Fintech Entrepreneurs Help Low-income Consumers Thrive
Only 57% of Americans are financially literate, according to the most recent S&P Global FinLit Survey. In November 2020, 35% of U.S. adults reported in a Federal Reserve survey they would not be able to cover an unexpected $400 expense.
Clearly, there is a great need for financial literacy. But is there a market for it?
Entrepreneur Jimmy Chen thinks so. When Chen launched Propel in 2014, his corner of the industry—fintech for underserved populations—was niche. Today, Propel’s mobile app, Providers, which helps users manage their SNAP benefits (also known as food stamps), is one among a burgeoning market of fintech tools offering financial management solutions to low-income users.
In 2021, 283 eligible startups applied to the Inclusive Fintech 50, an organization that identifies and analyzes early-stage fintechs addressing financial inclusion worldwide. These applicants alone reached 97 million people in 107 countries by 2021.
Fintech apps are well-suited to underserved populations. A full 75% of low-income Americans own smartphones (far more than have home broadband). And according to credit counseling and education nonprofit Money Management International (MMI), smartphones can also help users overcome a key barrier to seeking financial education and tools.
“There’s a barrier of stigma and shame around debt,” says Thomas Nitzsche, senior director of media and brand with MMI. “An app can help reduce that stigma because people can maintain some anonymity and still get the help they need.”
The security, accessibility, and convenience of an app certainly don’t hurt either, Nitzsche adds. Chen cites a trend in startups partnering with charter banks to offer alternative banking solutions as widening the market opportunities for fintech products for low-income users.
“With the direction [technology is] going, there’s just no way that we’re going to have a third of the American population transacting on prepaid cards or using mostly cash,” adds Chen
For example, Propel’s Providers app serves 5 million users, and the average active user opens the app 17 times monthly.
Serving low-income users with the goal of increased financial security requires a unique and deliberate approach. There are various models that fintech apps for low-income use employ. From easy-to-use budgeting tools to money management for unbanked populations, here’s how successful fintech companies like Propel are making a difference for low-income users.
Models Built for Low-income Users
Chen’s vision for Propel was for social impact to be its core business—the way that it generates revenue. But when the defining characteristic of your user base is that they are low-income and your goal is to improve their financial security, where does the revenue come from?
For Propel, it comes from partners. Providers’ core function is to help users access their EBT (electronic benefits transfer) debit card balance and manage their SNAP benefits, so the app is free to them and state government partners. The app’s paying customers are companies offering users financially beneficial offers, like more affordable mobile plans or cable packages.
Flourish licenses software technology to banks, fintechs, and retailers that helps users develop good saving habits. That puts the startup among the 46% of 2021 Inclusive Fintech 50 that describe themselves as B2B2C, meaning their customers are businesses, but the startup still interacts with end users. Thirty-one percent say they are business-to-consumer, and twenty-three percent are business-to-business models.
Understanding the Need
In Chen’s observation, many fintech professionals come from different socio-economic backgrounds than low-income users, making understanding their needs a challenge. The most successful fintech entrepreneurs, he says, are those who take the time to immerse themselves in the community they want to serve. Tori Samples, for example, is the co-founder and CTO of Leaf, a mobile-wallet solution designed to help African refugees store and send money domestically and internationally—a challenge she was aware of after spending 15 years working with refugees.
For Chen, who was raised in a low-income household, getting a close understanding of potential users’ current needs meant opening up conversations with financially insecure consumers. “Deeply understand the challenge that you’re trying to solve,” he says. “I don’t have a fancy way to do that. It’s really just conversations with people.”
This decidedly low-tech approach revealed a pervasive issue in households using SNAP benefits: The only way to check their EBT balance was to call a 1-800 number, an inconvenience in a world where bank customers check their balance with the tap of a finger.
Today, Providers has learned enough about users’ needs to expand its offering to include SNAP benefit management, money management, digital banking, and even help with job applications.
Earning Users’ Trust
Trust is a crucial element in Propel’s value proposition. Research has demonstrated the tendency of marketing to low-income consumers to be predatory, taking advantage of their presumed lower education levels and limited digital literacy.
“Having an app that’s accessible and anonymous is amazing,” says Jai Makokha, a learning and development specialist at MMI, “but when you’re using it to push predatory lending or to cover up high interest rates that really aren’t in the consumers’ best interests, then that becomes a different thing.”
Chen considers it his company’s responsibility to ensure all partner content on Providers directs users to high-quality products that “tangibly help users save money or make more money.” Screening them is not an easy task, he admits.
“We make these types of decisions every week,” Chen says. “There are organizations that I wouldn’t even say are predatory or evil, we just think their product or their content is not quite up to our standards.”
Propel maintains that having the freedom of consumer choice is a privilege low-income families should enjoy. That means foregoing handy marketing tools like programmatic ads in favor of hands-on curation. The effort, Chen says, is the whole point.
“Maintaining the trust of our user base is the most important asset that we have,” Chen says. “We optimize for building trust within a demographic that, frankly, doesn’t trust a lot of companies.”
There’s plenty more opportunity for fintech startups to follow suit, building additional solutions and developing trust among low-income populations face, he adds.
“It’s not possible to build a single product that serves everyone who’s financially insecure. The needs are just too diverse,” Chen says. “There are still major opportunities that can still serve tens of millions of people.”
It’s understandable why fintech for consumers with little if any discretionary spending ability and low levels of trust took some time to catch on. But now that entrepreneurs like Chen have figured out ways to build viable business models around tech solutions that genuinely improve users’ financial security, he anticipates more growth in the space.
“Over the last six or so years, we’ve been successful in finding a set of investors who really do believe in the both the business and the impact opportunity,” Chen says. “My hope is that paves the way for future entrepreneurs.”