Advice for M-Payments Entrepreneurs: Aim at the Underbanked

For the raft of processors either moving into mobile payments or hammering out business plans to make an entry, the top executive with one company that has been in the market for six years has some advice: Focus on the market made up of people who lack bank accounts, and meet their needs for a cheap, convenient way to pay for the mundane items of daily living, such as rent, bus fares, and utility bills. “The underbanked community drives mobile payments, not the banked community,” Joe Barboza, president and chief executive of Cyphermint Inc., told an audience on Wednesday at the Intele-Card Expo, a prepaid card trade show in Las Vegas. Marlborough, Mass.-based Cyphermint provides mobile wallets for 8 million consumers, about 1.5 million of whom are in North America, Barboza estimated in speaking to Digital Transactions News. Some 6 million of the accounts are in parts of the former Soviet Union, where Cyphermint began marketing mobile-payments services in 2001. Barboza argues that underbanked consumers, unlike users with one or more established banking relationships, are willing to pay fees for electronic bill payments and other online financial services. “They want to do it less expensively and more conveniently [than with alternatives like money orders], but they will pay for services you and I take for granted,” he said. Banking and payments via handsets, moreover, meet a felt need among this group for immediate, last-minute service. Banked consumers, by contrast, for the most part don't pay any fees now for online service and have less need for mobile availability. “Why would the banked community pay for cell-phone banking when they're not paying now (for online banking),” asked Barboza. Also, underbanked consumers are much more brand loyal than banked customers, he contended, a characteristic that could lock in mobile-payments business for years. “If you capture that consumer, chances are you'll have him for a long time,” he said. “That's not true of you and me. We'll switch in a minute.” To reach a market Barboza estimates at 56 million people in the U.S., Cyphermint links a prepaid debit card to its PayCash wallet, a mobile account users access through their handsets. Customers can load the card with cash, direct deposit, credit cards, or automated clearing house transfers. With these accounts, Cyphermint enables payments to merchants on the mobile Web and person-to-person payments. The company, Barboza tells Digital Transactions News, makes money by taking a piece of prepaid transaction fees, by charging commissions to merchants for processing transactions, and by earning float on prepaid accounts. “There are enough fees in the system to go around for everybody,” Barboza said during his presentation. The company collects all funds and settles all transactions, which are protected by PINs, in real time.