Building Quality Products to Improve Low-Income Americans’ Financial Health: CFSI, Visa discussion conveys key challenges and opportunities for U.S. financial services providers
What is needed to improve the financial lives of people in the United States? I recently had the chance to moderate a discussion on this question with notable financial services executives hosted by my organization, the Center for Financial Services Innovation, and Visa. We challenged the group to identify solutions for the 68 million financially underserved Americans.
During the conversation, participants identified two key consumer challenges. First, people need better access to high-quality products and services. Second, people need easier ways to manage their everyday financial lives and address their liquidity needs. Underlying these consumer challenges are structural issues the financial services industry faces.
Timely and Reliable Access to High-Quality Products
In general, there was agreement that there is widespread access to products and services in the United States. There are extensive displays of prepaid products at the local convenience, grocery or big box store. Banks offer numerous checking, savings and prepaid products. Credit is easy to come by through storefront payday lenders and pawn shops.
The challenge is ensuring access to high-quality products and services.
Said one regional bank executive, “We love choice in the United States. It’s overwhelming. With so many choices, it’s hard for consumers to know what is best. We need to find ways to help consumers make the right choice.”
One component of the right choice is a product that works when and where you want it to. I was surprised to hear that prepaid products don’t work with Square or PayPal. Someone might choose a prepaid product because they can’t overdraft with the product. Yet that prepaid card doesn’t help if it doesn’t work when and where they need it.
Easing Day-to-Day Money Management
People work multiple jobs. They get paid in different amounts, in different forms, and at different times of the month. Expenses, too, vary from one week or one month to the next. There are also times when the inflows are greater than the outflows. There are days when an unexpected expense, such as a car repair, pops up. Even an expected expense, such as insurance, could come at a time when income is especially low. In those situations, people often make challenging trade-offs, juggle bills, or tap high cost lending sources.
A colleague summed it up nicely, “Things don’t always go according to budget. People need help through times they didn’t budget for.”
Providers Face Notable Structural Challenges
Companies that want to address consumer challenges are often hindered by our current financial infrastructure. Technology systems are fragmented. Payment systems are slow. Well-intended regulations make the process for opening products burdensome. The broader environment is not conducive to experimentation.
These challenges are complicated and can be daunting. This group of innovators, though, was optimistic.
One innovator stressed, “We can make better products to make people’s lives easier.” Another added, “We can help match well-constructed products to consumers’ needs.”
Commitments to Building Innovative Solutions
To address the consumer challenges, providers can develop ways to match high-quality products to people’s needs. Companies can harness the data providers have from consumer spending to provide information and feedback. There are more ways providers can embed education into the product experience.
“Companies can leverage the power of the mobile device, both the distribution channel and the cloud, to solve these problems,” added a mobile expert.
Many of the issues people face are around real-time needs. The solution, therefore, lies in speed.
“We can improve the speed at which people gain access to the money they have earned. We can ensure checks are deposited faster. People also don’t have to be paid every other week,” one leader said.
Technology improvements would also help address other systemic needs.
One particularly insightful participant pointed out, “Prepaid is a platform and not a product. That platform must be optimized to meet consumer needs in the best way possible.” Another added, “We need to ensure prepaid products and platforms are the most attractive destination for developers. More companies can open APIs to allow for more innovation on platforms and products. Companies can have an App Store in their own product.”
In an environment with big sticks, the financial services industry, and government, needs to create bigger carrots.
Steps Forward for Financial Health
Improving Americans’ financial lives cannot be achieved through one product or solution. It needs to be a core part of a company, embedded throughout its business practices. As the conversation came to a close, several participants pushed the group to be bold.
“Make financial inclusion and financial health a core part of the business model. Develop the business case. Give it a big P&L,” urged one social entrepreneur.
I always leave these conversations inspired by the energy, ideas and commitment of smart people working to solve critical social problems. I’m especially encouraged by a new vision that is emerging. As several entrepreneurs challenged the group:
“Is our industry aspirational enough?”
Editor’s Note: This post was originally published on Visa’s Global Matters blog. It is cross-posted with permission.
Kimberly Gartner is Senior Vice President, Strategic Partnerships at the Center for Financial Services Innovation (CFSI).