 Good morning again everybody I'm really excited to be able to introduce and moderate our fourth panel, our first panel of the day on fintech and financial inclusion. We've got a really great lineup. Pawan Bakshi is the India country lead for financial services for the poor initiative at the Bill and Melinda Gates Foundation. Kay McGowan used to run the digital finance lead at USAID and now is a professor at Georgetown University. Josh Ledge is the director of the Center for Financial Services Innovations fintech project and Lou Zorushia is the CEO of the Opportunity Fund and they've got just a depth and breadth of experience here that I'm just thrilled to see. We're gonna I think go in this order when we get to the panel. I'm gonna just say a few words by way of introduction to the panel. We have been talking over the last day about trade-offs and innovation and regulation at a very both high level and then micro level, microstructure level and you know we've been talking about the basic issue that fintech innovation is really kind of central to growth. It's central to development. It's central to a vibrant economy but it can also hide new risks and trying to think about how to get that balance right I think is absolutely critical but I also think that if you look back over the course of economic history you can see cycles of getting this more or less right. That is it's very hard to find a time where you said geez this balance is perfect. What tends to happen is that innovation happens and both the market and policymakers make errors in that course of that innovation. They make errors sometimes in the direction of holding back innovation in ways that stifle growth or that lock-in incumbency, lock-in oligopolistic tendencies, lock-in power or they make mistakes in the opposite direction and they unleash the market and policymakers unleash a set of activities that whose upsides blind the public to the downside risks until we have some event like the financial crisis in 2008 and then we realize that some of those risks were risks that maybe we shouldn't have taken and then we try and correct for them and then we forget about the cycle we just went through when we do it again. Part of the point of having these conferences and these discussions is to try and learn continuously over time and avoid amnesia and avoid the mistakes of either locking in what I call here the dinosaurs, locking in the incumbents and the other danger of unleashing risks that are too great for society in relation to the gains that might be had from innovation. So innovation can come in lots of forms and one of the forms that innovation can come in is in the form of regulatory innovation. So innovation can happen in the private sector, innovation can have it in the regulatory sector. So I just thought it would be worth thinking about some of the regulatory innovations in consumer finance and financial inclusion that have happened in recent times and you can see here this is not meant to be an exhaustive list but a suggestive one. One example of innovation that I think is quite useful in the regulatory space for financial inclusion is the idea of crowd sourcing. So if you think about the Consumer Financial Protection Bureau's Consumer Complaint Database, one way to think about it is as a crowd sourcing function that the CFPB uses, can use and uses the complaint database as a way of crowd sourcing its collection of information about potential problems in the marketplace and that information can then be used by the CFPB not only to resolve individual complaints with respect to financial firms but also as a tool for understanding what problems either exist in the market in terms of potentially non-compliance with existing laws and practices but also even in areas where the thing being complained of is perfectly lawful. Seeing problems in the marketplace that might suggest that the rules of the game should be changed. That is that the activity involved might be creating problems that should suggest policy change, legal change, regulatory change. A second example of innovation that's been happening in the last few years is innovation that uses insights from psychology, from behavioral economics to shape the approach to regulation itself. So those of you who look at your credit card statements, the ability to see in your credit card statement what happens if you only make the minimum payment and how much money you would save if you paid off your credit card in a shorter time frame. That's a behavioral nudge that is prompted by research in this area or in the mortgage area you can think of the rules that were set up for qualified residential mortgages or qualified mortgages. These are rules on the one hand on the consumer side and the other on the safety and sadness side that anchor the market in a safer mortgage product. There are still other mortgage products that are available that are not qualified mortgages but if you step outside the line of this qualified mortgage there are heightened standards of care, heightened disclosures and heightened risks for the provider of those mortgages. It's a way of anchoring the market in a safer product. A third kind of regulatory innovation in the consumer area is what in the UK you can think of as sandboxes in the US. I will get the phrase that was used yesterday slightly off but I think that our regulatory system was described as uniquely fragmented. In our uniquely fragmented system we have different agencies doing different things. We heard from Amy Friend yesterday about the OCC's Office of Innovation. The Consumer Financial Protection Bureau has a office called Project Catalyst to encourage innovation. We're going to hear more about that in a panel later today. Then there are data innovations. The OFR has been a leader in data innovation in the regulatory space with the creation of the legal entity identifier. There is the potential for innovation under the Consumer Financial Protection Bureau in the form of the requirement in the Dodd-Frank Act for information about one's own account to be provided in a machine readable format. As I'll say in a minute I think that is an important potential for improved consumer products. So there are lots of potential topics. We're going to talk about I don't know somewhere between four and a dozen of them in just a moment. But we were talking a lot yesterday when we got to topics of financial inclusion in the course of other panels. Most of the discussion was around credit access but you heard Lail Brainard I think rightly focus a lot on issues of consumer autonomy that are related to ownership of one's own financial data. And for my own part I think that is a critical new area to consider to make progress on. If consumers can have better control of their own consumer financial data lots of potential upsides follow including the better ability for example to switch bank accounts if your bank behaves badly. So if I can if I can port all of my information in my bank account all of my connections I've set up my direct debits and my direct deposits if I can switch my bank account the way I can take my telephone number from one phone to another phone or even to another carrier if I can do that seamlessly and efficiently we will dramatically enhance competition in the financial services market. Financial firms right now know that they can impose enormous pain on you before you will switch bank accounts and so they tend to do that with high contingent fees and lower quality service than would otherwise be available to you if there were a real and meaningful competition for switching your bank account. And if it were easier to do that we'd enhance competition and we would potentially reduce overdraft charges reduce insufficient fund charges reduce other kinds of contingent fees and improve the quality of service. So I think it's an exciting new area and the CFPB's authority to require firms to provide your information to you in machine readable format is an important way that we can begin to enhance that competition. There are lots of other issues I'm hoping we're going to get to with our panel including the important issues with respect to know your customers, anti-monitoring, law-nearing rules, and their effect on remittances that you'll hear more about. So what are some of the key issues that we'll be talking about on this panel? Again illustrative to get the juices flowing rather than exhaustive. What are some of the key concerns? What do we mean by consent? How do we decide whether a consumer has consented to participate in a financial product or service? I heard quite a bit about that from Governor Brainard. Issues of privacy and data security, privacy in the sense of what are the rules of the game that decide when a FinTech or a bank has the right to use my information and for what purpose is and what for what time period. Data security, are we protecting that information from abuse as in the Equifax case? What should we do about identity authentication? How do we make it easier for example for immigrants to this country to document their own identity or in other countries as you'll hear from Pawan, how do we make it a lower cost for the population as a whole to be able to authenticate themselves? Issues of consumer protection, getting the balance right as I've talked about, of access, efficiency, the resiliency of the system we create and for me at least does that underlying system empower individuals? Does it enhance autonomy of individuals or not? So we have a really full agenda. I'm looking forward to our discussion today and with that let me turn it over to Kay to get it started. Thanks so much. Hi, good morning. It's a real pleasure to be here. Thank you so much to Michael for the invitation and to the Office of Financial Research and especially to Christie and Ginny. I used to try to organize a similar type of forum when I still worked for the US government. So I know how taxing and just the organizational and administrative side of it can be. This has been a great event so far. Okay, so as Michael mentioned, I just left the US government, the US Agency for International Development after seven years. I had been at the State Department for 10 years before that. While at