Are You Missing Out on This Incredible 700 Million-Person Growth Opportunity?


Having covered the health-care sector for years, I'm accustomed to delving into topics and/or prospective drugs that can affect millions of lives. But, admittedly, I haven't come across too many macroeconomic opportunities where there's the potential to get rich by catering to a group of 700 million people around the globe that remain a largely untapped market.

Curious? Intrigued? Don't worry, I plan to spill the beans on this economic treasure trove that's more than double the population of the United States.

The 700 million person growth opportunity is in plain sight
According to a Gallup poll released this week that was conducted in 2011 by research firm Demirguc-Kunt and Klapper, fewer than four in 10 young adults worldwide (a young adult is considered to be ages 18 to 25) have an account with a formal financial institution that it defines as a bank, credit union, cooperative, post office, or microfinance institution. According to these researchers' figures, that means a majority of the some 700 million young adults around the globe are underbanked and are simply a growth opportunity just waiting to be picked off the branch.

Based on the reported findings, which you can see below, there is a marked difference between younger and older adults in terms of bank account penetration with the exception of East Asia and the Pacific region.


Young Adults Ages 18 to 25

Older Adults Ages 26 to 64

High-income economies



East Asia and Pacific



Europe and Central Asia



Latin America and Caribbean



Middle East and North Africa



South Asia



Sub-Saharan Africa



Bank account penetration, Sources: Gallup; Demirguc-Kunt and Klapper.

There are what I feel some pretty blatant implications here based on this data.

First, older adults have likely accumulated more money over their lifetime in developing countries than younger adults, so they're certainly more likely to open a bank account with an institution. As Demirguc-Kunt and Klapper's study notes, the single-biggest barrier to entry for both young and older adults is simply not having enough money to make opening an account worthwhile.

In both instances as well, a family member already having an account meant it was generally unnecessary for another member of the household to open their own separate account. This self-reported barrier ranked third among both young and old adults.

Amazingly, a lack of trust, which I would have pegged as a very high reason to avoid opening a bank account before fully reading the results of this study, ranked very low on the list of self-imposed barriers.

This is how we unlock this opportunity
The gigantic opportunity that awaits in developing nations isn't actually among banks themselves so much as it offers payment processing facilitators such as Visa , MasterCard , American Express , and Discover Financial Services a potentially multi-decade double-digit growth opportunity.

Source: Images Money, Flickr.

Among young adults, the second, fourth, and fifth most reported barrier to opening a bank account -- it's too expensive, it's too far away, or they lacked the necessary documentation -- can easily be remedied by the introduction of prepaid debit cards in these underdeveloped regions.

The interesting thing is that prepaid debit cards can be beneficial for both the underbanked young adults and banks themselves.

According to a Pew Research Trust study that looked at 52 prepaid debit cards that comprised a majority of the market compared with more than 200 conventional checking accounts offered at 12 financial institutions in the United States, it discovered that unless you were proactive in managing your money, the fees of a prepaid debit card were more often cheaper than maintaining a checking account. With young adults being less willing to save their money and also more likely to have poorer account maintenance habits, prepaid debit cards are a considerably more beneficial option.

From the view of a bank, utilizing prepaid debit cards allows them to unload some of the risks association with taking on younger adults with little cash and little to no experience managing money.

How big is this opportunity?
A 2012 study (link opens a PDF) by Partners in Prepaid that was commissioned by MasterCard estimates that the projected global prepaid opportunity by 2017 will be worth $822 billion! Furthermore, the prepaid market is projected to grow annually by a rate of 22% through 2017. Keep in mind that these estimates also include other aspects of the prepaid or reloadable card market such as corporate payrolls and government benefits, but the projections are clear as day that the rest of the world outside the U.S. is bound to see incredible prepaid debit growth throughout the remainder of the decade and beyond.

As the study also notes, technology is perhaps one of the greatest drawbacks of prepaid debit cards. In countries where cash still dominates, Visa and MasterCard are pushing through using legacy infrastructure networks in order to improve merchant transaction capabilities and move developing countries beyond a cash-only capability.

In the U.S., there's still ample room for prepaid debit card growth with American Express allying itself with multiple retailers, including Wal-Mart, last year, while Discover partnered up with eBay's PayPal in an attempt to get its foot firmly in the door of mobile banking possibilities.

Outside the U.S., though, Visa and MasterCard appear to have an edge on AmEx and Discover given that they act solely as payment facilitators and not as lenders, keeping Visa and MasterCard free of bad debt exposure and freeing them up to focus on adding more merchants and improving their global infrastructure reach.

However, regardless of how you view these four payment facilitators, it's undeniable that a burgeoning growth opportunity awaits them all. The only question is whether you'll be along for the ride.

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Fool contributor Sean Williams has no material interest in any companies mentioned in this article. You can follow him on CAPS under the screen name TMFUltraLong, track every pick he makes under the screen name TrackUltraLong, and check him out on Twitter, where he goes by the handle @TMFUltraLong.The Motley Fool owns shares of, and recommends eBay, MasterCard, and Visa. It also recommends American Express. Try any of our Foolish newsletter services free for 30 days. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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