Banking UP

The US Federal Reserve has just released a report about how consumers use mobile financial services.

The full report can be found here.

It contains a substantial section about how the under-banked population uses mobile phones to access financial services.

Just because people are un-banked or under-banked, does not mean that they are “unphoned”.

Mobile phone use is high among younger generations, minorities, and those with low levels of income—groups that are prone to be unbanked or underbanked.Mobile banking and mobile payments have the potential to expand financial access to the unbanked and underbanked by reducing transaction costs and increasing the accessibility of financial
products and services.

Although the report contains some contradictory numbers, it mentions that 91 percent of the underbanked have a mobile phone and 57 percent have a smartphone—rates far above those for the overall population.

As mentioned in an earlier post, we found that over 85% of the UPside Visa prepaid card users have a smartphone.
So we have just deployed a mobile banking application for both Android phones and iPhones.

Only last November, I wrote about how 75% of our mobile customers were using a smartphone to access their account. Well, 2 months later, the number is now beyond 80%:

• 56.7% Android
• 24.2% iPhone

This penetration ratio is astounding. The technical team at Plastyc is getting itchy to release the applications we have prepared for both platforms.

Below is a sneak preview of the iPhone application:

Once released, anyone among the 80%+ with a smartphone will be able to manage the entirety of their account without touching a PC again.

According to the Economist’s special report on personal technology of October 8, 2011, the Personal Computer is on its way out.

Consumers will gradually ditch their laptop or desktop computers in favor of smart phones and tablets to handle their everyday online activities. It turns out that the early adopters of smart phones are not only the young and the geeks. They are also people who find them more convenient and cheaper than PCs. Many of them have also disconnected their land-line phone for the same reason.

I surprised many of my industry peers in the past few weeks when I told them that 75% of the people who access their UPside Visa prepaid card account from their cell phone, do so from a smart phone. It is counter-intuitive that consumers with limited access to large banks would be equipped with the latest and greatest mobile phone technology.

Here is the proof. This is our mobile server logs, detailing what type of mobile browser has been used to access accounts from cell phone during the past 3 weeks:

• 49.6% Android browsers
• 24.1% Safari (i.e. iPhone) browsers

Most wireless network operators now offer an Android phone with their low-cost no-contract prepaid cellphone plans. Kudos to Metro PCS, Virgin Mobile, Cricket Wireless, Boost Wireless, Simple Mobile, T-Mobile, AT&T, Verizon and others for providing your customers with very good phones on prepaid plans.

The new iPhone prices announced by Apple on October 4 will also help increase their penetration among consumers who are usually considered to be late adopters.

This is a big change from only 18 months ago, when only 30% of our customers had a smartphone. Guess what? We are frantically working on a mobile banking smartphone application that will surpass anything available to the under-banked.

On September 6, Congress passed the “American Invents Act”, a rather complicated bill attempting to fix or reduce the issues with filing, granting and post-grant reviewing of US patents.
For a complete version of the act, see http://www.gpo.gov/fdsys/pkg/BILLS-112s23es/pdf/BILLS-112s23es.pdf

“Patents suck”, said Google chairman Eric Schmidt at the Dreamforce conference on September 1. In fact, Google purchased Motorola mobility in large part for its trove of mobile phone related patents, as a “weapon of mass defense”, because patents have become a tool to obtain financial compensation from competitors largely unrelated to the original intent of providing inventors a period of exclusivity on their inventions.

In July, the radio show This American Life, had a great piece called “When Patents Attack!” about “patent trolls” in the Eastern District of Texas who have no other purpose in life than extracting protection money from companies with real businesses and products. Instead of threatening to set the business on fire, mafia-style, they sue regardless of the merits of the patents they have purchased (of course they have not invented anything themselves), and offer to settle out of court for large amounts of money. Patents have become the equivalent of cans of fuels and boxes of matches.

The financial industry has not been spared by patent trolls. Visa, Wells Fargo, MasterCard, Bank of America, Citibank, and many others have been sued for alleged infringement of patents related to digital currency systems that were never implemented by the owner of the patents and would make any software engineer roll on the floor laughing at their triviality.

In an intriguing twist, the America Invents Act is requesting that the Director of the US Patents and Trademarks Office put a transitional post-grant process in place for reviewing  the validity of covered business-method patents. The definition of “covered business-method patents” is explicitly narrowed down to:

A patent that claims a method or corresponding apparatus for performing data processing operations utilized in the practice, administration, or management of a financial product or service, except that the term shall not include patents for technological inventions.

Being no lawyer myself, I interpret the  goal of this post-grant review process as being a way to facilitate the debunking of dubious patents, or the defense against patent trolls. It is rather interesting that lawmakers have chosen financial products and services as the target for this transitional process. I guess that they placed a high priority on limiting the use of patents as a weapon against innovators trying to oil the wheel of a stalled economy.

This week in New Orleans, the Center for Financial Services Innovation organized its 6th annual forum.

Plastyc will be part of a panel session about the “Young and Bankless“.

I will be talking about the myths and realities of young people & money, and will outline guidelines for building a prepaid card optimized for the 18-24.