USAID, I had the very, very fun opportunity to be able to help reshape a long standing financial inclusion portfolio that the US government primarily directed into supporting microfinance industries starting in the 1980s and 1990s to really be able to embrace this opportunity that was presented by FinTech, I guess. You'll see on my slide, I'm half joking when I say Fin Low Tech, but I'm also being serious in that you're not going to hear me talk about latency arbitrage or any of the fancy things that people discussed yesterday. I mean, what's really sort of transforming financial services sectors in most developing economies is actually pretty simple. It's been the spread of the mobile telephone and that's not even smartphones. That's actually just basic 2G feature phones. This is any phone that has the ability to send a text or connect to a USSD channel. While it's very exciting and I would argue that the pace and the scale of innovation that we're seeing in emerging markets is actually kind of blows what's happening in the developed economies away. It is really focused on very practical technologies for the most part. Oh, I wanted to ask if anyone, I chose this photo because it's very topical. This is from a market in a Sub-Saharan African country. Can anyone guess? There's a big clue in the currency that's being used. This is from a market. No. There you go. Very good. Of course, the Zimbabwean market dollarized a decade ago to be able to stop hyperinflation. Actually because of that, because of the fact that they use the dollar, which they obviously can't mint themselves, mobile payments have had incredibly fast and ubiquitous uptake. It's mostly because, as you can imagine in Zimbabwe, you want to make a lot of purchases for very small amounts of money. However, if you can't find a quarter or a nickel and there's not enough even dollar bills around, you get stuck. A great advertising campaign from the big mobile money provider in Zimbabwe was how mobile money can help you replace getting sweets for change because a lot of store owners, if they couldn't make change, you'd buy something very small and you'd have to pay with a dollar and instead of giving you back 50 cents, they'd give you a bag of candy. I just want to go over the global landscape a little bit. The big official number that we use in this industry is that 2 billion adults globally are completely excluded from the formal banking sector, from the formally regulated financial services sector. I personally am incompetent that that really actually understates the size of the problem because you have, I can tell you, because you also have a lot of people, hundreds of millions, if not billions of more people that may be in low-cost, no-frills bank accounts, but they don't use those bank accounts for very much. Those bank accounts don't give them the tools they need to manage their resources and take advantage of economic opportunity. But that's the stat that we use. That number is actually going down, which is great. There has been a big focus in the international development community globally to really unstick the banking sector. But the reason it's so important and why we care about people that are extremely poor having access to safe, affordable financial services is it may be a little counterintuitive. If you don't have any money, why do you need a bank? But in fact, there's been wonderful, rich, qualitative and quantitative research now over many, many years that demonstrates that even very poor families and people are extremely active users of financial services. It's just that they're using unsafe and much more expensive and much less convenient services. So this old adage that it's expensive to be poor really applies to the financial services sector among the world's poor and extreme poor. And I think we'll hear a little bit about this when we get to talking about financial health in the United States. But even though the level of degree is different, I think some of the fundamental challenges are the same, right? In particular, for the world's very poor, it's income volatility. We always talk about this, the poverty line globally is being someone that lives for $2 a day, right? But in fact, the vast majority of the world's poor have extremely irregular incomes. So it's not that they're getting $2 a day. It's that they're, you know, some days they'll get nothing and maybe a harvest will come in and they'll get 50% of their yearly income. So this obviously leaves people very vulnerable to any sort of financial shock. On the flip side, you have some pretty incredible estimates of what digitizing emerging economies could result in in terms of increased productivity, both at the micro level, so to individuals at the macro level as assets and investments get made more productively. And then of course, to governments. So there was kind of a big flagship McKenzie Global Institute report that came out last year, that I've estimated that if we were to fully digitize all transactions and emerging economies across the board, you get a GDP boost of 6%. That number is actually much higher in big countries that are quite poor and quite, quite analog still like the Nigerias of the world, India, which is moving. And you know, there are estimates that you could get up to 10 or 12% boost. And then that third point about governments is something that I focused on a lot when I was working at USAID, which is that governments and public sector spending, especially in emerging economies tends to be very leaky, right? So you I got, I got to design about 10 years ago, and now sort of infamous trial of paying Afghan policemen, a group of 49 Afghan policemen by mobile phone to replace a test or to replace the normal trusted agent of the bank who would carry bags of cash out to the hinterlands. And, you know, it's pretty stunning. You know, if you subtracted all of the transaction fees along the way, the police officers ended up getting about 40% more when in fact they were being just paid in full. There's a lot of lore in the development community around that test. I'd be happy to talk to you on this interest. And that's something to I think Pawan will actually talk about because India, which has been a real incredible driver of what's happening right now and re thinking financial systems and the technology layers that can underpin access and inclusion, they were really driven by wanting to reform a the social welfare benefits program. And a lot of countries are are coming to this and thinking of how can we reduce leakage? And how can we better deliver services to the people? So as my opening slide said, this is not sort of high tech. I mean, this was really kind of looking around and thinking about the the power of using existing infrastructure. When you're talking about countries where maybe 70, 80, 90% literally of the adult population is not part of the formal banking sector, right? And so the the two sort of key pieces of infrastructure that have really become critical to expanding access are the mobile phone, as I already mentioned, and I put this this little chart up just so you could see the the sort of difference, right? Between the traditional remittance shop versus a brick and mortar bank versus ATMs globally and even credit card swipes point of sales, right? I mean, mobile phone access and ownership blows any of them away. And then the other critical piece of infrastructure is really thinking about how do you take kind of the the human interface of the bank outside of these brick and mortar banking systems. And that is by leveraging sort of the local retail community. And every every village, every neighborhood in the city, you know, one thing they have are these these local shops. And so the the big spread in access has been through the mobile phone and through financial service providers, signing on tens of thousands of small businesses to act as their agents and interface directly with. And Sarah, as you've probably gotten this point already, but it really has become at its mobile payments and digital payments that have become really the foundational and the transformational innovation that fintech has has brought to to emerging economies, right? They've created kind of an on ramp or I like to joke that they're the gateway financial service, right? Because what they're able to do is bring people who had been completely invisible to the financial service providers, despite the fact that they have very busy active financial lives. They made them visible. They make those transactions visible once you start making payments, receiving remittances, sending money to family members via your mobile wallet, all of a sudden that can start counting for something. In addition, these mobile wallets, which are individually owned regulated accounts, you know, they they provide often for people the first opportunity they have to be able to store money safely and to be able to send and receive money immediately. And that's been shown to have incredibly important income smoothing effects, right? And it kind of makes sense, right? So there is a kind of famous RCT randomized control trial that was released, I think in 2010 or 2011 that looked at Kenyan households that use their iconic mobile money service versus Kenyan households that had not yet started using the mobile wallets. And what they found was that adoption and use of M-Pesa fully ensured those poor households against any consumption loss, so due to like some sort of economic shock, right? So whereas the the group that was not using mobile money had a 7% consumption loss over the period of this trial, due to crop loss or an accident from the from the head of household, something like that. Children literally, you know, people went without as much food. And the households that were using M-Pesa, when, when some sort of shock hit that family, they were able to leverage basically their their social networks, and then their savings in a time of crisis to be able to keep putting the same amount of food on the table from a development economist standpoint. I mean, that's pretty extraordinary. And it's also led, as was mentioned earlier, to, you know, making people's financial transactions visible for the first time has led to