Can we increase financial inclusion through nonprofit-powered fintech?

Financial technology has changed the way we transact, save, and borrow. Will private fintech firms alone reach the millions of Americans who don’t have access to responsible and affordable financial products?

Approximately 9 million Americans live in unbanked households. At least 64 million do not have a credit score. One in five American families with bank accounts still turn to fringe financial services to transact or borrow money.

These fringe financial services come at costs that seem incredible to those of us who have access to mainstream institutions and products. Just look at a few examples:

• Payday loans cost American families $3.4 billion in fees every year.
• More than two-thirds of the fees paid — $2.6 billion — is a direct result of churning borrowers into loan after unaffordable loan.
• A car title loan cost 15 to 20 times more than credit cards.

At the same time, Americans’ incomes are becoming more volatile. Recent research by JPMorgan Chase Institute found that over a four year period, 55% of its customers regularly experiences more than a 30% swing in income from one month to the next. In this context, the ability to save and borrow to manage variations in income becomes even more essential to the financial stability of American families. And financial products and services are key tools for saving and borrowing.

Nonprofit organizations have an essential role to play in developing technologies that ensure all Americans are included in our financial system.

Financial technology has changed the way we transact, save, and borrow. The application of technology to the delivery of financial products and services makes it possible to reduce costs and widen access. Seeing this potential, many investors have turned to financial technology — global investment has grown more than ten-fold in recent years, from less than $1.8 billion in 2010 to $22.3 billion in 2015. But will private investment and for-profit financial technology firms alone reach the millions of Americans that don’t have access to responsible and affordable financial services?

Nonprofit organizations have an essential role to play in developing technologies that ensure all Americans are included in our financial system. We, the undersigned, lead organizations that are filling that role. Our six organizations are each building technologies that help other organizations to support financial inclusion and capability among those who are underserved.

For each of our organizations, the focus is on field-building products. We are building technology platforms and applications that other organizations can use as they work in communities and with underserved people and families across the country. In doing so, we are furthering the capacity of the financial capability field as a whole, while accelerating our missions. We are focused on financial technology because we believe that nonprofits can play an important and unique role — alongside the for-profit financial sector — in extending financial services to those that need them. We are coming together to create the nonprofit Leaders in Financial Technology (nLIFT) to advance our collective work and to strengthen our voice within efforts to advance financial inclusion.

As nonprofits, we have unique assets and opportunities to further this goal. In particular:

• We have earned the trust of underserved communities.
• We understand these consumers and families and have generated valuable data about them.
• We can pursue opportunities that are riskier in financial terms than for-profit enterprises.
• We can be patient and incubate ideas over longer periods of time.
• We can attack systemic problems.
• We can aim to create and scale public goods, not just returns for our organizations.

We can attract and combine unusual resources, partners and assets, and are skilled at delivering results from modest investments.

However, as nonprofits we also have less access to capital and must stay true to our nonprofit tax status.

Philanthropic capital is precious, and must be deployed as thoughtfully and with as much impact as possible. nLIFT is a critical forum to ask and answer tough questions about how best to do this, both for ourselves and on behalf of a broader field.

nLIFT will help articulate and explain our unique assets and challenges. As tax-exempt organizations, we have the privilege and responsibility to prioritize social return above — and often even at the expense of — financial return. This special role demands we cultivate special expertise, public awareness, strategies, and peer support. We, the members of nLIFT, believe philanthropic capital is precious, and must be deployed as thoughtfully and with as much impact as possible. nLIFT is a critical forum to ask and answer tough questions about how best to do this, both for ourselves and on behalf of a broader field.

While we are coming together as nonprofits to advance our collective work, it is also important to collaborate with for-profit firms. Many organizations seek to deliver both social and financial returns; private capital is critical to the financial empowerment challenges facing our nation. We look to learn from and partner with innovators. Our goal at nLIFT is to complement private capital.

Convened by the Aspen Institute’s FIELD and Financial Security Programs, nLift will seek ways to engage with other firms, for-profit and nonprofit practitioners, funders and investors, and others who care deeply about financial inclusion.

This is a time when millions are in need of better financial services and products. And it is a time that technology is advancing to help address those needs. If we want a financial system that is truly inclusive, nonprofits must be part of building that system.

Tim Flacke, Executive Director, Commonwealth
Leigh Phillips, CEO, EARN
Mae Watson Grote, Founder and CEO, The Financial Clinic
Jose Quinonez, CEO, Mission Asset Fund
Margaret Libby, Founding Executive Director, MyPath
Cathie Mahon, President and CEO, National Federation of Community Development Credit Unions