I am midway through reading Gary Rivlin's new book, Broke, USA. As CNN Money contributor Dan Okrent puts it in his review, Rivlin's book is about the industry of "vulture finance." It exposes large and small financial services companies that prey on financially vulnerable people because they can and because they find it lucrative.
So I was understandably skeptical when I flew out to Miami a few weeks ago to attend the Underbanked Forum, a conference organized by the Center for Financial Services Innovation.
Was I about to jump into a pool infested with loan sharks?
The conference turned out to be quite good. Several presentations and topics were true eye-openers. Here's the bottom line: for the broke, there's still hope for fair financial services that support flexible modern life and encourage financial responsibility.
Not just the fringes of the economy
Who cares? A lot of people should. The FDIC puts the number of under-banked and un-banked households - i.e. people who can't access the kind of credit and banking services that support mainstream life in the U.S. -- at about 30 percent in its December 2009 survey.
Add in younger people who are just starting to build their financial lives but have a world-weary cynicism of big banks. Also add more experienced adults who've been wronged by their banks lately, and there's a potential pool of 100 million people who demand better financial services.
With numbers like that, it's not surprising that a segment of the financial services industry is mobilizing to do a better job of being inclusive, understanding and creative about addressing customers needs without gouging them at every turn.
Most striking among their findings: the upside of having a bank account often is perceived as being less than the downside of hidden fees and other practices that filch money. What's the point of hoping to earn roughly one percent interest on a few hundred dollars in your savings account while taking the risk of being hit with a $29 overdraft fee on your checking account?
Speakers highlighted two emerging alternatives to traditional savings accounts that offer a bigger potential upside for people who are starting from scratch:
- Starter savings accounts offered at an eye-popping five percent interest rate from established players such as US Bank and start-ups such as Mango Money.
- A "Save to Win" pilot conducted at a Michigan credit union offered prize drawings, including a grand prize of150,000, for people who saved.
According to the speakers, financial service providers tend to fund these programs out of marketing budgets rather than operational profits. It makes all kinds of sense to channel money directly into the pockets of first-time customers from the TV ad budget spent hawking big banks during Wheel of Fortune.
A nicer kind of access
Rivlin's book says that check-cashing and payday lending outlets have expanded so much in the past few years that they now outnumber McDonald's and Burger Kings combined.
In spite of the poverty industry's survival skills, as mentioned in a recent post by Rivlin, I believe that this trend will start reversing, fortunately.
Here's why. First, a very large percentage of the under-banked are connected and using the Internet several times a week. (Migrant workers not born in the US are the exception.) So creative minds can rapidly deploy new financial services at the very low costs made possible by not having to deploy physical outlets.
Second, the government will mandate that federal benefits be distributed electronically by 2013, avoiding the need for recipients to cash paper checks at a significant cost.
And even in the brick-and-mortar world, companies such as Mango Money are piloting new kinds of stores that are a lot more welcoming than check cashing parlors and less intimidating than bank branches.
Innovation, innovation, innovation
It's the word I heard the most often at the conference. There were plenty of sessions showcasing new ideads in credit, savings and payments. While Twitter's co-founder Jack Dorsey displayed showmanship with the "Square" credit card reader for iPhones and iPads, my pick for most intriguing initiative goes to GoalMine, a company intent on selling investments off of j-hooks at your nearest convenience store. When GoalMine deploys its service, people will be able to buy $50 worth of investment in a mutual fund as easily as they pick a $50 gift card today.
Overall, the good news is that there are many of us who care about serving the un-banked, under-banked and ill-banked. While I did not hear the word "affordability" very often, competitive spirits seemed to be high and will bring more just pricing quickly.