Gruenberg: Cell Phones May Hold Key to Access for Unbanked

WASHINGTON — The Federal Deposit Insurance Corp. plans to issue a report next year exploring whether cell phones could help draw consumers not served by a bank into the mainstream financial system, the agency's chief said Thursday.

"We want to take a hard look at this issue from the perspective of economic inclusion to try to assess what the potential is here in a careful way of using this technology to expand access," FDIC Chairman Martin Gruenberg said at a conference hosted by the Consumer Federation of America.

The report will expand on broader efforts by the agency to put the issue of "economic inclusion" front and center. The FDIC has already partnered with the Census Bureau in measuring rates of unbanked and underbanked Americans. It has also conducted pilot programs with banks to test the effectiveness of certain products tailored for underserved users.

The FDIC's most recent released survey results show roughly 28% of U.S. households are unbanked or underbanked. Gruenberg said findings also show that groups mostly likely to lack a banking relationship are also more likely to utilize cell phones, relative to the general population.

"You don't have to be a rocket scientist to see that maybe there is a potential here," he said.

Developing a framework for mobile phones to expand banking access does pose "significant challenges," Gruenberg added, including "issues of access to the payment system, secrecy, privacy issues [and] significant technological issues."

"But the potential here appears to be meaningful," he said.

Gruenberg said the report will likely focus on three main areas: whether mobile technology can be utilized to serve underbanked consumers, can such a relationship between a consumer and a bank be sustained over time and can the relationship be expanded beyond deposit accounts to other products such as loans.

He said that while the parallel between cell phone use and expanding access to banks has received significant notice in other countries, "it has gained little attention in the United States."

Gruenberg said the FDIC will also continue to focus on the feasibility of banks to offer certain retail products tailored to the underserved.

In the recent past, the agency has conducted a pilot program with a set of banks offering a safe and low-cost transaction account — based on an FDIC template — that is checkless and emphasizes using a debit card to make withdrawals at automated teller machines and point-of-sale terminals. Another pilot was based on a template for affordable, small-dollar loan products that are meant to provide an alternative to payday loans.

Gruenberg said the agency is "getting traction" on interest in the low-cost transaction accounts. "This really has significant potential as a product to expand access to the banking system," he said. "This is going to be an ongoing matter of attention for us."

Meanwhile, he said a lot of banks already offer some type of small-dollar loan product, but he added the word is not getting out about their availability. Many banks have often questioned, however, whether such products can be profitable.

"The large majority of banks offer small-dollar loan products," Gruenberg said. "But the household survey shows a lot of consumers think they don't have access to small-dollar loan products."