Highlighting Europe’s Unbanked and Underbanked Opportunities and Challenges

With the international debate involvingfinancially underserved consumers generally focused on developingpayments markets, Europe and the United States are oftenoverlooked. This is major oversight.

There were nearly 35 million unbanked or underbanked households inthe U.S. in 2011, according to the FDIC. There are some 93 millionunbanked consumers in Western Europe, according to MasterCard.Governments and payments companies seeking to bring these consumersinto the mainstream payments ecosystem is paramount, and prepaidcards may be one solution.

MasterCard last week published Road to Inclusion, aresearch report focused on the unbanked and underbanked consumersin six European markets (United Kingdom, France, Italy, Spain,Poland, and Russia). For European consumers considered unbanked,the average age is 40 with women slightly more likely to beunbanked than men (55% to 51%). The same holds true for consumersconsidered underbanked, which MasterCard defines as a consumer nothaving access to any form of electronic payments.

Some 25% of unbanked and underbanked consumers do not open andmaintain an account at a formal financial institution because theydo not have enough funds to do so, according to the report. Thisfigure could rise as financial institutions across Europe considerimplementing more fees as a means to recoup the expected loss ininterchange fees if the European Commission proceeds to implement aninterchange cap. More fees, as a result, will discourageaccount ownership among consumers who feel they do not have enoughmoney. Other popular reasons for not having a bank account include”don’t want or need” a bank account; they aren’t allowed one; orthey don’t like or trust banks, according to MasterCard.

It would appear, however, that there is a silver lining. Consumersare willing to reconsider their financial inclusion status, with54% stating that they would like to learn more about electronicpayment products and how they can benefit from using them. One ofthe most relevant electronic payment products to the unbanked andunderbanked are prepaid cards. Prepaid cards address many of theconcerns expressed above and help bring consumers into themainstream payments ecosystem.

As part of its report, MasterCard asked consumers about theirattitudes towards prepaid cards. Some 41% of European respondentsrecognize that they could benefit from prepaid cards by not havingto carry cash around all the time. Some 25% of respondentsacknowledged prepaid cards would help them more effectively budgettheir money.

Jennifer Rademaker, Senior Vice President of Core Products Europeat MasterCard commented on the potential of prepaid cards amongEurope’s unbanked and underbanked groups saying, “What’sinteresting is that prepaid cards can really be the bridge for somany to feel financially included, keep their money safe, and tolearn more about budgeting. This road is also part of beingsocially and technologically included, and we need to do more toeducate these groups about the possibilities. Clearly there is noone size fit for all but products can be personalized easily totake people’s different life circumstances in to account.”

With an unbanked and underbanked population nearing 100 million inWestern Europe alone, there is an ample market for financialproducts targeted at these consumers. As seen in the U.S., prepaidcard solutions may very well be the best payment product to enticeconsumers into the mainstream payments ecosystem. However, anyperception that consumers would shift overnight from cash toprepaid cards, or any other payment instruments, would be unwise.Financial inclusion takes time and will be years before anoticeable decline in the unbanked and underbanked populationemerges, especially since consumer distrust in the financial systemin Europe has never been higher.

Follow Tristan Hugo-Webb on Twitter @THugoWebb.