By Jennifer Tescher, “U.S. Innovations: Serving the Underbanked” panelist
When you hear the word microfinance, you probably conjure an image of lending to poor people in developing countries to help them start tiny businesses.
But how does that translate to the U.S.?
You can find out during the “U.S. Innovations: Serving the Unbanked” session at 2:30 p.m. on Friday, when I’ll be joined by a fabulous panel of cutting-edge practitioners all focused on the un- and underbanked.
You’ll quickly learn that, in the U.S., it’s not all about credit or small business.
It is estimated that 30 to 40 million American households are financially underserved. Some are unbanked, although most of the unbanked have had a bank account in the past. Some are underbanked, meaning they have a checking or savings account but are unable to satisfy all of their financial needs through traditional bank products and services.
Participating in the financial mainstream and having the tools to manage money in the short term is a prerequisite for longer-term saving and asset building. Yet, basic financial products are often designed, marketed and delivered in ways that fail to meet the short-term needs, interests and abilities of un- and underbanked consumers.
They have requirements and minimums that are out of reach for those with low incomes. They lack transparent pricing and often fail to provide consumers living paycheck to paycheck with immediate and convenient access to their money.
They are marketed with poorly-tailored messages, and sold in locations that are intimidating, with operating hours that are inconvenient for many working families. They are underwritten with tools that cannot properly evaluate consumers with thin or nonexistent credit histories.
When consumers’ short-term financial needs aren’t well met, their ability to save, access credit and build assets in the long run is compromised. Without a safe place to store funds, un- and underbanked consumers lack a financial cushion to weather crises. They are also more challenged to build a strong credit history, making it more difficult to access the credit they need at a reasonable price. This in turn makes it more likely that they will turn to products and providers that may cost more and potentially strip assets instead of build them.
Fortunately, we are witnessing a period of intense innovation around new products, distribution channels and business models for serving un- and underbanked consumers. Join us at Friday’s session to hear more from innovators in the government, non-profit and private sectors about their successes and challenges in serving this vibrant and growing market.
Jennifer Tescher is the founder and director of the Center for Financial Services Innovation, the leading expert on the underbanked in America. CFSI is a non-profit organization working to transform the U.S. financial services marketplace to help underbanked consumers achieve financial prosperity. For more information, go to www.cfsinnovation.com.