Innovations such as Apple Pay — introduced during an Apple event in Cupertino in September — could be the key to reaching the nation’s unbanked. (Stephen Lam/Reuters)

It seems as if every big player in the tech sector is developing a mobile payment solution. It’s not just Apple Pay, which was announced with much fanfare at the big Apple launch event in early September, and reportedly could go live as early as Oct. 20. There are now rumors that Facebook is working on mobile payments. Add to the mix PayPal, Square and Google and it’s clear that some of the smartest innovators in the tech world are on the cusp of breaking the mobile payments space wide open.

The reason why the mobile payments space is so exciting right now is not because of all the money to be made – the real reason is because of what the explosion of mobile payment alternatives means for the nation’s “unbanked” – the nearly 10 million American households that don’t use banks, don’t use checking accounts, and basically depend on cash and financial alternatives – like payday lenders and prepaid cards – for their financial transactions.

What’s interesting is to drill down on the data about the nation’s unbanked to find out how mobile banking could help them become part of the financial system. According to a Federal Reserve bulletin released in September 2012, 63 percent of the unbanked have a mobile phone, and of these, 26 percent have smartphones. And, once these unbanked Americans get smartphones, says the Fed, they are more likely to use them for banking. Putting it all together, the Federal Reserve highlighted the significance of this for the future of the nation’s financial system, “The increased use of these devices coupled with the evolution of technologies that enable consumers to conduct financial transactions using their mobile phones has the potential to change how consumers manage their finances as new services and tools emerge.”

The results are pretty clear: Get smartphones with mobile payment capabilities into the hands of unbanked consumers and they will use them. They may not have bank accounts, but they have smartphones. They may not have checkbooks, but they have apps.

That’s why Bill Gates, in a recent interview with Bloomberg, called Apple Pay a “fantastic” idea — it’s going to make mobile banking easier and cheaper to use for transactions involving small amounts of money. He’s thinking of Apple Pay’s potential in terms of micropayments and developing markets like Africa, where innovations like M-PESA are hugely successful. But there’s a U.S. equivalent — and that’s America’s “unbanked.” According to the latest FDIC survey, 8.2% of all U.S. households are “unbanked” — and millions more are “underbanked.”

The good news is that Apple Pay has the potential to make mobile payments a de facto standard on every single smartphone going forward. Apple may have the premium end of the market in mind, but Apple Pay is still going to open up cheap and accessible mobile payments to people in urban cities and the rural poor, even if only indirectly. As Gates noted in the Bloomberg interview: “And all the platforms, whether it’s Apple’s or Google’s or Microsoft, you’ll see this payment capability get built in. That’s built on industry standard protocols, NFC. And these companies have all participated in getting those going. Apple will help make sure it gets to critical mass for all the devices.”

However, if mobile payments are ever going to capitalize on their promise to change America’s financial system, they will still have to convince unbanked Americans to pull out a smartphone every time they’re willing to make a transaction instead of using cash. And, even in 2014, that’s still asking a lot. For one, it’s not always clear how well these new mobile payment mechanisms will actually work. And, secondly, even if you figure out how to use them, it’s not clear that your merchant of choice will actually accept them.

The good news is that new mobile payment solutions may help unbanked Americans get over their aversion to dealing with banks, which was cited as the No. 1 reason why the unbanked are unbanked.

In fact, they might prefer Wal-Mart to banks. The retailer is also getting into the game of providing financial services to the nation’s unbanked. FiveThirtyEight looked at the states with the greatest concentration of Wal-Marts and compared that with the states with the highest percentage of unbanked households, finding a pretty clear correlation. There’s a real market opportunity here.


This doesn’t look like financial disintermediation, does it? (Marcio Jose Sanchez/AP)

For a long time, financial disintermediation was one of the greatest fears in the old-school banking industry – that a bunch of really smart tech innovators would find a way to “disintermediate” the whole financial industry and deal directly with consumers, who would no longer need banks as the “middlemen.” In many ways, this was happening with innovations such as P2P lending, crowdfunding and branchless Internet banking.

But take a look at what’s happening with Apple Pay – there’s not a disintermediation, but, if anything, a re-intermediation. Look at all the major credit card issuers and banks that have signed up for Apple Pay. They may not like it, but they realize that mobile payments are the future.

Think about the number of $10 billion market opportunities available to the big tech companies. You can continue to come up with world-changing innovations that people may – or may not – actually want. You could search for big markets – such as China – and double down on foreign growth. Or, you can tap into the growth prospects here in America. In this case, it’s the 10 million unbanked American households who might just see mobile payments as their secret to prosperity.