Over the past two and a half years, theFederal Deposit Insurance Corporation has been conducting pilotsaimed at helping banks develop products for low and moderate incomeindividuals who either don’t have access to bank accounts or whohave trouble accessing credit. At the same time, organizations likethe Center for Financial Services Innovation (CFSI) have beenworking independently on developing ways for these people to getinto the financial mainstream.
To that end, CFSI recently released what it calls its four”Compass Principles” for developing new products. These principlesare:
• SAFETY: Do No Harm
• INCLUSION: Promote Accessibility and Convenience
• FINANCIAL CAPABILITY: Design for Consumer Success
• PATHWAYS: Create Upward Mobility
But what is missing from these and from the FDIC pilots issustainability. The FDIC noted in its write-up on its small dollarloan pilot that the loans did not “achieve robust short-termprofitability.” In designing and regulating these products,financial service providers and their regulators need to make surethat the institution will be able to keep its lights on.
Part of providing financial capability and pathways to upwardmobility is having a full range of products and services. But italso means having the infrastructure to provide these things. Wehave come through an era of free checking where we have beenconditioned to think that financial services should cost nothing.Yet it seems to be ignored that overdrafts and interchange paid forthose “free” checking accounts, to say nothing of the lending andother financial services.
The industry, regulators, and other third-parties need to have anhonest discussion about the cost of delivering financial services.It is clear that promoting consumer success and upward mobilitywill lead to success for financial service providers as well. Thisis an instance where both sides stand to benefit from properlypriced and properly designed products. But it remains critical forthe providers to be able to sustain themselves and grow along withtheir customers in order to remain relevant to them.