The Need For Social Impact

Three takeaways from the second day of the 2018 Money 20/20 conference.

On the second day of Money 20/20, topics included driving social impact, increasing financial inclusion, and contemplating the death of the credit card. Here are three things you need to know.

No. 1: The Need For Social Impact

The statistics are troubling. 3 billion people are unbanked or underbanked, which is 40% of the world’s total population. Domestically, four-in-10 Americans can’t come up with $400 for an emergency expense. There is a silver lining, however: there are now 3 billion unique mobile phones in the world, giving financial services providers ways to access, understand, and serve consumers and business previously underserved.

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No distance is insurmountable, says Michael Schlein, president and CEO of Accion. No transaction size is too small. And we have the data to find people we couldn’t before.

In an early morning panel, Schlein and Maya Chorengel, senior partner for impact at The Rise Fund, talked the fintech trends driving the most social impact today and tomorrow.

For instance, in talking about the savings crisis for underserved populations Schlein finds that looking at the number of open savings accounts can be misleading. he says that some 20% of these accounts are dormant. Instead, leaders must look at savings balances, credit lines, and insurance.

Counting savings accounts to determine financial wellness is like counting gym memberships to determine physical fitness, he says.

Schlein looks at resilience the ability for someone to come up with one month’s income as a key indicator of financial health. Over the last three years, financially resiliency scores have dropped. The most vulnerable people in the world got more vulnerable, Schlein says. But new technologies aim to improve the financial lives in these communities.

Democratizing investment products is one example, says Chorengel. Companies such as Acorn help people put smaller sums of money to more work. Rather than depositing $200 in a low-yield savings product, consumers can access higher-yield accounts that better encourages saving.

Another example is new sources of data. For Schlein, global satellite imagery looms large, especially as the quality of the images go up and the cost goes down. For rural farmers, satellite imagery can assess seed and fertilizer needs and estimate repayment terms. Chorengel finds satellite imagery potentially useful for insurance purposes, as well. Rather than people in flood- and fire-affected areas taking out lines of credit to pay for damages, satellite imagery can identify at-risk zones before the disaster strikes and help them become insurable.

Lastly, as commerce becomes increasingly digital, more merchants will become visible and credit worthy as credit decisioners can see what these shops make and what they spend.

More innovation is required in this space, but both Chorengel and Schlein are optimistic for the future.

No. 2: Shopping Is A Behavior For People With Choice

There is something holding customers back, says Tim Chen, CEO and co-founder of NerdWallet. Today, there is so much information at a consumer’s disposal. It should be easier than ever to make smart financial decisions. And yet, that’s not happening.

People get divorced more often than they switch their checking accounts, Chen says.

NerdWallet started as an Excel sheet Chen built to help his sister find the right credit card. The site grew fast, turning into one of the first and most influential comparison shopping sites on the web. The problem, for Chen, was that NerdWallet super-served one segment of the population and totally ignored the other.

Shopping is a behavior for people with choice, he says. For others, they get the products they can quality for.

This is a problem. And while the easy answer would suggest providing financial health and wellness education to these consumers to improve their wellbeing, Chen doesn’t believe that’s what consumers want.

Over the years we’ve learned that most people don’t want to learn about personal finance, he says. They just want to know they aren’t screwing things up.

For Chen, rather than tell someone not to pay $18 for avocado toast, for example, he wants to reduce complexity entirely by automating financial decisions and democratizing financial advice.

Let’s say you want to know where to best deposits your money, he says. A simple algorithm can tell you exactly that.

He believes within 10 years this will be commonplace and people will no longer think too much about their financial choices, but behavior will need to continue its shift.

Millennials are growing up around this, he says. But today there are still an amazing number of brick-and-mortar travel agents.

No. 3: The Credit Card Is Not Dead

Steve Mott, principal at BetterByDesign, has rallied against credit cards for decades, including during an afternoon panel at Money 20/20. He’d like nothing more than to see the death of plastic. It doesn’t seem likely.

For Darrell Esch, vice president and global credit commercial officer at PayPal, there’s nothing wrong with credit. PayPal has some 250 million active users around the world and hundreds of millions of plastic cards. It’s something its users want.

Our customer is in charge, Esch says. They all have the choice and they’ve told us this is something they want.

What’s changing, perhaps, is the way cards are used. Esch believes the future of credit is embedded within the mobile phone, with its information pre-stored in a digital wallet. And because that’s the case, Esch doesn’t foresee the end of credit; he sees the end of paper.

Paper is the enemy as we see it, he says. Paper money is exclusive, expensive, and insecure. We believe digitization will drive participation.

Read More CreditUnions.com Coverage Of Money 20/20

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October 23, 2018

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