Viewpoint: FinTech Group Says New Sector Must Fulfill a Mission

This article originally appeared in the Boston Business Journal on September 21, 2018.

As the Boston region’s entrepreneurs, bankers, venture capitalists, regulators, and technologists gathered around the Hub during Boston FinTech Week earlier this month, one important set of voices was under-represented in panels and conversations: workers who live paycheck to paycheck.

At a time when that description applies to nearly half the country, when more than half of consumers have subprime credit, and when nearly as many lack a $400 savings cushion to buffer a financial shock, the need is clear: The financial challenges of low- and moderate-income Americans deserve to be front and center for the fintech industry.

We know many innovators and entrepreneurs who are flocking to fintech would agree with that idea in principle. The power of technology has huge potential to deliver better, faster, cheaper financial solutions for cash-strapped consumers. But we also believe that such a focus is unlikely to happen on its own. Like any technology, the direction fintech will take depends on who designs it, for what purpose, and its creators’ incentives.

Let’s look at those incentives. In the U.S., fintech investment topped $14 billion in the first half of 2018 alone, a 16 percent increase over the previous half-year. According to Deloitte, venture capital remains by far the primary source of funding for U.S. fintech startups, ever more activity has been coming from later-stage funding rounds, and IPOs and acquisitions are on the rise. In short, the data show a maturing, if still rapidly growing, market in which fintech startups are under pressure to demonstrate resilient business plans and real-world market results within relatively aggressive timelines. Is it any surprise that fintech in the United States remains largely focused on expanding choice and convenience for mass affluent and up-and-coming millennial consumers who are already part of the financial mainstream?

Granted, fintech is still growing and evolving, and some firms already view their purpose as improving the financial health and security of all Americans. But that focus is not mainstream, nor is the industry moving quickly or consistently to provide customers who operate on razor-thin margins with well-designed products whose functionality, security, and user experience are as robust as those aimed at more affluent customer segments. Fundamentally, serving this population — and serving them well – requires new operating models, new business models, and patient capital that defines success in financial and social terms. And, critically, it requires leadership.

With this in mind, our organizations — the Aspen Institute and Boston-based Commonwealth — have joined with other national leaders to form Nonprofit Leaders in Financial Technology (nLIFT). nLIFT members share a goal of increasing financial inclusion through technology-driven platforms, and by design are able to place mission and impact before profit. 

The emergence of sophisticated fintech designers and operators, structured as not-for-profits, creates a unique opportunity to advance a fairer and more inclusive financial system.  This emerging class of actors is set up to represent the needs and interests of underserved communities, to ensure the promise of fintech is realized for all Americans. By joining forces, we aim to drive meaningful and lasting change at the intersection of technology and financial inclusion, and influence the overall composition and direction of financial technology — goals we outline in our newly released “fintech manifesto.”

This vision is not just a dream. nLIFT members have already demonstrated how successful, mission-first fintech can work. Today our products serve hundreds of thousands of low-income people across the country, enabling savings, extending credit, building financial capability and providing financial coaching. But more can and must be done. nLIFT seeks to work in partnership with all stakeholders, private- and public-sector, to make fintech a force for broad financial security across the economy. 

But we need to act with urgency. The longer the U.S. fintech sector remains a means to make financial transactions marginally more convenient for affluent customers, the harder it will be to change course or expand to additional goals.

Fintech may be relatively new, but mission-driven finance is not. Indeed, history shows that whenever financial systems have advanced toward inclusion, nonprofits have been part of that expansion, extending products and services to excluded populations and influencing policies that improved the broader financial system.

Now is the moment for sustained, intentional collaboration. We started this conversation at Boston Fintech Week. At future Fintech Weeks — and events like it around the country – let’s further expand the agenda. How might all stakeholders — nonprofits, fintechs, donors, investors, policymakers, opinion leaders, the general public, and customers — play a role in making fintech fulfill its promise, becoming more than just a tool of convenience or a return on an investment, but a force for a fairer, more sustainable economy?

Timothy Flacke is executive director of Commonwealth, a Boston-based organization. Ida Rademacher is a vice president at the Aspen Institute and is executive director of Aspen's Financial Security Program.

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