More than any time since the 2008 financial crisis, COVID-19 has put pressure on consumers’ financial lives. And while the many innovations in fintech in the past decade made household finances easier than ever to manage, we still have a long way to go.
On June 26, Flourish managing partner Emmalyn Shaw joined four fintech executives on the virtual stage of EMERGE Live to discuss “The Future of Financial Health: The Role of Fintech.“ The session focused on how investors and fintech companies can take advantage of this moment, and bolster Americans’ financial health now when it’s urgent. The panel was moderated by Theodora Lau, Founder of Unconventional Ventures and also included:
- Andrei Cherny, Chief Executive Officer and Co-Founder, Aspiration
- Ennie Lim, Chief Executive Officer and Co-Founder, HoneyBee
- Hans Morris, Managing Partner, Nyca Partners
A summary of the discussion is below, and you can watch the session on YouTube.
Time to Redouble Our Efforts
At Flourish, we focus on solving the issues that make financial health harder to achieve for consumers and SMEs. During the pandemic, those pain points have only magnified. The number of individuals who have lost income and the number of households with next to zero liquidity cushion is expanding.
“This is not the time to back off, but to keep going forward, with products that help everyday Americans do well,” said Theodora. “We cannot get the time back.”
Many of the portfolio companies of Flourish and Nyca help people who are struggling. For example, Steady, a Flourish portfolio company, helps gig workers build a book of work and boost their income. And Nova, a Nyca portfolio company, gives immigrants access to credit by providing APIs to foreign credit bureaus.
Both firms supported Fresh EBT’s initiative with GiveDirectly to deliver $1,000 in cash relief to 100,000 of the hardest-hit American families. As of this EMERGE panel, they raised $99 million – possibly the largest private cash transfer to individuals near or on the poverty line in history.
Staying Focused on Consumer Pain Points
All EMERGE Live panelists believe that the fintech community’s responses to COVID-19 are making a real difference. However, when Theodora asked if fintech had done enough since the 2008 crisis to improve Americans’ financial health, panelists agreed: Not yet.
“I think the promise of fintech has been unfulfilled to this point,” Andrei said. “When you look at the economic challenges still facing so many Americans, there has been a lot of progress, but we still have a long way to go.”
To unlock that promise in the future, fintech needs to go beyond digitizing traditional financial offerings. “The opportunity is breaking away from legacy business models,” Andrei added, “and doing things the incumbent banks can’t do.”
Challenger banks are doing this more and more. “For these platforms, basic free checking is table stakes,” said Emmalyn. “Once they’ve built up trust, challenger banks can use cash flow data to provide other services that can make a difference for the consumer, such as overdraft protection, wage advances, credit-building products, budgeting, and savings tools.” What’s more, she believes that the success of fee-free challenger bank services can inspire incumbent banks to review their own predatory actions and shift them to benefit their customers.
Public and Private Efforts Needed for the Future
With these innovative services on top of a basic transaction account, challenger banks have shown increased savings rates in several markets globally. But since COVID-19 emerged, consumers need a lot more help with debt management.
“Consumers don’t have good tools to finance their education, childcare, and medical expenses,” Hans explained. “Those three areas are very important and have absolutely been impacted by COVID-19.”
Fintechs that help automate cash flows or use alternative credit data for refinancing can help fill this need.
While fintech innovation has tremendous potential to reshape financial health, the panelists agreed public action is needed to update America’s financial infrastructure. That’s why Flourish invests part of our capital toward engaging with regulators and policymakers.
“The U.S. did a great job rushing the stimulus, the problem was the execution,” said Emmalyn. “It’s because we have really outdated systems. Getting paper checks took weeks, unemployment insurance is taking 30 days or more. We need to massively recalibrate our infrastructure.”