NB Financial Health

Wednesday
March 28
2018

Amon Anderson / Sarah Willis

Tackling Poverty Close to Home: Why Acumen is Boosting Financial Health in the U.S.

Unchecked markets that overlooked low-income communities. Top-down aid programs that distorted the dynamism and efficiency of markets. Interventions that created a cycle of dependency rather than empowerment. When Acumen first launched in 2001, that’s the global development landscape its founders surveyed. In the 17 years since, the organization has invested more than $110 million in 108 companies across East and West Africa, South Asia, and Latin America to change the way the world tackles poverty. The goal, then and now, is to utilize the best of business to unleash the entrepreneurial potential that is inherent in all people, generating the social innovations our world desperately needs.

The more Acumen learned and grew—and to date, Acumen investments have impacted more than 230 million people—the more the firm came to believe that the Acumen approach could change the way the U.S. addresses poverty, too. Acumen America was launched in 2016 with a focus on health, workforce development and financial inclusion, three sectors where the potential for social impact is high and smart capital can unlock change. The aim of the financial inclusion portfolio, supported by MetLife Foundation, is to build a future where low-income Americans enjoy improved stability, protection and prosperity. (Note: MetLife Foundation is a NextBillion partner.)

In 2017, more than 40 million Americans lived below the poverty line, which sits at $24,339 for a family of four. But poverty-line statistics massively understate the number of Americans who struggle financially: In many parts of the country, particularly the big cities where most of the jobs are, the cost of living requires considerably more than $50,000 (more than twice the federal poverty level for a family of four). In our nation’s capital, for example, a family of four with two working parents must earn over $74,000 to cover food, childcare, housing, medical and other expenses. In short, financial vulnerability isn’t just an issue on the margins. It’s an unfortunate reality for millions of everyday citizens in a country where income inequality has reached record highs and the social safety net is increasingly frayed.

Just as it does in Africa, Asia and Latin America, Acumen provides catalytic capital to poverty-focused social enterprises in the United States. For instance, Acumen America has invested in Listo, a one-stop shop for credit and insurance products focused on Hispanic customers. More than 45 percent of Hispanics in the U.S. are unbanked or underbanked. For many of them, the only financial options are pawn shops and payday lenders who charge high fees and greet them with bars on the window and agents who speak to them through a barrier of thick glass. Listo’s founders Gustavo Lasala, Sam Ulloa and James Gutierrez believe customers should be served better through a warm, inviting and transparent experience, regardless of income level. They seek to provide information that empowers their customers and allows them to make informed, smarter decisions.

When customers walk into Listo’s multi-lingual, tech-enabled shop, agents greet them as they enter before sitting down to coach them through their options. The trust that Listo builds through these interactions enables it to create tailored financial plans and eventually to help customers embrace digital financial services. Listo’s data strategy also sets it apart. Unlike its competitors, most of whom have only single-product offerings, Listo gathers a much wider set of customer data across a variety of credit and insurance services. This richer data provides it with unique customer insights for better underwriting and greater personalization. Finally, Listo’s diverse offerings allow its customers to graduate from one product to another. As customers improve their financial health and wealth, they can remain and grow with the company they have come to trust. This continuity benefits the customer, as changing financial services providers can be time-consuming, costly, disruptive and fraught with uncertainty. Of course, it also benefits Listo, considering how much more cost-effective it is to retain customers than to acquire new ones.

Acumen America most recently invested in EarnUp, a platform that helps people manage and pay down their debt. Consumer debt in the U.S is at a record high, with 80 percent of Americans burdened with debt from student loans, mortgages, credit cards and more. With the majority of Americans living paycheck to paycheck, credit access alone isn’t enough—and can be detrimental if users become over-indebted. Over 70 million Americans have debt in collections, representing almost 50 percent of the population in some states.

Founded by Matthew Cooper and Nadim Homsany, EarnUp makes sure users stay on top of their debt. At no cost to the individual user, EarnUp organizes all of a person’s loans onto a single platform and makes their payments for them in a manner that reduces outstanding debt at the fastest rate possible. The platform also aligns each person’s loan payments with their income schedule, eliminating the significant stress of budgeting limited resources. We believe that this type of automation could bring significant positive social impact, by reducing the cost of financial tools and making financial management more accessible to low-income Americans. EarnUp reduces delinquencies, saves customers from costly fees, and helps build or repair credit histories.

Entrepreneurs like Lasala, Ulloa, Gutierrez, Cooper and Homsany are reimagining institutions while empowering low-income consumers—a task that is more urgent than ever. With flat or declining real wages and the rise of the “gig economy” fueling greater income volatility—only 47 percent of Americans report consistent monthly income and expenses—it’s obvious to Acumen America that financial services innovation has to accelerate to keep pace with a rapidly changing set of economic circumstances. Through the MetLife Foundation partnership, Acumen America intends to invest in 6-8 early-stage companies over three years. It will continue to look at businesses along the credit value chain to support innovations like alternative underwriting and forward-thinking credit products. Acumen is also excited to explore the social determinants of financial health—the social, economic and environmental factors that affect a person’s financial situation.

With each investment, Acumen America is working toward a vision of greater financial stability, protection and prosperity for underserved and financially vulnerable Americans. Together with a growing portfolio of companies committed to improving the healthcare system and creating sustainable paths for hard-working citizens, we believe Acumen America and its financial partners, including MetLife Foundation, have an important role to play in addressing poverty in the United States.

 

Amon Anderson is director of Acumen America.

Sarah Willis is a program manager at MetLife Foundation, where she oversees a global portfolio of financial inclusion initiatives focused on digital and innovation. 

Image above: Listo designed its sleek, contemporary interiors to provide a welcoming environment for low-income customers too often served by indifferent agents behind bullet-proof glass. Photo courtesy of Listo, used with permission. 

 


 

 

Categories
Finance, Investing, Technology
Tags
Acumen, banking, digital payments, education, financial inclusion, financial innovation, financial services, fintech, impact investing, investment fund, MetLife Foundation, mobile finance, mobile money, mobile phones, social enterprise, social entrepreneurship, social impact, sustainability, technology