The unbanked: how social networks could succeed where banks have failed
In the developed world, sending money domestically is as simple as logging onto online banking. If you want to transfer funds in or to the developing world, however, you'll often come up against a fairly fundamental block: the 'unbanked' phenomenon. But could the growing numbers of online platforms, from Gmail to Facebook, stepping into the payment industry be the solution to the unbanked barrier?
Who are the unbanked?
Simply put, they're individuals who don't have a bank account. The Federal Deposit Insurance Corporation (FDIC) estimates that around 10 million Americans are unbanked or underbanked, but as you'd expect that number is far higher in the developing world. Last year, the World Bank suggested that 2.5bn people don't have an account with a formal bank.
In contrast, more than three quarters of the world's population own a mobile phone. In Kenya, there are more active mobile money accounts than adults in the country's population. The popularity of this service is spreading across Africa, bringing financial services to millions of unbanked people. And if mobile can gain access where banks can't, that opens out a major opportunity for social networks.
Sending money over social networks
In the West, social networks are already growing as a way of transferring cash. Facebook recently launched a peer-to-peer transfer facility, making sending money as easy as sending a photo. Google's Wallet feature lets users attach money to their emails, again, just like you'd attach a photo. For now, transfers must be within a country, but the scheme's expansion into the UK this year could hint at a more international outlook in the future.
That said, the most intriguing application for this technology is, of course, when it could cater to the unbanked. India's Axis Bank's new Ping Pay app lets users send money via Twitter, Facebook or WhatsApp – the only hitch is that you need a bank account. However, if this social payment service could be integrated with something more like M-Pesa, which is cash-based, there's huge scope for providing financial services to an under-serviced audience.
That potential reaches across the world. In Indonesia, for example, under 10% of the 247m population have access to a bank account – but according to the CIA, the country has more mobile phones than people. Social networks have a similar hold, with over 112m Indians on Facebook, and 30m on Twitter. It could make international money transfer to these areas much easier, at the same time as changing the game for domestic transfers.