Underbanked Inspire a Wealth of Services
Who has the best, most innovative financial product aimed at the underbanked?
An array of cutting-edge examples will be on display in June at the sixth annual Underbanked Financial Services Forum in New Orleans. Organized by the Center for Financial Services Innovation and American Banker, the conference brings together the best of the underbanked financial services industry. This year, our partners at Core Innovation Capital put out a call for innovative financial services products for the unbanked and underbanked in the U.S., promising finalists a spot on the conference stage to demonstrate their products live.
The audience will vote, "American Idol"-style, for the winner, who will receive a cash prize of $10,000.
Dozens of ideas were submitted. Each of the four finalists — PayNearMe, GoalMine, FIS and FlexWage — offers a solution for a particular underserved consumer pain point.
PayNearMe created a service to facilitate electronic payments using cash. Despite the growing shift to electronic payments, a recent study by Aite Group LLC found that consumer use of cash in the U.S. in 2010 totaled $1.2 trillion from person-to-person transactions, bill payments and retail purchases.
Some underserved consumer segments depend heavily on cash. PayNearMe provides a way to pay for remote services through a partnership with the convenience store chain 7-Eleven Inc. without a bank account or credit card. Consumers can pay bills, buy a bus ticket and make online purchases, all in cash at the convenience store register. They simply print a special receipt with a bar code and bring it to the store.
One-fourth of American workers do not have direct deposit, and cashing or depositing checks can be challenging. FIS, the financial services technology and payments firm, offers a solution to improve the customer experience.
Using its PayCheck Accept product as a starting point, FIS has built a mobile check-cashing application that enables consumers to take a picture of their check and have it automatically cashed and deposited into a bank account.
While many financial institutions are building remote deposit capture capabilities, few if any are aiming the service at the underbanked. Consumers living paycheck to paycheck have few high-quality options for smoothing cash flow or handling a financial emergency, especially if they are credit challenged.
FlexWage works with employers to give workers access to a payroll card with a linked salary-advance feature.
Through its WageBank product, the company makes available wages that have been earned but not yet paid. Customers are charged a flat convenience fee for the "predisbursement" of earned wages. There is no loan, and nothing to repay. Saving and investing are especially challenged for the underserved. Most mutual funds require a minimum initial investment of $2,500, and even many basic savings accounts have high minimum balance requirements.
GoalMine enables consumers to start investing with as little as $25. Consumers choose a savings goal, which in turn helps them determine a time frame.
Unlike typical investment products, GoalMine is simple to use, with no financial jargon. The company is integrating its product with prepaid cards, so cardholders can easily link their transaction account with an investment vehicle.
The applicant pool for the Core Underbanked Innovation Challenge is filled with promising ideas. They range from a savings account for youths working in summer jobs, to a mobile texting tool to track expenses and manage money, to a new underwriting platform that combines financial data with information gleaned from social media.
Several companies are focused on consumer credit. Two different companies are combining small loans with savings as a way to break the cycle of debt and reduce credit dependence.
Another trend is leveraging the workplace as a channel to reach the underserved cost-effectively and with less risk. One company, for instance, offers consumers rewards for using payroll cards as a way to boost take-up rates.
Some applicants are focused on financial information and education. Others are looking to help consumers build credit through the mainstream bureaus as well as new platforms.
Increased risk aversion and bellyaching about new regulation are two common byproducts of the financial crisis. Yet plenty of entrepreneurs and forward-thinking companies see the opportunity in serving the underbanked and are seizing it. Innovation in financial services is indeed alive and well.