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1 Center for American Progress | Expanding Financial Access Through Mobile Banking

Expanding Financial Access

Through Mobile Banking
Testimony before the Consumer Financial Protection Bureau
New Orleans Field Hearing on Mobile Financial Services
Joe Valenti
Director of Asset Building
Center for American Progress
June 12, 2014
Good morning. Id like to thank Director Richard Cordray and the Consumer Financial
Protection Bureau, or CFPB, for inviting me to speak here today about mobile banking.
My name is Joe Valenti, and I am the Director of Asset Building at the Center for American
Progress in Washington, D.C. My work focuses primarily on policies that expand access to
the fnancial system for low- and moderate-income Americans, and I believe mobile bank-
ing can be a successful approach to reach the underserved, if done right.
Approximately 28 percent of American households either lack bank accountsa group
known as the unbankedor are underbanked, meaning that they have accounts but
are not fully integrated into the fnancial system.
In other words, they rely on nonbank
fnancial services, managing their money by going to check cashers and purchasing
money orders or paying bills in person. Here in Louisiana, the number is much higher:
42 percent of households are either unbanked or underbanked, including more than
200,000 households in the state that dont have bank accounts at all.
At the same time, cell phone availability has increased dramatically over the past decade
to the point in which more Louisianans have cell phones91 percent
than bank
accounts. Tis makes Louisiana one of seven states, as well as the District of Columbia,
in which cell phones are more prevalent than bank accounts, according to a report that
we released last year.
Based on new data about cell phone ownership, this has increased
to nine states and the District, including several states in the Gulf region.
2 Center for American Progress | Expanding Financial Access Through Mobile Banking
As traditional banking has become less accessible and convenient due to branch closings
and other nationwide trends, mobile banking is an opportunity for consumers to beter
manage their money without needing to rely on bank branches. Perhaps the most sig-
nifcant recent development is remote deposit capture, the ability to deposit a check just
by taking a photo of it using a smartphone camera. Tis step alone can efectively give
millions of consumers who currently rely on check cashers a raise, saving anywhere from
2 percent to 5 percent or more in check-cashing fees.
Smartphones continue to become
more popular and are already the majority of cell phones in use in the United States.
a result, we will likely see more innovations that enable consumers to manage money on
their phones in the coming years.
However, this doesnt mean that consumers without smartphones are necessarily lef
out. Even on a traditional cell phone, text alerts can provide balance information and
reminders to help consumers avoid overdraf fees when balances are lowan important
tool when the median overdraf fee nationally is now $35.
And one pilot in Philadelphia
has taken text alerts one step further. Consumers who are receiving credit counseling
have a new option to hold themselves accountable for paying down debt: If they miss a
payment, their family or friends will receive text alerts too.

Tere is no shortage of creativity in the development of mobile banking tools, although
mobile banking does pose three major challenges that must be addressed as well.
First, the disclosure tools that we currently ofer on paper have not carried over to the
mobile environment. Credit cards are a prime example. Te Credit Card Act of 2009
mandates that statements include the amount a customer would need to pay monthly
to be debt free in 3 yearsa provision that may save consumers as much as $71 mil-
lion each year.
But at least one-third of all Americans dont receive paper statements
for credit cards because they rely on mobile or online tools and miss this information.

Customer disclosures must be adapted for mobile tools without being overwhelming;
QR codes and web links are not sufcient.
Second, data security fears and hurdles must be addressed. Tere is no clear chain of
responsibility when mobile fnancial products fail, with multiple frms and regulators all
in play. About 40 percent of all consumers report that they are unsure whether mobile
banking is safe or not.
Consumers should not be liable for unauthorized charges, and
they should be able to safeguard their fnancial data if their phone is lost or stolen.
And third, mobile banking products must be banking products frst, based on underly-
ing regulated and insured devices such as checking accounts and prepaid cards. No
killer app should circumvent regulations if the objective is to expand access and build
trust. Instead, mobile fnancial tools should build of regulatory platforms that are
already in place to protect consumers from abusive practices.
Tank you. I look forward to your questions.
3 Center for American Progress | Expanding Financial Access Through Mobile Banking
1 Susan Burhouse and Yazmin Osaki, 2011 FDIC National
Survey of Unbanked and Underbanked Households
(Washington: Federal Deposit Insurance Corporation, 2012),
available at
2 Ibid.
3 Stephen J. Blumberg and others, Wireless Substitution:
State-level Estimates from the National Health Interview
Survey, 2012, National Health Statistics Reports 70 (2013):
115, available at
4 Joe Valenti, Banking by Hand(set): Using Mobile Banking to
Expand Financial Access (Washington: Center for American
Progress, 2013), available at http://www.americanprogress.
5 Joe Valenti and Deirdre Heiss, Financial Access in a Brave
New Banking World (Washington: Center for American
Progress, 2013), available at http://www.americanprogress.
6 Nielsen, Americas New Mobile Majority: A Look At
Smartphone Owners in the U.S., May 7, 2012, available at
7 Susan K. Weinstock and others, Still Risky: An Update
on the Safety and Transparency of Checking Accounts
(Washington: The Pew Charitable Trusts, 2012), available
8 Center for Financial Services Innovation, Financial Capabil-
ity Innovation Fund Mid-Term Report (2012), available at
9 Joe Valenti, Protecting Consumers Five Years After Credit
Card Reform (Washington: Center for American Progress,
2014), available at
10 Javelin Strategy and Research and Syndicated Research
Custom Research Strategic Consulting, Key Takeaways from
PayItGreen 2010 Survey (2010), available at http://multivu.
11 Board of Governors of the Federal Reserve System, Con-
sumers and Mobile Financial Services 2013 (2013), available