, effectively creating demand deposit accounts. Data collected by the Federal Reserve Bank of Philadelphia suggests the pickup has been good. It found that in 2013, users of general purpose reloadable prepaid cards had an annual average income of $63,217. Mercator Advisory Group, meanwhile, predicted dollars loaded onto prepaid cards will increase 9 percent per year through 2017.
A set of proposals now pending in Washington, however, could retard this trend. The Consumer Financial Protection Bureau wants to extend to prepaid card products the federal consumer protection rules that now cover debit cards. These include strict disclosure requirements, error resolution procedures and restrictions on overdrafts.
NetSpend, the prepaid card company owned by Total System Services Inc., has been a vocal opponent of the proposals. The company is particularly concerned about restrictions on prepaid card overdrafts. NetSpend is unique among prepaid card companies in offering overdraft protection. "Prepaid products like the ones offered by NetSpend are not only consumer friendly, but they have protections that ensure cardholders are empowered to make the choices that are best for them," said NetSpend President Chuck Harris. "We proactively built in safeguards in NetSpend's overdraft service that are meant to help consumers preserve their money while exercising flexibility." These include a $10 "buffer," fee caps, and "cooling off" periods that are meant to limit excessive use.
The Electronic Transactions Association is one of scores of organizations and individuals taking issue with the proposal. The ETA's CEO, Jason Oxman, in an editorial in The Hill, a congressional-oriented daily, criticized the proposed rule changes as regulatory over-reach, noting that they would also extend to innovations like mobile wallets and digital currencies. "This naked jurisdictional grab would be a wholly unnecessary regulatory roadblock to the nascent mobile payments and digital currency marketplaces," Oxman wrote.
Patti Murphy is Senior Editor of The Green Sheet and President of ProScribes Inc. She is also the founder of InsideMicrofinance.com. Email her at patti@greensheet.com..
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