Be part of the solution, or be left behind
I recently returned from a World Economic Forum working group session, where I participated in lengthy and lively discussions on disruptive innovations transforming financial services.
Surrounded by big bank execs, regulators and VCs, I was struck by what many considered to be two “disputable” questions: first, whether global technology giants would move into financial services; and second, what the condition of the American middle class is today. Having helped build several fintech companies during my 20-something year career, I was flooded with a range of emotions. Dumbfounded. Humbled. Disappointed. Fired up. How could these topics continue to be debatable?
Right now, 56% of Americans are shut out of mainstream banking due to poor credit or lack of credit history. We can do better.
You can argue that I’m living in a Silicon Valley bubble, but a profound change has taken root since The Great Recession. Lisa Servon, in her new book “The Unbanking of America,” best describes today’s reality for what she calls “The New Middle Class”:
“[Banks] got bigger and they focused less on consumers. Meanwhile, alternative financial-services providers, such as check cashers and payday lenders, expanded to fill the gap. Second, many more Americans are dealing with chronic financial instability. Declining wages, increased income volatility, and the erosion of benefits, along with increased costs for healthcare, childcare, and education, make it harder to make ends meet. The one-two punch of these trends has left Americans in a dire situation. We lack safe, affordable financial products and services when we need them most.”
It’s undisputable that there is a new middle class, with new needs, stemming from a new reality. That’s where fintech comes in. Innovation -- even simple tweaks -- can make a real impact for the ever-growing number of Americans who need it. Silicon Valley, and the tech industry in general, is accustomed to moving fast, finding new solutions, and replacing old systems that don’t work. And when you combine tech innovation with the know-how to work within the confines of a highly regulated space, it can make for an incredibly powerful combination that truly changes lives. As California Congressman Ro Khanna has repeatedly said, technology should uplift all Americans, all across the country.
At LendUp, we are working to provide the more than half of Americans who don’t fit the old mold with products they can use. We have originated $1 billion in loans, saved our customers more than $70M in interest and fees, and streamed more than 1.2 million financial education courses to consumers interested in building their credit and getting to a more secure financial position. We’ve done this by building better technology and creating the most innovative credit models in the world -- ones that go far beyond the big three credit bureau scores. These factors allow us to extend credit as aggressively as possible and break Americans out of vicious debt cycles. And this has been possible because we take our customers’ reality, concerns, and needs into account at every step of product development.
Banks have advantages such as low-cost deposits, existing customer bases, and trust with regulators. But many seem to struggle to address the needs of an enormous -- and growing -- segment of the population. There is a huge opportunity for banks to “get in the game” -- to partner with fintech companies like LendUp in order to better address the needs of their customers.
Together, banks and fintech can solve the unique challenges of the New Middle Class, and make banking more resilient and relevant to all. It’s a win-win-win: banks can better deliver on their community commitments, we grow our business, and most importantly more Americans benefit from greater financial opportunity and inclusion. We know this type of partnership can work because we’ve seen it first-hand. Our partnership with Beneficial State Bank, for example, has led to the creation of a new type of credit card for consumers traditionally shut out of mainstream banking due to poor credit scores or damaged credit files. We were able to combine the best of impact banking with the best of technology so BSB could issue a card that increases financial inclusion for consumers and supports the bank’s mission.
If the WEF session taught me anything, it’s that there’s still much work to be done. More conversations across sectors, more public-private partnership, and more work directly with the Americans who are affected by our changing economy. I stand committed, alongside my 200+ colleagues, in making progress.
Have an idea, want to partner, interested in learning more? I’d love to hear from you.
Sharon Olexy is Chief Operating Officer for LendUp