Retail And The Underbanked Opportunity

Forbes | Dennis Mitzner | Oct 20, 2020

retail and the underbanked opportunity - Retail And The Underbanked OpportunityIn the last 10 years, the global retail industry has been hit by a debilitating concoction of technological disruptions and competitive challenges. From issue-based brand boycotts to rapidly changing customer expectations, many of these challenges have disproportionately affected the brick-and-mortar retail market.

Even before the current global pandemic, it was becoming increasingly clear that traditional brick-and-mortar retailing was entering a period of protracted decline. Now, faced with volatile trading conditions and intensifying competition from e-commerce platforms, brick-and-mortar vendors have found it increasingly difficult to keep up with online retail giants like Amazon and Alibaba.

Unless this trend can be reversed, UBS analysts estimate that 75,000 brick-and-mortar stores could be forced into closure by 2026. Sadly, the outbreak of COVID-19 has accelerated rather than reversed existing trends in the industry. In addition to shuttering main street malls and driving down store-based foot traffic, the pandemic has also encouraged traditional retail shoppers to seriously enter the online market, driving a fresh wave of consumers straight into the ever more sophisticated marketing strategies and advertising funnels employed by e-commerce platforms and online retailers.

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As traditional retail executives work to rebuild and restructure their business models, transaction and logistics companies have been forced to readjust their operations in order to service the relentless pace of growth in the e-commerce sector. However, with the gap continuing to widen between brick-and-mortar businesses and online retailers, it’s the underbanked and unbanked communities that stand to be hit the hardest.

If you haven’t come across the expression before, the term ‘unbanked’ means that an individual does not have access to one or more basic banking products (i.e. a bank account, a credit card, or a debit card). Unsurprisingly, an unbanked or underbanked status tends to impact a person’s employability, retirement planning, and capacity to obtain a loan. If an entire community is unable to access basic banking products, that region is commonly referred to as a banking desert.

Mark Carter, CEO of GammaRey, believes that novel digital solutions offer the best chance at more inclusive retail transacting.

“As most underbanked Americans do not have a physical debit or credit card to swipe, the solution lies in digital advances,” asserts Carter. “Retailers have incorporated payment alternatives such as the ability to pay with your mobile phone, customer reward programs, and pre-paid account options.”

As the retail industry casts the net out for new transacting technologies, peer-to-peer payment systems (also known as money transfer apps) are already seeing some impressive results. According to Meaghan Brophy, Retail Analyst at FitSmallBusiness, peer-to-peer payment options excel due to their ease-of-use and lightweight approach to user requirements.

See: 

Accelerating winds of change in global payments

Sibos 2020: Rethinking compliance for friction-free payments

Evolving to Work Better Together: Public-Private Partnerships for Digital Payments

Nevertheless, peer-to-peer apps and programs have many shortcomings when it comes to integration with unbanked or underbanked communities. While they go some way towards bridging the banking gap, peer-to-peer systems often suffer from rigid operating conditions, such as a linked bank account requirement or a strict ID compliance check. In some cases, failure to meet these conditions may lead to users being locked out of their account and unable to access their deposited funds. This particular accusation has been repeatedly leveled at online payment and transfer systems like PayPal.

Earlier this year, Jack Dorsey’s Square followed in the footsteps of MicroStrategy and announced that it would be investing $50 million in bitcoin, an acquisition that JPMorgan has called a “strong vote of confidence for the future of bitcoin.” As the company behind the Cash App, Square’s increasingly active position in the cryptocurrency industry suggests that Dorsey is in the process of tweaking his existing payment platform to be more accommodating for cryptocurrency retail transactions.

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