the ability then to layer on additional services. The first of this has been offering consumer credit. And of course, the industry of credit to the world's very poor has been out there for a while with microfinance. That was a really that model. Well, it's had some some very important effects. It's quite a rigid model in terms of how much you have to loan out to make it profitable in terms of repayments rates, the costs of origination of consumers, clients is very expensive. And so fees still remain high. On the other hand, with digital credit, you're, you know, you now have services, something like 36 of them in Sub-Saharan Africa alone, that are able to kind of peer into somebody's mobile wallet transaction account, see their income and expenditure pattern. And then, you know, in a matter of seconds, assess whether or not they qualify for a small dollar loan. And these small dollar loans are just that. I mean, the average loan of this service, the first one in Kenya is $12, right? And, you know, it's really just extraordinary in terms of the advances of being able to give people access to even working capital, right? Much less emergency funds to be able to take your child to see the doctor right now, rather than having to wait some time to gather up all the funds. So it's really, it's really changing the consumer credit market in these countries. Beyond credit, what we're seeing low cost payment systems enable, too, is a whole new range of services, right? The most sort of well-known example right now is Pego Solar, right? So residential solar kits have been around Africa for years and years, but they never really took off. And one of the main reasons was that is there was never kind of a financing solution that worked particularly well. With mobile payments, you literally have these page you go kind of lease to own models whereby people make very small payments every day or every week over a fixed period until they then own the unit, which they can then recolateralize to finance other things. And so, you know, this is one thing the development community has struggled with for decades is this, how do you help very poor households build assets? And so this payment service has really created a way to do that that's just never existed before. And then finally, as I referenced earlier, there's a lot of attention, too, to thinking about, okay, when we have to give assistance to people, there are kind of two movements that are happening in parallel. One is a move away from giving people commodities to cash grants. And then once that decision has been made, as the humanitarian world is moving towards more cash grants, how do you deliver those cash grants, you know, safely, efficiently and transparently, and in ways that do start to include people in the formal economy? And I just added this this slide in here, because there's a little bit of a myth that says that mobile money has worked in Kenya and that mobile payments haven't worked elsewhere. And it is true that Kenya is the largest telecom there Safari com they're in PASA product did take off and it scaled incredibly quickly. And this happened between 2007 2010. And other countries really struggled to to sort of to imitate that model. On the other hand, what you've seen or other are markets maturing, but in very different ways. And you know, this is something that's become nearly ubiquitous. It looks different in different countries, and the level of utility is at different stages. But digital payments systems are really now recognized as kind of a fundamental requirement now, both for governments and consumers in developing economy. And I just wanted to list a couple of questions. Because I, you know, I'm actually quite mindful of the first speaker yesterday, she was, you know, reminding us all to to be a little cautious if there's an industry where people have their own vocabulary, and they speak about the, you know, the potential outcomes with with great fervor and evangelism. And you know, we certainly tend to do that in the digital financial community, a digital financial inclusion community. And I've been a great cheerleader of this now for many years. And you know, this isn't to say that that these systems are perfect. And nor that any market has kind of gotten everything figured out. And to Michael's point earlier about balancing regulatory innovation, and, and technological or even business model innovation. This is still a huge open question, even in these markets that are moving very quickly. And you have a real spectrum of approaches, right? So you have Kenya, the iconic mobile money market where the regulators did make a very bold decision to allow a non bank to enter the payment space, right? And really started this whole movement. But they've taken a very laissez faire, to be kind attitude towards the development and maturation of this market. And as one of the panelists noted yesterday, what's resulted as a is a is a monopoly. And so far, they've been a fairly benevolent monopoly. But they're, you know, this isn't necessarily the model you would want other countries to follow. At the far other end of the spectrum, what Pawan will be talking about is, is the Indian government that's been incredibly deliberate and thoughtful, and frankly, probably overthought some aspects of the regulatory and policy environment, right? But the common denominator among all of these countries where you are starting to see real expansion of access to financial services markets, even for the poorest members of society, is that regulators and policymakers have been willing to allow the banking sector to open up a little bit and expand to non traditional players. But that in itself begs a lot of questions like around consumer protection, right? I mean, you still you hear talk here in this country about consumer financial literacy and concerns about that. I mean, we are now including people in the banking sector and the formal financial sector, who not only aren't financially literate, but may not be literate, right? And so how do you think about the government's responsibility, industry's responsibility, consumers responsibilities, it's really there, there's still a huge amount of work to be done there. And on the on the reverse side of that, I've been in a lot of these central banks, supervisory offices, where you go in, you know, and the team of people that are supposed to be monitoring consumer complaints have, you know, two working computers and a ledger where they hand right complaints that come in by mail or fax. You know, so how can you think about central banks and market supervisors, innovating to be able to to supervise the growth of safe and healthy markets. And these questions that Michael raised earlier informed consent. Again, these are big questions when you're talking especially about I mean, they're big questions for us in the US, but a big question when you're talking about people who are really, you know, meeting the financial services sector for the first time. And then finally, I just want to end my remarks by saying I to my mind, one of the most fundamental questions and the most interesting question is where do you draw this line between what is a public good and maybe provided by the government and where the private sector starts to play. And that I think has real implications for how these markets overseas are going to evolve. Because what we're seeing in in some countries is this kind of go it alone model of in Pesa and Kenya, where every provider wants to build all of the infrastructure themselves, all of their agent networks, those sorts of things. And while that's worked in a couple of countries, it's failed in the vast majority of countries. And it has kind of a natural stopping point to that that keeps that keeps these services from reaching the very, very poorest in the economy. And that's again, where India has, I think, done some really cutting edge thinking and work to be able to be much more deliberate on how they create a level playing field and what that means for competition in the private sector. With that, I'll stop. I'm so sorry, Michael had asked me, I know there are students in the room, Michael had asked me to put up a couple of organizations and reading recommendations. So just as I mentioned, there's a whole sort of subset of the international development industry now that kind of focuses on this. It's really circled or centered around an organization, a remarkable organization called C gap, which is a multi donor fund that is housed at the World Bank, but does a lot of the cutting as cutting edge research. So if you're interested in this field, I would send you straight to see gap.org. There are a number of alliances, the better than cash alliance, the Alliance for Financial Inclusion that are really helping policymakers and regulators think through these issues. The Gates Foundation has done some really incredible thinking around what a what, you know, an optimal payment system if you're really optimizing for inclusion, what that would look like. And then there are a few reports and essays. We can just make it available. Hi guys, good morning. Thanks, and Christie and Jenny for having us over here. It's it's really an honor to be able to speak about what the country is trying to do here and how, as case said, India has been a bit sort of deliberate about thinking how we provide access to seventh of the global population. It's kind of large. Thank you. So I'm going to be speaking about not about what is the advantage of fintech or what it brings, but essentially how it impacts the lives of people. And and all through yesterday and over my discussions, you know, the last couple of years now, things which are emerging is that while there's a whole lot of activity, which is happening, you know, in the marketplace as of now, both the regulatory space and the policy space and the product space, everything else. So just two key trends which are emerging. Those two key trends for us is that tech advances are enabling innovation. That's that's that I think is the is the underlying thing that agile low cost. And they're providing specialized services. The second is that the world is going digital. Nothing new, right? How many of us use