In November of last year a group of payment innovators from Silicon Valley (including me) had lunch with Jamie Dimon, CEO of JPMC. After meeting Jamie, I wrote him a letter with an idea for how JPMC can help improve financial services to the underserved. Here is that letter. I’ll let you know if anything comes of it.
Jamie – thank you for the lunch. It was great company and conversation. Since then I have been thinking about how Chase can help serve the underserved. First of all, the Chase Liquid prepaid program is an excellent product that allows low–balance customers to benefit from an account and debit card without the costs associated with a DDA or frequent NSFs.
Second, assuming that Chase will likely not offer underbanked transactional services at scale, such as check cashing, money orders, short-term credit and international money transfers, through its branch network or online, a big contribution Chase can make to improve the position of the emerging middle class is through a specialized debt facility.
In 2011, $44B of payday loans were issued. These, and related forms of short-term credit, are expensive, don’t offer risk-based pricing, and serve only a derogatory contribution to building credit (even if paid back as agreed). While they clearly serve a need, they represent an effective barrier to economic mobility, even to the majority of consumers who repay responsibly and on time.
A $500 million to $1 billion debt facility targeting profitable, but responsible payday alternatives in the US, would allow Chase to partner with leading innovators (instead of develop the expertise in-house, along with associated head-line risk), would bring better priced and better structured products to millions of consumers (and represent a path for upward mobility), would stimulate broader industry changes through commercial incentives (vs regulatory over-reaching), and would generate strong financial return for the bank.
This “responsible short-term consumer debt” facility would be limited to commercial opportunities which are in compliance with state and federal lending laws, are able to scale efficiently, can demonstrate track record, and offer credit based on several “responsible” tenets (such as risk-based pricing, full-file credit reporting, full amortization, term flexibility). The facility would need to offer competitive rates to funding sources which support incumbent products, approximately 6-11% APR.
Potential targets include California-based Progreso Financiero (Hispanic focused), BillFloat (direct, third party distribution), FairLoan (employer distribution), and NeoLoan (near-prime auto); potentially Texas-based Think Finance (online) and US-based Wonga (online), with some changes to current offerings.
Core Innovation Capital, a venture capital fund that specializes in financial technology for the underbanked, has direct access to these and other potential targets and its principals are happy to discuss this concept in further detail, should there be interest. Arjan Schutte, its managing partner, can be reached at email@example.com or 646-580-0046.
Again, thank you for the lunch. I will be happy to discuss this and other ideas about serving the underbanked with you or your team.