Friday, March 11, 2016
NYPAY, a forum for payments and mobile commerce executives, held a networking meeting and panel discussion March 8, 2016, in New York City. Titled Innovate or Abandon: The Business of U.S. Financial Inclusion, the event focused on finding ways to improve underserved consumers' access to financial services. Maria D'Albert, a digital and data product development consultant and strategist, moderated the event. She led a discussion with industry leaders from traditional banking and emerging fintech sectors.
Following is a list of participating panel members:
"The financial services industry is in an intense period of experimentation and rapid learning," D'Albert said. "Panelists had strong backgrounds, in-depth understanding of market drivers and a disciplined approach to understanding customer needs."
D'Albert previously worked at MasterCard Worldwide and American Express Co., using digital data in a variety of contexts. She has seen the social impact of digital innovation and its potential to bring financial services to underbanked consumers. "The market is much broader than people assume," she said. "Service providers need more than just the latest products and solutions; they need a better understanding of key human needs."
Approximately 68 million consumers used alternative financial products in 2014, generating $138 billion in interest and fees, according to a study by The Center for Financial Services Innovation. Many traditional financial service providers have found it necessary to rethink business models and risk tolerance when serving underbanked populations, the center noted.
"Companies that grow too quickly without testing and learning can explode," said panelist Golinsky. "You need to have rigor around your analytics." Golinsky cited Providian Financial as a case in point, a credit card issuer that grew rapidly in the 1990s by focusing on the subprime market. Allegations of deceptive business practices led to an investigation by the Office of the Comptroller of the Currency and subsequent class action suit. Consumers took issue with misleading language in Providian's credit card agreements, claiming interest rates were higher than advertised and "no annual fee" cards carried as much as $156 in annual "protection fees." Providian settled in 2000, agreeing to repay $300 million to consumers.
Panelists shared innovative approaches designed to be affordable to consumers and profitable for service providers. JPMorgan Chase and the CFSI co-sponsored the Financial Innovation Lab 2016 Challenge, an initiative aimed at helping U.S. consumers weather financial shocks. The Financial Solutions Lab's website describes the project as a virtual laboratory, available to anyone interested in finding ways to use technology to improve Americans' financial health.
"Lab participants share a relentless focus on building products and services that embrace inclusion, build trust, promote success, and create opportunity, and which solve important financial challenges that Americans face," the authors wrote. "Over the next five years, we will create challenges and rewards for innovative entrepreneurs, companies, and nonprofits, building solutions for the issue areas we highlight."
The website further defines the program's goal as to create an ecosystem for fintech innovators to "identify, test and bring to scale promising innovations that help Americans increase savings, improve credit, and build assets."
When asked how to measure the impact of financial-inclusion initiatives, panel members agreed that social impact is quantifiable. "As we shift people to debit cards, we can measure the credit impact," said panelist Cooper, whose business, Rezzcard, provides an electronic rent payment service designed to serve the financial needs of low and moderate income tenants. "It's very linear, very measureable and the social impact is built into our business."
Cooper also advocated a gradual approach for introducing newcomers to financial services. "The first behavior might be paying rent at a check casher and establishing a relationship," he said. "Service providers can start with something simple and build incrementally over time."
Golinsky concurred, adding, "The more people you get into some other category is how you measure your impact. Bring people out of underserved segments; get the numbers going down."
Panelists agreed on the need to for appropriate delivery models that facilitate services in ways that underserved customers want to consume them. "The key is getting closer to customers in order to serve them better products and services," D'Albert said. "I also agree with Alex Cooper that a measured, incremental approach would be most effective."
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