phones? Everybody does. How many of us are on Google? Everybody is almost except for us. And, you know, and and so we are all going digital. And people are demanding and consuming more services. This happens almost every day. Keeping that in mind, let me walk you through today, what India is on one end today, some large numbers that you will see that 1.2 billion people have unique identities, biometric, electronic, digital, and we'll talk about talk about what that means in terms of service delivery. There are more than a billion mobile phones in the country today. We have about 900 million digital accounts about 300 million of them got opened in the last about three years. With a clarion call from the Prime Minister, there were queues at the bank unheard of queues at the bank by people to open bank accounts in the bank didn't have the capacity to solve for that very quickly. Although they tried to it had errors, but still they were I haven't heard of an occasion where people are queuing outside banks to open accounts. The the other is that today the government claims that every household has at least one bank account. And that's very important for for the way the government is thinking about it because if you do need to pass on price subsidies and welfare payments into families, you do need a bank account to which to to be able to pay those things instead of handing over cash or or some stuff in kind, which is open to leakages at corruption. There are about 800 million debit cards in the country today. Expensive. It needs a whole lot of ecosystem for it to work. But nevertheless, they exist. And we have about 350 million smartphones growing at about 30% a year. And the latest challenger in the telco market called Reliance Geo is coming up with what it's called is a smart feature phone. So it's a combination of things you can do on a feature phone, but on a smartphone, but actually it's a feature phone with a larger scheme. That's that's an innovation itself. And that that that costs about, you know, a very, very small amount of 1500 rupees, which is a very small fund. And that too is free because it's refundable after three years. So so so the cost to get that to the customer is very cheap. The regulator has been very thoughtful about this and and and although it's a it's a very regimented regulator in the last two years, they've given away 21 new banking licenses and differentiated ones. So you have a specific one for payments only, you've got a small finance bank, you've got all sorts of Andy and the payment banks are today can be applied by even buy a telco. So Airtel or Vodafone have licenses to be banks under the payment banks license. So that's another way of looking saying that if my banking industry, the way it is structured today is unable to deliver services to the poor and remote corners of the country, just because they're structured in high cost, will I keep them still in the loop to be able to go and deliver it or should I go out and create a new mechanism, which will help those guys to reach there and and the telcos fit their bill, because as compared with about 150,000 or branches of banks, telcos have about 1.5 million retailers spread across the country. And the last one which K spoke about is improved governance. So just the fact that the people have a bank account and the government is committed to reduce corruption and leakages in the system, they've gone away and said, can we transfer funds directly into the bank accounts of people? That's been a huge success about 140 million million people guest get cooking gas subsidy in the bank accounts every month, about 250 million families, which is about 800 million people who they get food subsidies, although in kind, but there are there is a process on to see which one of them can actually move to cash. Then there is fertilizer subsidy, which is impacting over 100 million farmers, small farmers and the and the price subsidy also act in a different way that they allow the market to not work in a rational way. Because if you if you provide a higher subsidy on urea, and even if your soil doesn't need urea, as a farmer, you're likely to go and buy more urea and utilize it. It distorts the market, it impacts the soil, it impacts production. So you know, it's a it's an ongoing thing. On the other hand, everything is being disrupted in the banking world, right? Every banking services you could think of is today being disrupted. And and how is this happening to just try and so I'm going to introduce to you what we call is the India stack. India stack is a is a combination of technologies which come together. So it talks about being it has a consent layer, it's it's got a cashless layer, it's got a paperless layer, it's got a presence less layer. I'm gonna talk about this a little bit more on the next slide when I want you to start to see the impact of this. So the India stack is split into two parts. So there is is the what we call is the identity highway or the information highway and then and then we have is the payment highway. There are lots of numbers on this but let me stop here and tell you two stories. When you look at the slide, I would want you to think of Uber, right? What did Uber do on its own? Uber used location based services and GPS, Uber use existing payment gateway services and brought it together. Uber use skills of its tech guys to bring it all together and provide a service which is now being used by almost everybody, you know, a large number of us at least doing that. Just try and imagine if if Uber had to build those things themselves, what would be the impact on cost of services? And how long it would have gone and taken? But here what Uber's gone and done is is what we talk about is layered innovation. So they've used layers of things which already exist and brought them together in a newer way to write gaps to hail gaps, right? In a similar way, if you utilize this to see on the on the stack, you'd see EKYC, e-consent, digilocker and e-signature. Here's a use case for you. What we've done an experiment with is a SME who's can store his financial transaction data in the digilocker and provide access to credit aggregators or to banks themselves for opting out saying that I want $100,000 of a loan, which can you offer me at and provide a link or a key to his to his data, those banks can run their own algos and come back with an offer of saying, here's what we can offer you add. He can choose one of them, e-sign the contract and get money transferred into his bank account in less than 10 minutes. Yeah, is it bad? Is it good? In terms of convenience, in terms of availability fantastic, in terms of seeing whether this is responsible or not, does he need the credit? Is it is it is it suitable for him? Is it over intended mass? What he's going to talk about are things which will we have started to come in as we start to think about these issues. Let me also also tell you what this able to do. So on the payment highway side, you will find the last one saying unified payment interface. A unified payment interface today allows customer with a bank account and we said that we've got about 900 million odd bank accounts to transfer funds from one bank account to the other almost instantaneously real time at a fraction of a cost. Since it was launched, we've seen it has hit about 76 million transactions a month. And we what we are seeing in November is about 5 million transactions a day So the ability to move money very quickly within the system generates benefits to the economy at such. And let me also tell you what this does. This also allows other non banks to come and have a role in the in the in the payment system of the country. So as an example, Google says, which is a payment app from Google, which launched India about a month ago is today. So 90% of smartphones in the country run on Android. So Google has suddenly acquired 60% of the transactions of 76 million transactions that were done in October. Right? Isn't that phenomenal? The question is how many of them will reach the world? And we'll talk about that. Let me also tell you what this does to costing. Because the other thing is that once you need to reach the poor, you have to ensure that the cost comes down. Because at $10 acquisition cost, you can only acquire X number of customers. Because you need that that return to come in from that investment you've made and onboarding him. But the moment you start declining costs of transaction, you can get a lot more people who wouldn't have those kinds of transactions or balances to still come on to the platform and be be profitable. So traditional banks would do the paper based KYC at about $5. Today, by using EKYC that has come down to about seven cents. That's not all the efficiency comes from that you could take about three days to open a bank account. You could get about you could spend about two days to get a SIM card activated at a telco. You can today walk in and activate a SIM card in less than five minutes and walk away. You can open a bank account in less than five minutes and walk away. The poor people don't need to go there again and again with the paper and saying this paper today is missing the other paper is missing your signs, your signatures and workings. The cost of acquisition of customer both on the product side is both on the customer side as well as the organization was immensely high. But what all this is going to do is it's going to make us data rich from where we are today, data poor. So all the thing that you do on social, on commerce and payments, everything is going to just change the way we do things. And that is scary, right? So we've been speaking about data production, data consent layers and everything else. We ran some some research recently and I'll send you the link. The top line is people care about data. They also care about saying that if I get the benefits of this, I'm happy to share my data. But I hope you'll keep it safe. And you let me know if you're doing something with it. And can I get control? I'm happy to share that with you if that happens. That's a very strong view that is emerging, right? This was a very small study. It wasn't so deep. So it's more insight driven and and some directions of where we