Digging Deeper with Boom Financial: Empowering the Unbanked with Mobile Money
Andrew Barnes’ “Digging Deeper” series is based in Silicon Valley and focuses on startups and key innovators and how they are solving digital payments and commerce problems worldwide.
Boom Financial, a well-funded Silicon Valley startup, is the first cross-border mobile banking service operating in the United States. Boom serves immigrant families in the US, Latin America and the Caribbean by providing them a simple to use, federally insured, mulit-purpose bank account on their smartphone.
Andrew sat down with Bill Barhydt, Founder and CEO of Boom to talk about the perfect storm of banking the unbanked with smartphones, the myth of the M-Pesa business model, and taking cues from AmEx to build an aspirational brand for the future.
Andrew Barnes: Bill, thank you so much for taking the time to sit down with me today. How is what you’re doing disruptive to the marketplace? Who are you disrupting?
Bill Barhydt: We believe that the way cash services work today whether they be money transfer, check cashing, payday loans, or even bill payment services … in terms of low safety, inconvenience, high fees, etcetera, are horrible for the average consumer that uses them.
Our goal is to get rid of all of that. The disruption in my opinion is, to get rid of all of these services in favor of a single service that truly works for this specific type of cash-consumer. I don’t mean to simply give them the bank account that you and I would want, and make it work for them. Our customers have unique needs. A lot of our customers are living from paycheck to paycheck. I don’t mean that in the traditional middle-class sense. Many are even tapping into their next paycheck in advance in a pinch.
There is a different set of requirements. It’s real-time access to cash. It’s potentially real-time access to credit, and emergency-based money transfers if you’ve got a family member who’s sick in Mexico. We we want to bank these consumers for the reasons I mentioned. We want to give them the capabilities that are unique to their marketplace; the ability to transfer money 24/7 to another country, the ability to pay a bill quickly and easily, the ability to potentially have access to real-time credit in a pinch, the ability to cash a check on the fly, without having to go to some dodgy window and pay 12 percent, even though it says one percent in the window.
If you want to bridge the gap between addressing the problem and really being disruptive, it’s got to be a service that this specific customer wants and needs, as opposed to just saying, “Here’s our bank account. It’s better than what you’re already doing.” That’s what we mean by disruption.
You guys are doing some really important work. What should we expect to see in 2014?
Sure. The theme for 2014 at Boom is really about scalability. We’re completely focused on scaling our business, both in the U.S. and in key territories outside the U.S.; basically, territories that represent sources of immigrant populations in the U.S. Our business model is to sell to the immigrant population here, and then facilitate banking these customers’ families back home, as part of the normal money transfer process.
In 2013, we launched a new version of the Boom service, initially targeted at the U.S. Caribbean immigrant population. It was initially rolled out in South Florida to make sure that we got the service right, that the customers like the service, and that they kept coming back.
Now that the details have been worked out, our focus is on scaling both nationally in the U.S – you’ll see Boom marketed heavily in all 50 states this year, and heavily marketed online – but also on expanding into other territories beyond the Caribbean with a heavy emphasis on the rest of Latin America.
I get why the end consumer in your target market benefits from what you provide. As a payment professional, why should I care about Boom Financial? What do you mean to me in terms of what you’re doing in the marketplace?”
You should care about Boom Financial insofar that you care about this specific cash consumer, or this kind of first- or second-generation immigrant consumer. I believe that if you look at population trends … demographic trends in the United States, and even the last Presidential election, the power of the Hispanic consumer in particular, and their importance in the American marketplace, is enormous and growing in importance.
Anybody who’s not paying attention to that consumer in the payments world is basically not paying attention to a significant percentage of the marketplace. Again, that’s a consumer that is very cash-oriented. The question is, what’s the right way to bring that consumer into the traditional banking and payment system? Anybody who’s working in payments, in my opinion, is going to have overlap with that consumer.
Can you tell me about your partnerships, experiences with carriers, and mobile deployment strategy?
Sure. Let me start by saying that we’ve been bearish on most of the international wireless carrier deployments and their chances for success. We’ve been right, by and large; as most of them have failed.
In a lot of cases wireless carries come to Boom and say, “Look, we’ve spent a lot of money deploying technology and whatnot, and to put a wallet in the consumers’ hands, and it’s not working.” The truth is, the technology works fine. You’re just not solving a problem for the consumer.
In the case of M-Pesa [in Kenya,] it was really interesting because one, there is huge domestic migration happening, of people moving from farms to cities. They thought that what was interesting about M-Pesa was, they could use it for microfinance [payments.] The truth is, nobody cared. It ended up actually being double the work to use the phone, because they were doing manual paper entry to track payments. They ended up continuing to double-book entry, and using the phone. Having a mobile money system was actually double the work for MFI’s using M-Pesa.
