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Game Changers 2019 – Essay Series

Game Changers 2019 – Essay Series

Fintech Inclusion: How PayPal, Square and Stripe can Disrupt for Good.

James Gutierrez, Founder & CEO, Insikt

PayPal, Square, Stripe, and other fintech leaders started with a mission to disrupt massive banking institutions, which they believed had become, as Bill Gates famously said 25 years ago, “dinosaurs.” They saw the inefficiencies the banks exploited to take a cut of transaction
or charge fees, taking a bit out of everyone’s pockets along the way. They decided innovative tech could outsmart the banks, and they created the world of virtual payments we know. According to the EY Global Banking Outlook 2018 report, the adoption of fintech providers for money transfer and payment services rose from 18 percent in 2015 to 50 percent in 2017.

Fintech providers have proven to be a boon for most people, except for those who could benefit from their services more than almost anyone: the 65 million or so Americans who are unbanked or underbanked. The “tech” part of fintech isn’t the problem; internet access is nearly pervasive and even smartphone adoption is broad and deep. It’s the “financial” part. Lower income communities have been left behind in the global economy, starting with easy, affordable access to capital for relatively basic needs.

We take credit for granted every time we swipe-and-go with our cards. In lower income communities, predatory lenders with APRs of
1,000%+ and associated fees are often the only access to capital; these options trap hardworking people in an endless cycle of debt. As a result, these families have little chance of establishing any positive credit history that can provide a path to financial independence.

The gap in serving these communities can’t be boiled down to some simple matter of indifference or prejudice. Yes, financial institutions of all kinds don’t have a good track record of serving low-income neighborhoods; In some cases, they do only the bare minimum
to meet state or federal standards. The biggest hurdle is one of trust and risk. Underbanked and unbanked communities don’t fit into
our standard credit and lending models. Hardworking people that lack the credit histories or can’t escape an outdated one are
not reasonable risks in these models.

This can change, and the opportunity to do good and do good business is in fintech’s grasp. Technology consistently creates impact when it can digitize the offline world. Trust and risk for these communities has been the one offline activity that fintech has not been able to digitize. Companies like mine, INSIKT, and others have done just that. With online tools, borrowers in these communities have taken out 100,000 credit-building loans, in the range of $300-$2,500, across Arizona, California, Illinois, and Florida. The goal: help people get and keep good credit by calculating each borrower’s ability-to-repay. Pay off one loan. Get another. On average, Insikt borrowers have improved their credit score 312 points. When they have a strong enough credit score, they can work with mainstream institutions to get a standard credit card or get an auto loan at a competitive rate.

What’s missing? The other aspect fintech excels at: scale. Companies like mine cannot serve this market alone. We need to stand on the
shoulders of giants. Fintech providers have the potential to disrupt a whole new market. To serve people who, frankly, have been getting
screwed for far too long.

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