might go. And Michael's a part of he is an advisor to what we are doing in India is called the Future of Finance Initiative, which is looking at these things very deeply and saying which is the right way to go. And the way we guys are thinking about that is by saying, so on one side, what we have is the user rights, what is a user data rights, where we are saying is how do you collect and use data? What is the quality and retention and and and even destruction and in terms of accountability of data. And on the other side is is laws which which are which are around liability of things, if things go wrong, who owns that data and underlying this is a very humanized wrestle kind of system where to go if things don't work. Right? And all said and done. I think the one question which which I'm going to leave on the table and and hopefully we will discuss this as the day goes on today is will fintech fail to deliver on financial inclusion? Is there a possibility? So there are some preconditions which I believe will need to be met. So is there network coverage across the country? So if you take an India that 3.29 million square kilometers, much smaller than the US, but you have all sorts of areas, deep rural, deep tribal bordering on on other countries where you can't beam into those countries, so you can't have towers there's all sorts of things will you ever have coverage in the entire country? One, two is economic barriers. What is the cost? How do you bring down the cost of these transactions? So if people were creating their own apps and doing everything else on their own, will they ever be able to do it? Are the venture capitalists today agreeable to invest in in in fintech which are going to look at the bottom of the pyramid? The answer is maybe no. While there is still large marketplace about 800 million people who are under $2 a day, you're saying no, I still not interested why I'm not interested long station, small value transactions, am I going to get back my own money? Where who's going to invest in that area? Right? The market coordination failures could emerge out of this they're not addressed to right now. And that would be immense. And we are also talking about information asymmetries just by the fact that we are now talking on this infrastructure, which is a public good, which is not utility, and this is not owned by by the private guys, we have a very good chance of removing that to say that there is an a level playing field available to people to be able to build on. I think in the in the last point I'm going to stop at is that unless the regulator and policy makers stay ahead of the curve, which is usually difficult because they usually follow innovation. Instead of staying ahead of it, our work on the future of financial initiative is just trying to do that is to just stay ahead of the curve. Work with the regulators work with with the policy makers tell them what's coming, how is going to come start to think about what's happening in India and rest of the world. And hopefully, we, we firmly kind of believe that we are on a path, although it's an experiment in right now, but we are on the right experiment, and we are the path to be financially included. And I'm sure I don't have the numbers yet, but the new of index survey results, which will which will come out sometime in 2018, we will see some of the results of this happening on the data. Maybe see some huge upsides. Thank you. Good morning, everyone. So first, like this start off, my name is Joshua Sledge. I'm a director at the Center for Financial Services Innovation. And wanted to start off by first thanking the Office of Financial Research and the Center for Finance, Law and Policy for inviting me to to speak here today. I am a proud Wolverine. So I look for an excuse I can to get back to Ann Arbor and definitely go blue. So Kay and Paulin did a really fantastic job painting a picture of the international activity and work that's being done to bring fintech in as a tool for financial inclusion. And I'm going to pivot a bit to look at the domestic picture and talk about how there's potential for fintech to address the financial challenges of underserved consumers in the United States, and then share a few examples of organizations and companies that are doing just that. But first off, for those of you that may not be familiar with my organization, the Center for Financial Services Innovation, I'll give you a brief, brief overview. CFSI is a nonprofit organization with the mission to advance the financial health of American households. And we define financial health as having a day to day financial system that works well, it enables you to build up resilience to financial shocks, and it allows you to pursue whatever opportunities are most important to you. So it's a simple definition, but unfortunately, we did a survey a couple years back and found that 57% of American households fail short of that standard. So our goal is to change that. And we do that primarily by working with a network of financial services innovators who are committed to this idea of financial health. It's large, very diverse, it spans from the biggest banks in the country all the way to local credit unions to nonprofit organizations, fintech startups, credit bureaus, really any organizations or companies that are interested in thinking and engaged in this topic of financial health, we want to work with them. Among other things, we provide research and consulting services. And a key thing that we do is really to try to provide support for emerging solutions that are aimed at improving consumer financial health. Most notably, we do that through an initiative called our financial solutions lab. It's a five year partnership that CFSI conducts with with JP Morgan Chase. And the goal each year is to put out a call and ask for all emerging startups and nonprofit innovators that are creating new tools to apply. And we select a cohort of about eight to 10 companies and organization each year and provide them with the resources they need. Capital, technical assistance, consultants, visibility, connections in our network, really whatever they need to scale, refine their products and get it into the hands of people that need it. So I'll talk a little bit more about the lab and some of the solutions we're seeing come out of it in a bit. But I first want to start by answering the question when we talk about financial inclusion, who are we talking about trying to include? So there's a number of ways that you can really approach this question. And we always like to frame it by the particular challenges that households may be facing. So first off, you start with income, right? Typically, we're very interested in making sure that the financial services system works in a way for low and moderate income individuals. And we estimate that there's 91 million low and moderate income adults in the United States defined as coming below 200% of the federal poverty level. But as Kay pointed out on the international segment, more and more domestically, we're looking not just at how much money you make in aggregate, but how that money flows into your to your home, this issue of income volatility. If you think about a lot of financial services, you've got monthly payments, things are static, things are consistent. What we're finding is for many households, that's not how their income actually works. Depending on whether or not your hours get cut, or maybe you've got a side job, or you see a lot of changing and household composition with relatives coming in and out. The amount of money that's coming in any given month can vary significantly. In particular, in those months where you've got a shortage, you can cause some financial emergencies and really cause a lot of financial stress and challenges for households. So next, if you take a look, we're looking at a segment that we call credit challenged. And these are individuals that have a hard time accessing traditional forms of credit, a credit card at a bank, a personal loan, typically things that you need to have a credit score in order to access. And many people, again, 121 million consumers in the United States are credit challenged. They either have a credit score that falls below the threshold that's often set for those types of products, or they're what is called a credit invisible. This is a concept in an area of study that the Consumer Financial Protection Bureau has been focusing on. These are people that don't have a credit score either because they don't have enough of a credit history to generate a score or have no credit history at all. And for many lenders, if you don't have a credit history, that's the same as having a bad one. So you typically see this problem emerge with younger people, particularly with recent immigrants to United States that may not have been able to bring over with them their credit history. So you add there's about 45 million credit invisibles at the subprime segment. You get to that 121 million people that are credit challenged United States. And last but not least, of course, there are the un-and-underbanked people that either don't have any relationship with a financial institution, or they may have a checking or savings account but are still using alternative financial services, like check cashers or payday lenders. And there's about 67 million adults in America that fall into that category, according to some really great work by the FDIC. So these are not distinct segments. They often overlap. And in cases where they do, that can really compound the challenges for an individual household. So we know how do these folks manage their financial lives on an ongoing basis? Well, they use a real variety of services that really range in quality. You know, it can go all the way from using traditional bank products to using some of those alternative financial services that may be high costs and come with a risk to their overall safety of the consumer. But in total, we estimate that underserved consumers spend $141 billion a year in fees and interest for the financial products they use. So this is a large group of people and a large marketplace. So there's a lot of opportunity to create better solutions that meet the needs of