M-Pesa has been held up as the poster child for mobile money so often. What was going on?
When they realized that there is huge domestic migration going on, of people that were then carrying money back from cities to the farms, where they migrated from, they said, “Hey, we have mobile air-time agents in these [remote] places. We could actually solve a big problem for these consumers by facilitating the ability to move this virtual currency around, and then cash it out at our agents for Kenyan Shillings.” That’s really compelling, and that turned into M-Pesa.
Not every country has that problem. Carriers just started blindly deploying mobile money as if it was another feature, another checkmark, like voice mail or SMS, and it’s not. It’s a system and service in and of itself that’s meant to solve specific problems. Either you have the problems, or you don’t. Most of them don’t.
So where do you add value to the carriers?
A lot of times, we’re contacted by carriers in countries that represent remittance receiving markets from the U.S. saying, “You would add huge value to us if we could receive the funds from the Boom account in the U.S., into our account … our mobile wallet account … in our country.” In a lot of cases, they can’t legally do that, because the way international governments have set up the regulations, the balance limitations on those mobile wallets are so low that they can’t receive remittances. Remember, remittances are high-dollar transactions.
As Boom deploys its wallet or its bank accounts into each country, we don’t have those limitations. The carrier’s mobile wallet becomes an interesting front end on the Boom wallet, because they have all these merchants set up. Think of the carrier like Visa, as an interoperability brand, or a payment brand, and Boom as the bank, or the issuing bank, who owns the account.
Now, we start to add big value to these networks that they’ve built, because we’re bringing the cash to the table, the same way a bank adds value to Visa or MasterCard. We’re bringing the float to the table, and they’re bringing a network that they’ve spent a lot of money building, that they’ve often extracted no value from.
Folks are talking about the tipping point in financial services for the unbanked and unserved. This means mass access and adoption for services like the ones that Boom offers. What is driving adoption?
Mobile. And the tipping point from a mobile technology perspective is that an Android phone can be bought for $100, sometimes less. There’s no reason not to have a smartphone, compared to what you’re paying today [for a feature phone] if you can get a smartphone from metro PCS or TracFone for $75 or $80.
We’re seeing a big migration to Android, which is something we predicted would happen. As a matter of fact, we developed for Android first, and we haven’t even released an iPhone app yet because very few of our customers have iPhone. We get a lot of requests for it, because they tend to use the phone more, in our surveys and experience. But by and large, more people have Android.
The perfect storm is happening, but to your point, it’s a totally different storm. Our storm has to do with requirements around being a cash consumer, requirements around sending money home, safety, and fees. In Kenya, people were literally getting on a bus and carrying money home. That’s not happening here in the US, because there’s an artificial border that you have to deal with as an immigrant who wants to send money home.
I completely agree with your statement that looking at M-Pesa and saying, “Let’s do that here,” is a complete recipe for disaster. That’s proven to be true, given the amount of money that’s been wasted by a lot of wireless carriers around the world.
It’s interesting, as we talk about this segment, it got a couple of different names including un-banked, un-served, under-banked, under-served, emerging middle class. It’s actually sexy these days from the standpoint of players who want to provide the services. Can you tell me a little bit about your philosophy?
I appreciate the question, but on the other hand, we started Boom when nobody in the US was investing in international markets, money transfer or mobile money; none of that stuff was sexy. The fact that it is now … that’s just some point on a time line, to me. Our mission hasn’t changed. Our product road map hasn’t changed. Our investor mix has changed, because we’ve grown. By and large, we’re doing the same things now, and talking about the same things now, that we were talking about five years ago. It’s everyone else that’s changed.
We spoke early on to many potential investors who said, “Look, we won’t invest in the East Bay, never mind in a company doing business in Mexico, or the Caribbean, or whatever.” That’s totally changed now. Everybody’s talking about mobile payments, and location-based services, and how to take advantage of mobile first. That was not the case when we started Boom. Remember, we started the company just after Android was announced and before the first Android phone was released. iPhone penetration was good, but it was just starting. It’s a very different world now.
As a first mover in the market, there’s benefits which accrue to you. You’ve got a strong group of partners, can you tell me a little bit about your partnering strategy? What’s working?
Sure. I would readily admit that we may have started the company even a couple of years too early. I think that on the one hand, we certainly have the benefit of what we learned over those two years, but it costs money to be in business for two years.
That having been said, the segue into your question is that we’ve learned a lot about who we want to be in business with. We’re a very mission-driven company. We execute, but it’s all about the mission. Everybody who’s here believes that we’re doing the right thing by our customers, and we believe that fundamentally in our core. That translates into who we do business with, in terms of our bank partners, our retail partners, our plastic printing partners.
