Financial Solutions Lab: What We’ve Learned from 1,000 Fintech Companies
Mobile banking and financial services apps like Digit®, Albert® and WiseBanyan® have become integral parts of many Americans' financial lives.
The next wave of fintech startups is using increasingly sophisticated (and low-cost) technology and social media to target overlooked populations with action-oriented tools, many of them provided by employers as benefits to their workers.
About 138 million adults—57% of Americans—have difficulty managing their daily financial lives. The latest Financially Underserved Market Size Study by the Center for Financial Services Innovation found that overlooked Americans spent $141 billion in fees and interest just to manage their daily financial lives, illustrating the immense opportunity for companies to leverage technology to better serve those consumers. Globally, fintech investments increased ten-fold between 2010 and 2015 to $12 billion.
We have been observing the evolution of fintech in our work with the Financial Solutions Lab, launched by CFSI and JPMorgan Chase in 2015 to provide capital, mentorship and other resources critical to early-stage fintech organizations. We have reviewed more than 1,000 applications and supported 26 fintech companies, many of which are experiencing exponential growth. Our 2017 Challenge focused on startups addressing the needs of overlooked segments that tend to have difficulty managing their daily financial lives.
Among the patterns we observed in our applicant pool over the last three years:
- Overlooked populations. Fintech solutions can increasingly address the unique financial needs of overlooked populations. Today’s technology enables the design of targeted products for narrower populations. Social media lets companies go after niche audiences.
Some products are targeting pain points facing specific populations, such as EverSafe®, which protects against elder abuse by monitoring seniors’ financial accounts, credit reports and other sources for fraud and identity theft.
Others focus on low income consumers, whose financial needs differ from more affluent consumers. Propel™ uses software to enable Food Stamp recipients to manage their grocery spending, making benefits go further for people who need them the most. In addition to attracting more than 500,000 monthly users, Propel has attracted venture capital, securing $4 million in funding from names like Andreessen Horowitz.
One of this year's challenge winners, Nova Credit™, has built a cross-border credit reporting agency to serve immigrants with thin- or no-file U.S. credit history. The company validates and compiles borrowers’ overseas credit information and securely shares this information with lending partners in the U.S. This product could have profound implications on the financial health of immigrant populations in America—and open a new stream of now credit-worthy consumers for lenders. Another winner, Token Transit® provides electronic public transit ticketing, saving the aging and consumers with disabilities cost and time.
- Action-oriented. Fintech providers are shifting away from services that simply offer information toward ones that incorporate action-oriented tools. Behavioral science teaches us that it is not enough to simply provide people with information and expect them to use that information to make good decisions. Instead, information must be relevant, timely and coupled with an opportunity to put it into practice. Fintech entrepreneurs are incorporating this into the architecture of their solutions.
For example, Albert is a mobile app that diagnoses a customer’s financial well-being through a score, and then provides actionable financial recommendations to improve that score based on their circumstances.
- Employer-based. Increasingly, providers are looking beyond the traditional consumer models to help companies better serve their employees and customers. Just as employers have a business reason to care about their employees’ physical and mental health, they also have a reason to care about their financial health. Some fintech companies are now offering services that empower organizations to help employees improve their financial health. Neighborhood Trust, for example, provides virtual financial coaching for retail and healthcare workers.
Barriers remain around the design and adoption of technology products targeting the most vulnerable consumers. We have recently partnered with organizations such as the World Institute on Disability™ and IDEO.org® to help our portfolio companies better understand these obstacles and how to address them.
Diversity. Even in 2018, there continues to be a lack of diversity among founders and leadership teams. There are still too few winning applicants from outside of Silicon Valley, too few women, and too few people of color. We continue to believe that the best innovators are the ones who solve problems that they have experienced themselves. The more diverse the pool of innovators, the more diverse—and more effective—the range of possible solutions.
Impact. Similarly, the majority of family and child-focused applications have focused on more affluent families and less impactful use cases, such as streamlining allowances. We would encourage innovators in these areas to focus on use-cases that are more impactful for less affluent families or where the technology is creating opportunities for shared experiences and learning.
The digital future of financial services has exciting implications for consumers, but unlocking the potential of technology requires a diverse ecosystem of banks, nonprofits, startups, and investors capitalizing on these trends and ensuring that they continue to benefit everyone.
We’re not alone in working to pave the way for a new market that competes to improve the financial health of every American. We can’t wait to see the innovation in the Financial Solutions Lab’s next 1,000 fintech applications.
About the Authors:
Colleen Briggs is the Executive Director of Community Innovation for JPMorgan Chase. Ryan Falvey is the Managing Director of Financial Solutions Lab at the Center for Financial Services Innovation.
Learn more about the Financial Solutions Lab.