underserved consumers. Now, in doing that, designing those products, what are the types of attributes that underserved consumers are looking for in their financial services? Well, let's see a few here. Number one, speed and certainty. Oftentimes, if you're living paycheck to paycheck, you may be making bill payments for our bills on a just in time basis. You need to be sure that when you make that transaction, it's processed quickly and that it's processed correctly so that it's not causing you any issues. The second component, fairness and predictability. What you see again, $141 billion being spent, people are willing to spend money as long as it's predictable. For many households, the last thing they can afford is a surprise fee and overdraft, something that can really throw their entire financial life out of whack. So you may see someone who's willing to cash a check and pay a higher fee upfront for the certainty that there won't be any fees coming on the back end. So that kind of degree of predictability is really important. And lastly, accessibility. This is oftentimes still a cash-preferred consumer being able to either access an ATM or walk into a bank branch or a retail outlet. It's still really important, again, especially when it comes to those just in time urgent needs. So again, we think that there's opportunity to build here. And in particular, we think there is when it comes to leveraging technology. So right now we're seeing tailwinds both on the provider side and on the consumer side. So on the provider side, we're seeing this wave of investment. I'm sure you've been talking about it the last, certainly yesterday, and we'll talk about it more today. But this wave of investment innovation that is happening around financial technology. The graph here is from some research that the KPMG does on a quarterly basis. And you can see since about 2010, there's been almost a hundred billion dollars invested in the fintech space. That really runs the gamut that's including digital currencies, that's including, you know, platforms for investment management, things that may not have direct and immediate applicability to underserved consumers. But with our financial solutions lab, we're seeing the same degree of innovation and startups and entrepreneurship around fintech for financial health. So last year, you know, each year again, we kind of put out this application call. Last year, we received 361 applications from organizations that are building consumer-facing products designed to improve financial health. I was slightly up over the year prior and 20% higher than what we saw in 2015. So we're seeing a lot of enthusiasm, a lot of talent, a lot of investment, and a lot of innovation happening in creating new fintech products. Now on the consumer side, we're seeing, I think as Paulin and Kay pointed out on the international side, increasing access to the types of tools that you're going to need to use a fintech product, most notably mobile phone technology. The Federal Reserve does again, some really fantastic work, looking at mobile banking, the usage and adoption rates each year. They found in their most recent iteration, 76% of households that make less than $25,000 a year have a mobile phone. Right? So and that number increases with income and that trend has been increasing over time. Same thing in the smartphone enabled space. So we're seeing increasingly more people being able to access, just to have the basic tool to access fintech products. And at the same time, when it comes to actually using their phone for banking services or financial services, we're seeing underbank consumers actually use their phone for mobile banking at a higher rate than fully banked individuals. And oftentimes you see this because in some households, your smartphone may be your primary source of accessing the internet. The underbank population tends to skew younger in a way that smartphone ownership does as well. So as you're thinking about these underserved consumer segments, they're becoming mobile enabled and more familiar with and comfortable with using fintech products to manage their financial lives. So you add all this up and you start to see that there could be some potential for new investments, new solutions that are coming about that are meeting the needs of underserved consumers, their needs for certainty, speed and transparency, increasing efficiency and ideally also improving their overall financial health. So a few examples of places where we're starting to see this occur already and I kind of lumped them into a few categories that I think are interesting to think about. So the number one, you kind of tried and true your typical startup solutions. These are kind of early stage companies, many of which again are the type of organizations that we invest in via the financial solutions lab. I highlight a couple of them here. The first one is Propel, who makes a product called Fresh EBT. Propel, the founders of Propel, did some consumer research and realized that the process for signing up for SNAP benefits or food stamps is incredibly cumbersome. It's time intensive. People may be sitting in a government office for an entire day, almost to the same point that Paul made. If you forget a document, you've got to come back the next day. It's a very complicated process. So they created an app that allowed people to sign up and enroll in and SNAP benefits via their smartphone. They then realized that oftentimes that even if you've got the card, it's pretty difficult to manage it. If you want to know what your balance is, you have to call in to a hotline dial in your phone number and they'll tell you what it is. So in order to improve the efficiency and the transparency of how the card operates, they built Fresh EBT, which enables people to see their balance, their transactions on their smartphone. It will locate nearby stores that accept EBT. It'll even highlight places where there may be deals for them to have. So again, seeing financial technology being used, targeted to LMI consumers, helping them to make the most out of their money. Second is a company called Qcash Financial, which was born out of a credit union in Washington state. The credit union, like many that we see across the country, is offering a payday alternative loan product. This is basically a credit union saying, instead of going to the payday loan outlet, come to us, we'll give you three to five hundred dollars, give you longer time to pay it, better rates, it's just a better product. The problem with a lot of those programs is they're very inefficient. Typically what you see is the underwriting process looks very similar to what it would for a larger personal loan. So you're underwriting a three hundred dollar loan the same way you would a thirty thousand dollar personal loan. The economics don't really make sense. It becomes inefficient. So Qcash built a mobile platform where within six clicks, a member of a credit union can apply for and be funded for a loan, have the money go directly into their account. So it vastly improves the experience from the consumer standpoint, improves the efficiency from the from the credit union standpoint as well. And currently they're doing about thirty thousand loans a year through some of their partner, partner organizations. Another really interesting thing that's been happening as we've seen this wave of kind of again that typical startup fintech investment is that nonprofit organizations themselves have started to become financial technology providers, really leveraging a lot of the insights, the experience that they have working with underserved consumers, understanding their needs and being able to build platforms to serve them more effectively. A couple of examples here. The first one is an organization called Earn out in the Bay Area. Another one of our financial solution lab winners. Earn was a pioneer in the matched savings field years ago. This is essentially if somebody's trying to save up for a goal, maybe starting a business or buying the first home, they work with the program, they get some guidance and support. And for every dollar they put into a savings account, it gets matched. Oftentimes through philanthropic or government funds. Realizing the power of savings and understanding the insight of as to how particularly low and moderate income consumers save, they built a platform called SaverLife, which is direct to consumer. It's now offered nationwide. Anyone can sign up for it, but does much of the same thing on an automated basis, provides rewards, tracks people's progress, tracks their goals, gives them access to some financial experts who can provide guidance. And they work with local organizations to distribute this in communities across the country. In a similar vein, the financial clinic, organization based out of New York City, really was a leader in the field of financial coaching. This is kind of a unique approach, different from counseling, and that instead of addressing someone's problem, you know, I'm coming in with an issue or problem, they ask people to identify what are the goals that you are really working for? And the coaches really serve as kind of a support mechanism for that. There's been recent research, particularly from the Center for Financial Security out of Wisconsin, the University of Wisconsin, which has shown that this is a really effective model financial coaching and helping people move the needle, improve their overall financial health. Again, the challenge is efficiency. It's a very human intensive model. It's a one on one coaching model that just requires a lot of human resources. So in order to improve the efficiency of the coaching model, they built Change Machine, which is essentially a client management system that any organization can use, and a coach can track the client's progress, they can track even just doing scheduling, there's content for them to use to engage their coaches, basically giving them a tool to enable a single coach to serve more people, making the financial coaching services available to a broader set of people. So really exciting to see a model that has been shown to be impactful, being scaled more broadly via technology. The last model is by