Our FI partners are really key to us. For example, in the U.S. we’ve partnered with Self-Help Federal Credit Union. We did a large research project, looking at different types of FI organizations. We did trials with different types of FIs. We found, for example, that a lot of the traditional prepaid card issuers that your readers are familiar with, do a really good job of servicing that market, but they’re not the right partners for Boom.
Given your unique approach, how do you pick and vet your partners? What is required chemistry?
The right partners for Boom first ask questions about how we’re servicing our customer, and how we’re helping our customer. When we get into questions about pricing changes, and terms and conditions changes, it’s more about the customer. We definitely focus on regulation, and making sure that all the i’s are dotted and t’s are crossed and that disclosures are correct; whether it’s Dodd-Frank, or Reg E or Reg D or whatever, it’s all appropriately covered, but it’s always customer first. Nothing against the prepaid issuers, but in my experience those aren’t the discussions that happen first. It tends to be the other way around. That’s fine; I understand the perspective they’re coming from. Their reason to exist is a little bit different, and that’s fine. I’m a capitalist, too, so I have no problem with that.
Given the nature of our mission, we feel that we work better with partners who are aligned first and foremost with our mission. We also find that they’re willing to work through all the other details in a more constructive way. By constructive, I don’t necessarily mean in a way that benefits us. I mean in a way that’s easy fair, ethical and just becomes matter-of-fact.
Can you give me some examples of this?
This is true of our partnership with Self-Help in the U.S. Also, one of our FI partners outside the U.S. is in Haiti and is very similar to Self-Help in terms of their strong social mission. Our partnership with WOCCU, the World Council of Credit Unions, has been very important to us. I’ve got a team with them right now, traveling in Latin America, working with our FI partners who we haven’t announced yet. WOCCU is all about servicing this customer. We spend a lot of time with them on mission; how to deploy with the right types of FI partners. We use their switch to connect to different credit union systems.
We no longer look at our partners as a cost of business. I’ll readily admit that four years ago, we did.
Can you articulate the mission that you just referred to; the one that everyone is aligned behind?.
Sure. Our mission is to be the premiere financial service provider for the immigrant population in the United States, and their extended families back home. That’s it. We basically want to take them from the cash world, into a modern bank world that’s right for them; not right for us, but right for them.
And this obviously extends beyond remittance?
Remittance is a feature, an important feature. It’s an expensive feature. It gives us a good hook, to make them sit up and take notice. They’re saving a fortune. The early adopters think using the phone to do cross border transfers is fun and cool. It makes them ask a lot of questions, but it’s still an important feature.
Envision out what the relationship that your customer would have with you, five years from now; what does that look like?
I actually am a big fan of AmEx in the 80s and early 90s, in terms of how they looked at membership, and basically being an aspirational kind of brand. Aspiration is a relative thing. Everybody has aspirations, whether you’ve just arrived in Ellis Island in 1910, or you’ve got $200,000 in college debt, or whether you’re a trader at Goldman Sachs making two million dollars a year, you have aspirations.
We want to be the financial services brand that fulfills the aspirations of this next generation of upcoming middle-class consumer, who’s making their way up the financial ladder. That’s what I want to segue into being over time. We refer to everybody who has a Boom account as a member; that’s the only term we use. We rarely use the term “account.”
In terms of how we look at our customers, they are members today. Everyone is a member. That’s part of why Self-Help is so aligned. If you belong to a credit union, you’re a member of a credit union. Banks don’t call their account holders “members”.
Obviously, we have to execute on our business today, but we’re constantly trying to push the envelope in terms of thinking about where this market is going for our current and future Boom customers as they move along the economic ladder of life.
That’s a wrap Bill, this has been great. Thanks for your insights.
My pleasure Andrew. I’ve enjoyed it.
About Bill Barhydt
Bill Barhydt is the Co-Founder & CEO of Boom Financial (formerly m-Via) – offering cross border mobile banking for the unbanked. In addition to a bunch of start-ups including m-Via, Sennari, Plaxo and KnowNow, Bill was an early employee of Netscape where he designed hosted systems for telecom companies and retail banks, worked for Goldman Sachs designing trading systems and was a research engineer for both NASA and the CIA.
Andrew Barnes, Senior Executive Writer, Emerging Markets
Barnes is a self-confessed payments and commerce “geek” working in Silicon Valley and San Francisco. He utilizes c-level relationships in tech, startups, retail, and financial institutions to identify emerging market opportunities and analyze challenging business models. Barnes recently launched “Digging Deeper,” a published series focusing on startups and key innovators that are solving digital payments and mobile commerce problems worldwide. He has held executive business development positions in Asia with Sprint, Global One, and 2Roam Mobile, and is an Advisor to the Electronic Transactions Association (ETA). Barnes has an MBA from Waseda in Tokyo 早稲田大学大学院 and a BA from Penn State. He can be reached on Twitter @AndrewinSV and Linkedin.