When a series of unfortunate events unfold, it is sometimes possible to trace them back to a single moment in time. For middle-class families and the financially fragile, something minor could start a chain reaction that leads to major financial misery: a missed car payment, a bounced mortgage check, a traffic ticket fine, or unexpected car trouble forcing a missed work shift and reduced take-home pay, and even worse, loss of their job. These events often cause a chain reaction - wrecking credit scores, triggering hidden bank fees, adding more debt and making it more difficult for many ordinary Americans to climb out of a financial hole.
For many families, financial technology has made it possible to avert such crises and change the trajectory from financial fragility to financial solvency. Of all the industries disrupted in America, I believe disruptions in the financial services sector have the greatest potential to help move more Americans into financial security and to prevent more people from being stuck in a less advantageous position in the first place. The financial technology space, known as fintech, is creating a new financial architecture and enabling more Americans than ever before to access the resources and capital they need when they need it, especially those who need it the most.
CBS News recently published an article on the high cost of being poor, noting that impoverished Americans face costs wealthier citizens easily avoid. Nearly 10 million households do not have a bank account. For those who do, CBS estimated the penalties for bouncing a check average $33.07, an increase of 9 percent since 2010. Meanwhile, banks continue to increase fees and add new ones, all while discounting the disruptive technology that is the future of their business.
It should come as no surprise that for all of the services that banks offer - and charge for - a small-dollar cash loan to prevent a $33.07 overdraft fee is not likely to be on the menu of options. But online, there are many licensed and regulated options that can provide a bridge of capital, preventing the bank from collecting an overdraft fee, and ensuring a cleared check and a clear conscience for the consumer.
For Americans living paycheck to paycheck, if a car repair, medical expense or another unexpected bill arrives in between paychecks, the risk of a bounced check with a big fee, and perhaps a chain reaction of bounced checks with even more fees, creating a downward financial spiral that can hurt our country's most vulnerable. Most banks do not offer credit options for $200.00 for a flat tire, or so a muffler can pass an emission inspection. The fintech marketplace offers many opportunities for such credit. And let's face it: The Internet has better hours than traditional storefront banks without the all-too-familiar slow "maybe" and eventual rejection.
Some dismiss the perils of the financially fragile with a commonplace suggestion to put the expense on a credit card, or borrow money from a friend of family member. For those fortunate enough to pay their credit card balances every month, interest fees might not be on the radar, but they exist, and they are often very high. Additionally, the higher the credit card balance, the lower the credit score. The same goes for those with multiple cards. And not everyone is lucky enough to have a benefactor from which to borrow money.
The fintech marketplace not only has the potential to prevent poverty, but it also has the potential to help more people with limited resources realize the American Dream. Regulations in Washington have made it even more challenging than ever for an individual with an idea to access the capital they need to achieve their dream of starting a small business.
In the movies, venture capitalists come out of the shadows to bless an idea with a large cash infusion. But most idea men and women don't have access to Peter Thiel or Mark Cuban. And traditional banks are not always an option. Unless you are blessed with significant resources, you might get lip service in the lobby of a bank and walk away with nothing. This is one of the reasons online lending for small businesses is flourishing. Now everyday investors are pooling together resources to support the best ideas from everyday entrepreneurs. Whether its crowd-sourcing or direct loans, fintech is transforming America's small business landscape and leaving traditional financial institutions behind.
As with any new industry, the government is taking its traditional approach: "If it moves, tax it. If it keeps moving, regulate it. If consumers demand it, tell them they don't need it." While we should welcome reasonable regulations to protect consumers and taxpayers, regulators should take care not to destroy a burgeoning private sector industry with the potential to help so many people, including our country's most vulnerable.