partnership again, we've seen some nonprofits that have been effective in kind of creating their own technologies. But for many nonprofits, you're really asking them to do something they're not designed to do. If you are a community organization and your focus is working with clients, understanding their needs, building trust of relationships, it's difficult to all of a sudden become a tech startup. So instead, we see a lot of organizations looking to partner instead in ways that allow them to play to their strengths, as well as bringing in tech solutions in which the creators of those solutions are playing to their strengths as well. A really great example of this is an organization called GreenPath. They are a credit counseling agency, one of the largest in the country, nationwide, but they actually headquartered about 20, 30 minutes east right outside of Detroit. They get about 200 to 300,000 calls a year from people calling saying, I need help. I'm struggling financially, oftentimes with credit challenges. And they were finding that they didn't have a broad enough suite of services to be able to give everybody the help that they needed. So they've gone through the process of exploring and working with some fintech providers to be able to make referrals when it made sense. One of their more successful partnerships has been with a company called EarnUp, which is yet another one of the financial solution lab companies. EarnUp has a loan optimization platform. Basically, if you've got a number of debts, they will take a look at your budget, understand how much money you can put toward it, optimize the way that it's allocated across the different loans that you have by interest rate and duration, and then automatically sweep money out of your account when you get a paycheck that will cover the payments necessary to go against that plan. So it really almost provides instant discipline. Some money is going to come out of your account and it will go towards those loan products. They've found that clients calling in were very receptive, very interested in their EarnUp products and in their initial pilot, they've got about 125 people, but we're able to develop plans that will ultimately save them $600,000 in total across the lives of their loans. So really effective and they're now working to scale up this partnership and offer it to more people. So a really great example of a partnership in which again both sides can really play to their strengths. So we're seeing these examples. These are just a few and there are many more that we're really excited about. But at the same time we realize that there are still challenges here. Number one, when you look at the sustainability and the scalability of some of these platforms, it's still early stage. We've seen some of them been able to grow, be able to thrive. But at the same time, especially when there are other places where you can put your time and efforts that may be more lucrative, how do you get FinTech startups to really focus on serving the underserved? Can you make sure that they are getting, that entrepreneurs are engaged, encouraged to really think about this customer segment as they're creating new solutions? From the consumer panel, I think we saw some of the consumer side of things. We saw some of the same things that Paul and Kay mentioned. Number one, data plans. Oftentimes people may have access to smartphones, but they are kind of going on and off in terms of service being cut on, service being cut off, maybe they're using pay as you go, their numbers are changing and when you have that kind of volatility in the product that your phone, using something like financial services becomes much more difficult. At the same time, we've heard from many of our partners that issues around privacy, data security, still remain top of mind for many consumers, particularly if they are starting to use mobile banking for the first time. And last but not least, with the pace of innovation, we've mentioned it before, and I'm sure we'll talk about it more, the pace of regulation is it keeping up? Are we sure that the products that are being developed are safe for consumers, where consumers have recourse if something goes wrong? And in particular we're very interested in if a company goes under. How are people being engaged to essentially kind of gradually wind down off of a product that's no longer available to them? So, you know, there's no silver bullet here. We haven't found it yet and there's still concerns to work through, but these are concerns that I think especially as we engage a lot of our partners that are all manageable, things that we can solve. And ultimately, you know, if we're able to do that, we think we'll be able to tap into the full potential of fintech to promote broader financial inclusion. Thank you. Well, good morning. Thank you, Michael and Jenny and Christie. I've been here a couple of times speaking and I've always told myself if I hadn't gone to college, I would be coming back here because this is a real awesome place except for the winter time. Although I got off yesterday, I said, God, it's cold. And they said, cold, this is summer here. I'm like, oh, gosh, okay. So I'm going to start by showing a video which I think is going to give a lot of perspective, because I know we're running very short on time of what we do in our organization at Opportunity Fund. Iguanas Britozilla is a quick serve Mexican restaurant. We focus on creating a cool, fun vibe, just make people feel good and get a good meal. I'm Jimmy Orozco and I am one of the owners and the CEO of Iguanas Britozilla. This is our first location, the original one that my uncle Paul started in 94. This is kind of the home base here, the purple building. This is where our office is. My sister works up here with me as well as my uncle and my other siblings. And basically this is the home base to run the entire company. Just getting my brothers and sisters wanting to be a part of, you know, this is something special that we're building. I think was one of my biggest accomplishments. Early on I recognized business was about people. Every day I get to come into work and I love everybody who I see, my sisters, my brothers, the managers that I work with, a lot of them are longtime friends as well. So the best part about it is I get to surround myself with all the best people and all the people that I enjoy. We were about ready to start looking to open another location. We had a real difficult time with traditional banks and more boutique banks with getting a loan. So we found out about Opportunity Fund. It was the easiest, most pleasant experience. Everybody was super nice, helpful. Opportunity Fund not only looks at your business and the people they're lending to, but they actually believe in it. And you feel like Opportunity Fund is really behind you. As a business owner, we really appreciate all the work they're doing for small businesses like us. It's a great feeling to be able to, you know, provide for your family but in different ways. You want to provide donations and kind of philanthropy is a big part of our business. I mean, what fun is it if you're successful and your family is but the people around you aren't? So we do our best to have a positive impact and in any way we can. OK, so that's kind of what we do. We are Opportunity Fund. We are the largest community development financial institution and we provide economic mobility by offering responsible and affordable credit to underserved small businesses. We also do, we're one of the largest funders of new market tax credits and we also match college savings accounts for every dollar saved by a college student. We put in two dollars. Our lending is from twenty six hundred dollars to two hundred and fifty thousand dollars and we distribute our products through a variety of channels. We've got loan officers primarily in California that do a customer at a time. We work with food trucks and commercial vehicles and trucks dealerships. We also do a lot of community partners which is where we get the micro borrowers the very small borrowers and most recently something we're really proud of is we establish a strategic partnership with the Lending Club and I'm going to talk a little bit about that. I think one of the key drivers of the success of the organization has been its ability to underwrite credit that banks won't underwrite and other lenders and being able to do it through the use of data analytics and technology and what that has allowed us to do is put out about two hundred and fifty million dollars in the community and do it at loss rates that are incredible under three three point two percent. Our portfolio is about eighty eight percent minority primarily with the Hispanics California being one of the largest markets for that about thirty five percent women owned businesses and seventy seven percent of our customers are in the LMI community. You saw Jimmy we've really focused on three segments of the population. One is Dora Dora is really the unbanged she has absolutely no access to capital from third parties any funds she needed prior to Opportunity Fund came from family and friends. Every six seven months she comes up to us we give her about twenty five three thousand dollars she buys inventory. She really doesn't have any desire to grow the business. Her need is to make customers happy and to be able to provide for her and for her family. No bank account conducts her business mostly in cash. We're doing a lot of financial education helping her understand the value to go to a bank at least you know to do something start build her credit which is something else that we do we report credit. But she's really what we call at the bottom of the pyramid the true micro borrower. Then you've got Jimmy you've got Teresa and these are real stories about individuals who have great businesses they're growing but they were not able to get access to responsible and affordable capital from banks. In Teresa's case we loaned her fifty thousand dollars for her cost cosmotology business she's trained over five thousand people in cosmetology primarily Latino immigrants who are looking to build a career and also to support their families and when I visited her it hit