I went along to my first NYPAY event in New York this week, called “Innovate or Abandon: The Business of US Financial Inclusion”. This was the first time that I had been to an event organised by our good friends at NYPAY and it was very enjoyable.
According to the CFSI (Center for Financial Services Innovation), research shows there are 68 million un-banked and under-banked people in the US. The panel discussion formed around the financial problems of these people, the importance of certain financial products and failures of the industry incumbents to deliver these services to low-income parts of population.
I was waiting for someone to shout out “Blockchain” at a random point in time, but no one did! Even the “marketplace lending” discussion (formerly known as peer-to-peer lending), brought up by one of the guests, was rapidly exhausted and put aside for “the better times” – regulatory uncertainty makes business cases around these topics quite elusive. And NYPAY event was very much oriented toward practical business model discussions.
Talking about the importance of the key financial attributes, Vinay Patel, CEO and Co-Founder of Bee Financial (One Financial Holdings), hilariously pointed out that the expected lifetime of a joint checking (current) account of a married couple is probably longer than the expected lifetime of their marriage.
This could easily be true. Checking (current) account is a very “sticky” financial product due to the cumbersome on-boarding process, credit score building models surrounding it, loyalty programs and simple habit. However, this product is not available for some parts of population; as is credit. Ability to take credit was seen as a crucial, even key to better financial inclusion by the vast majority of the NYPAY event attendees. But whichever financial product is in question, there is one important observation made by Celia Edwards-Karam, MVP Consumer Deposits from Capital One:
“Payment fees are not the problem – it’s the surprise!”
– Celia Edwards-Karam, MVP Consumer Deposits from Capital One
The surprise charges make a huge difference for low-income, less financially educated, people. This is why understandable fees, even if they are higher, are preferred and more trusted. (Professor Lisa Servon of The New School has detailed research on this and you can hear here talk about it in our podcast with her in 2013).
New business models and new institutional forms are emerging to address this and many other problems of the un-banked and under-banked. For example, Vinay Patel, CEO and Co-founder of Bee Financial, says that during thousands of interviews with potential and existing customers, the start-up team realised that it is crucial to ease up the registration process and on-board people in a way that encourages certain financial behaviour in the future. He shared this insight from the start-up’s research:
“One of the reason low-income people don’t put mobile apps on their phones is because their phones are full of stuff… Good phones, like iPhones and Galaxies come blank. [Bad] phones like $40 Samsungs are pre-loaded with lots of native apps… People are trying to download new stuff – it doesn’t download. So one of the things we’ve learned is that one thing you do for a customer is you check if they have native apps on their phones, look at the apps they never use and delete for them.”
– Vinay Patel, CEO and Co-founder of Bee Financial
A crucial takeaway for me from the event was that income level is just one factor that influences “financial health” of a person. According to CFSI research, there are two important aspects to person’s financial behaviour that also contribute to his or her financial health: to plan ahead and to save regularly.
All of the comments made by the panel supported the idea that little but targeted changes in provision of financial services could lead to drastic changes in financial behavior of customers and therefore can make a big difference for the country’s overall financial health.
A very useful event: many thanks to everyone at NYPAY for putting it together.