GlobeOne looks to lower fees to serve the underbanked
A unique new banking initiative is tapping into the power of the crowd to help everyone come out ahead.
GlobeOne, which is scheduled to go live at the end of 2015, is founded on the belief that access to financial services allows people to have more control over their future.
And it indeed starts with access, GlobeOne CEO Les Riedl explained. Two billion people around the world are excluded from financial services, leaving them at risk of being left behind in the global economy.
Even if they do have access, another challenge is to find a way to save some money, Mr. Riedl added. Eighty percent of people worldwide struggle to save.
Mr. Riedl said GlobeOne spent 2011 and 2012 engaging in one of the world’s largest crowdsourcing efforts to determine which banking services people need and which factors led to their exclusion.
One universal problem was the lack of access to reasonably-priced financial services. When you struggle to save any money and what you do save is eaten up by fees, what is the point of them?
Lack of access affects the poor
This is a problem that disproportionately affects the poor, Mr. Riedl explained.
“The people who pay the highest fees can least afford to do so.”
That keeps many off the financial grid. But occasionally, just like Jack Bauer, they have to resurface. And when they do, they are limited to payday lenders and other high-cost options.
GlobeOne’s research also revealed many people need products to meet their lifestyle. While we might typically think of people in remote parts of developing regions in this sense, Mr. Riedl said that need is global, for many people in the first world are excluded from opportunities they see others taking advantage of.
“There is the group of HENRY (high earning, not rich yet) millennials who are renting, but many millennials and non-millennials too are struggling financially.”
Many would like to own a home and otherwise be more active participants in the economy, but they have zero financial mobility. This impedes their opportunities for education and for even maintaining their physical health, something they share with the poor around the world.
Mr. Riedl said GlobeOne set out to solve how they could provide a package of financial services that meets the needs of the unbanked while doing it in a way that brings them into the formal financial sector as profitable customers for the banks.
They faced two distinct challenges. The first was the high cost of alternative financial services in the developing world. People seeking microloans in Mexico can pay an effective annual interest rate of 118 percent, for example.
The exorbitant fees many people in North America are well-documented, and this has a global effect, Mr. Riedl explained. An estimated 35 percent of America’s 85 million immigrants send money to family in their countries of origin, with assorted fees eating 15 percent of the total. An extra five or 10 percent to people in countries with devalued currencies is a significant amount. As much as 20 percent of some countries’ GDP consists of such transfers, Mr. Riedl added.
“The challenge became how to deliver a comprehensive set of banking services and remain profitable,” Mr. Riedl said.
The answer, not surprisingly, was in technology, and in particular, the smartphone.
“For many people, the smart phone is their oxygen,” Mr. Riedl explained. “They get their information from it, and maintain their social networks.”
GlobeOne’s conclusions are consistent with what people working in poor regions, whether those are in the third world or in inner city America, know – where people will do without many things, they will keep that phone because it is one of the few things that allows them to have some control over their lives.
Goal to reach 50 million
During that two-year research period, Mr. Riedl said the GlobeOne team began recruiting best-in-class partners from around the world to develop their platform and to serve as banking partners in different countries. The immediate goal is to reach 50 million members through 100 banks in 30 countries. Because of GlobeOne’s open platform, only two or three banks are needed in each country in order for them to have significant reach.
It also has to have maximum functionality across all platforms, he added. Because people in remote regions do not live anywhere near a bank, they have to have a convenient experience on their mobile phone. That is just as important for the unbanked in large urban centers too, as they are just as effectively separated from mainstream banks.
At several points in our conversation Mr. Riedl mentioned the challenge in profitably operating in underserved areas. Margins are indeed smaller, so expenses have to also be smaller for GlobeOne’s plan to make sense.
Mobile technology eliminates the need for physical branches and some staff, while also helping to reduce fees.
Another significant cost is customer acquisition, which can hit $350 for every checking account, Mr. Riedl explained. GlobeOne’s acquisition cost is under $20 per client.
Technology to the rescue
Again the solution came from technology, this time from social networks. GlobeOne developed SocialBoost, a peer-to-peer social marketing model. GlobeOne customers who refer their friends get to share in the profits those friends generate.
So does everyone else, whether they live in Mexico, Bangladesh, or Vietnam, who, along with the United States, comprise the quartet of countries in which GlobeOne is about to debut. Get five of your friends to sign up with GlobeOne, and someone on the other side of the world will end up with some extra money to feed their family or to get ahead.
That desire to connect with the world and to engage in socially beneficial activities is being recognized by more companies as they market to millennials. CommonBond finances a year’s tuition for every degree fully financed on its platform. Warby Parker provides free eyeglasses while TOMS donates shoes.
A relatively new idea, it definitely connects with millennials. Good thing, for many of the other old standards from the big bank playbook do not, Mr. Riedl admitted.
“There is a traditional disconnect between the traditional banks and the needs, lifestyles and behaviors of millennials,” he observed. “Traditional marketing is not good at reaching them.”
In addition to creating opportunities to help others, GlobeOne also wants people to help themselves. Half of all referral bonuses and ongoing profits each client receives goes directly into a savings account that has restricted access until the client reached the age of 59, Mr. Riedl explained. Making it harder to tap into makes it more likely people will save that money and let it grow.
Additional products include lower-priced credit and life insurance.
“Few think about life insurance, but with a group life package, beneficiaries can receive $10,000 US to cover funeral costs,” Mr. Riedl said. That is a welcome benefit for poor people living in countries where elaborate funerals are expected and which cause families to become trapped in generational debt.
One factor which has helped GlobeOne’s growth is the continued support of their original investors. Their initial support has sustained GlobeOne’s progress to date and has allowed them to devote all of their attention to growing the platform.
“Our core investors bought into the vision,” Mr. Riedl explained. “They very much believe in the overall benefit and value we are looking to create around the world.”