I often read about budding Fintech’s aspiration to be one stop shop for financial service consumers. Many plan to do this by building a super app which is often described as the “Amazon of Financial Services”. Many of these features like brokerage and a card that works across borders with good exchange rate are really for the well-heeled. I want to imagine a super app for the underbanked segment to help with holistic financial wellness.
But what does an average consumer need? Definitely not cryptocurrency wallet or day trading. I want to focus on the need of low-income American family without financial literacy or time to navigate multiple digital solutions.
In my view basic consumer financial service need, roughly in order of priority, are:
1. Access to Basic Banking
This is simply a checking account where one can get direct deposit from govt. (like IRS tax credit), employer and avoid the high fee check cashing industry. Ideally an account with no minimum balance requirement and a debit card for online and offline shopping.
New features, provided by several Fintechs, like early availability of paycheck and no fee overdraft are also very welcome feature. I yarn for the day when hourly employees will be paid every weekday via direct deposit. The technology exists but the payroll companies and employers don’t care.
2. Bill Payment
Underbanked segment often uses check cashing service, prepaid card or money order to pay bills. All require extra effort to convert the cash into payment and some are quite expensive. On top of that, utilities and their bill payment services often charge for using cards. A PLAID like service for connecting major bank (mortgage, car loan, credit card) and non-bank bills (like wireless service, electricity, water, gas etc.) to a single mobile app would be God sent for the average person.
Legacy bank’s bill payment solutions are often cumbersome and have limited number of payees. If designed with super easy user experience, bill payment feature will help the not-so-savvy and budget stretched the most, people who don’t have the skill or time to manually keep track of all bills.
3. Budgeting and Expense Tracking
There are some great bill management and budgeting apps . Often the focus of these apps is to provide a view of where money is wasted (long forgotten subscription) and calculate monthly spend by category.
Underbanked segment may not have multiple credit cards to connect and multiple video streaming subscriptions to sort out, but they still need the same help with budgeting. It will be great if free checking accounts come with automated expense tracking, analytics on expense trends and category spending. For example, artificial intelligence can be used to show that a specific bill in the second week is wiping out the balance every month until the next paycheck, with a suggestion to see if the billing date can be changed.
4. Saving
Saving for emergency funds needs to be effortless. Fintechs have done an excellent job in creating solutions to help people create multiple emergency fund bucket and save by simply rounding up each expense. There is tremendous room to use artificial intelligence and gamification to help people identify their spending habits, self-sabotaging behavior (if it exists) and triggers, and give kudos for meeting a goal. Similar psychological and behavioral approach are being used for weight loss or video game and can work wonders for financial wellness too.
5. Lending
Several apps claim to help people get off credit card debt. While debt especially credit card debts can be toxic if misused, everyone should have access to a loan when needed and at an affordable rate. Both lack of credit history or bad credit history are serious problems for underbanked segment.
Traditional lending models punish and reward past behavior without any view into future prospect or even overall financial picture. Fintechs have started several credit building loan programs to help underbanked customers build and repair credit history. Many are looking into alternate data like utilities, deposit account data and reaching many in the traditionally underbanked segment.
6. Retirement Savings
Significant number of Americans do not have access to employer sponsored retirement savings options. One reason for not having retirement savings, besides lack of money to set aside, is lack of understanding of IRS regulations and inability to navigate the IRA landscape confidently. Easy to open IRA by answering few questions online would make life easier for many people.
AI can look into direct deposit, tax refund from IRS to make an initial determination about type of IRA and then nudge the user to take action. So often opening an IRA is left as a chore for the consumer to do with complicated navigation and agreeing to lots of disclaimers (speaking from personal experience).
So, if we already have various startups providing these services, doesn’t that mean the problem has been already solved? Not at all. The solutions are still spread across multiple providers.
There is excellent opportunity to bring all the features together in a single solution mobile app. People who are not financially savvy are the last people to navigate multiple app to meet all of their financial need. Payday lenders know this. That is why they set up shop where un and underbanked people live, to be on the path of least resistance.
So, do we have any taker among the startups to be the “Amazon” for financial services for the people who need it the most?