Trends and Opportunities for Innovation: New Actors

Commonwealth is always looking for changes in the landscape that could lead to either new financial challenges or opportunities for new innovative solutions. Over the last year we have engaged in an extensive research project and have identified four areas (payments, insurance, decision making, and new actors) that we will be pursuing in the coming months. This is the second of four posts that highlights this work.

Financial services have never been provided exclusively by traditional financial institutions, and it is even less so today.  New entities are proliferating, and traditional actors in other areas of the economy are playing new roles.

Commonwealth has been exploring changes that are creating opportunities to build innovative new solutions to the financial challenges faced by the financially vulnerable.  Looking expansively at all the institutions and firms that have a financial point of intersection with Americans, we believe the challenges of building savings and managing risk and volatility can be addressed in partnership with this broad group we see as new actors in the financial services space.

Consider these actors and their emerging or potential roles:

  • Public Benefits Programs – public benefits range from medical coverage to retirement and disability payments to housing and food vouchers; the public and private administrators of these programs may be able to leverage financial services to improve beneficiaries’ financial security.
  • Utilities – providers of electricity, gas, water, telecommunications, and other backbone services command regular fixed streams of payments and reach deeply into communities; these financial relationships offer an enduring platform that can possibly do more for customers.
  • Schools – public schools, though free and open to all, have financial interactions with students and their families through school lunches, uniforms, field trips, and participation fees; tuition-charging private schools and higher education institutions have deeper compulsory financial exchanges.
  • Medical Providers – the nearly universal engagement of consumers with medical and health insurance systems, all driven by billing and payments, serves as an interesting point of financial engagement.
  • Transportation – mass transit systems and toll highways have relatively stable and predictable exchanges of money with individuals, with many now employing stored-value systems carrying consumers’ funds.
  • Brick-and-Mortar Retailers – many companies have wide reach to financially vulnerable consumers that go beyond sale of goods to include store-branded credit cards, loyalty programs, and stored-value tools.
  • Employers –the most direct route to improving financial security may be through the systems (payroll, recruiting, onboarding, etc.) companies use to interact with their employees’ financial lives.

There are also the more obvious new actors, such as the FinTech sector, as well as broadly available online companies that have a paid component and/or a platform for exchanging money that could offer a channel for offering innovative financial services.

As we explore the potential roles of new actors in building financial security, we are mindful of possible limitations, including the need to make the business case for these actors, and that customers must trust the competency and motives of any new actor.

In the coming months, Commonwealth will dig deeper to understand the opportunity of a specific category of new actors, building solutions to the financial challenges faced by financially vulnerable people.

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