Article: Alan McIntyre, contributor at Forbes / Photo: Forbes.com
When most people think about companies like MoneyGram International, they think of unappealing strip mall locations with bulletproof glass where immigrants send money home and get payday loans at exorbitant interest rates. So it might come as something of a surprise that China’s Ant Financial, part of e-commerce giant Alibaba, and Kansas-based Euronet Worldwide, have been battling to buy MoneyGram, with Ant Financial upping its bid from $880MM to $1.2Bn before it emerged victorious. That’s because MoneyGram has access to an increasingly appealing part of the population: the 15.6 million unbanked consumers in the United States.
These are people who are living in households where no one has a checking or savings account. Until recently, this group, along with the 51.1 million U.S. adults who are considered underbanked, has been ignored by most banks because they typically have poor credit ratings and are unlikely to generate meaningful deposits or banking fees. But as more services go digital, smart banks are starting to see the potential of this large group in the U.S. and internationally. Worldwide, 2 billion adults and 160 million small businesses lack banking access, according to Global Findex.
“Since the unbanked are not entrenched in the old-fashioned banking routines of branches, ATMs and credit cards, they are more likely to embrace digital banking on their phones.”
– Banks Need To Focus On A New Customer: The Unbanked
Alan McIntyre, Forbes
Banks measure their efficiency by their cost-to-income ratio (expenses as a percentage of income). Banks with lower ratios are viewed as more efficient. In the U.S., retail and commercial banks typically have cost-to-income ratios in the 55-65% range, however, digital banks can enjoy ratios as low as 25-35%. It’s startling to think that banks in Egypt, where digital is the norm, are more efficient than American banks with an average cost-to-income ratio of 28% compared to 59% in the U.S. This creates a huge opportunity.
Banks could add $380 billion annually in revenue in emerging markets alone by reaching out to the un/underbanked, according to Accenture estimates. The biggest opportunities in emerging markets are in Brazil, India, Mexico, Nigeria, Vietnam and South Africa. And serving the unbanked has benefits beyond profits. By giving people access to savings accounts, credit and loans, banks can help build and strengthen emerging middle class populations that in turn drive growth in the broader economy.
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