me that she really runs her company not just as a business but with purpose to help people build careers and to be able to help them build their own American dream. When she came to us she was borrowing from alternative lenders merchant cash advances and she was paying over eighty percent a year and that's how she was trying to support her business and when she came to us we cut that by about ninety percent. Santos he's more mainstream in terms that he does have access to capital but also at somewhat higher rates. He's got we loaned him seventy five thousand dollars to go buy a truck to distribute food. We do a lot of food truck financing which is an amazing business to see the amount of impact jobs increased wages spending that that these entrepreneurs can can provide. You know recognizing how much our customers were paying to alternative lenders into some online lenders Opportunity Fund formed a coalition other nonprofits and other industry participants to create the small business borrower bill of rights and you know we feel that that was something that would encourage you to to read it because we feel that that was something that was very powerful and basically I'm not going to go through the whole of it but it's it's six key elements. The first element is transparent pricing making sure that lenders are including all their interest rates and fees and that they're very transparent in the total cost of the loan to that borrower. The second thing was non abusive products so that borrowers don't get trapped in products that are going to help them that are going to hurt them more than help them. Also the right to reasonable underwriting you know we believe that it is our obligation as lenders to ensure that the customer has the capacity and the ability to pay and that the loans that they're getting are affordable. Treatment for from brokers that that for us is very important making sure that borrowers are not steered into loans that are higher cost because you're paying the brokers a higher fee and the ability to provide inclusive access to credit so that there is no discrimination and then fair collection practices to ensure that we're preventing harassment. On you know on opportunity fund side we really focus on the customer at the center and their well-being first and the whole way that we've designed our product to be responsible and affordable I'm not going to go through all the characteristics of it but certainly endorses all of the guidelines of the borrower's bill of rights we also believe that reporting credit is something extremely important in this country our customers don't have a lot of assets and in this country credit is an asset and so it is our responsibility and our obligation to help customers build credit and so we report credit to the bureaus to ensure that you know whether it's with us or they're ready to go to another lender at responsible and accessible rates and the ability to underwrite extremely important for small businesses you know we look at cash flow we make sure that there's enough cushion in the business there is no sense you know our goal is to ensure that customers end up in a better place after they came to us and took a loan then before they came to us so you know what that means sometimes is we say no and we say no to about 50% of the borrower's that apply but we believe that that is the responsible thing to do so I think I got us all back on time we're going to eat into our break a little bit with questions but not so much as to make Christy give me the evil eye so let me while you guys are in the audience are getting ready to ask questions I'm just going to ask one of the panel and if you could try you know just a the crispest of responses so all of you have touched on this theme but I want to bring it back together which is that intentionality that is required to use FinTech to serve low and moderate income communities the technology that one might invest in to serve very wealthy families may be quite different from the technology you want to invest in to serve the poor and can we do both do we need to shift our investment focus do we need to change our strategies but if you could talk about that basic question about how to get the intentionality around inclusion I'd I'd really appreciate it and maybe we'll just go down the row with a case starting and then we'll open it up for I mean my experience looking at emerging countries emerging economy countries around the world shows that the political will and the sort of desire to make sure that as many people are included in the economy as possible is really necessary to be able to kind of make the regulatory reforms make the policy decisions and then at the far end of the spectrum in India really think about public investments and infrastructure that can help providers reach as many people as possible so I think there's a very important role for the public sector to play in this I think you know it's a great question and you know and the reason I say that is because what will drive investments in the rural areas or for the poor populations is first of all do you really understand the needs of the consumers do the entrepreneurs come from there or they come from the cities and are trying to understand what they do which is a huge big gap how do you get the investors to invest in that area so what is the lens that you will use to be able to identify what those gaps are and to be able to do that oftentimes we've been told that there will be a trickle-down impact of products which get designed for the top of the pyramid as you know as an example the food partner but you will not see that happening so we're actually working to see are there products which can be designed for the bottom of the pyramid and for which you might see and trickle-up effect so you might see why you why because the savings account still exists but does it help me save as a poor person it may not be because I need to save for a house or a buffalo or a bicycle or something else and a normal rich household isn't thinking like that so there are loads of things I think which will come together and you'll be pleased to know that we've just announced a grant to the CIE at IMMdebat which is looking at how these technologies can be specifically utilized for the bottom of the pyramid so we are trying to do that Yeah, we've taken the approach I mean through the financial solutions lab in particular I think is an example of trying to demonstrate that this is a viable market outside of just the good that could be done in the mission orientation many of the businesses that we're investing in and working with are also financially successful again there's a lot of money being spent by underserved consumers in the United States that's an opportunity to step in and do better and I think at the same time almost to the point I love the phrase trickle up because I think it's the same thing we've seen is that some of the financial challenges we associate with underserved consumers are actually challenges that you see when you go higher up the income spectrum particularly around things like savings where regardless of how much money you make it's really a challenge for many American households I think the more examples the more instances we see of these types of financial health products geared for the underserved succeed the more we'll see both investors and entrepreneurs enter the space I think that one of the key elements to serving this underserved market is to look at alternative sources of data and analytics because most of these folks are not in the credit system they're invisible and when they are they probably are not lendable by traditional lender so you know the use of data analytics is very important and then technology I didn't go into the details but we established a partnership with the Lending Club and basically when a customer comes onto the Lending Club platform if they don't get approved if they get declined by the Lending Club they get checked against our digital credit box that we have built jointly with Lending Club and then they will get a pre-approval notice and so that way customers that are not being approved at Lending Club come to us and they don't get declined which if they did they probably would go to an alternative lender and pay a lot more money for the loan that they need and then we take over and we do all of the processing and underwriting and servicing and additional information and we believe that that model is extremely scalable and I think you all may have heard here in the last month a lot of great things coming out of two other partnerships that have been announced one by Chase, AEO, My Way to Credit and then the other with US Bank and CRF, the Community Reinvestment Fund for Connect Capital. So I think these partnerships and technology are really starting to take off because that's really the way to scale with this customer base. Hello, I'm Ari Schwader, I'm an economist at the Business School here and I also work at the William Davidson Institute which is focused on improving lives in small and middle income countries and I'm interested in actually sort of the intersection of what Lewis you talked about and what Kay and Povash talked about. A lot of what you were talking about in developing countries was improving consumer finances and helping them. I'm interested in if you've seen work or done work in actually improving finances of small and medium businesses in developing countries and what different challenges you've seen there and how you've seen that work. Yeah, so from the perspective of these countries that are building their financial services sectors from payments, you are seeing a lot of loans to micro micro and small estimates, right? So the people that were traditionally served by micro finance industries. It hasn't really gone up yet to proper medium sized businesses but as we see this sort of model of building, I think it's going to start getting there. There's some really interesting work that's packaging access to finance with digital tools for small businesses to start managing their inventory and tracking their own financial flows which I think are kind of creating sort of connective tissue to be able to again get that visibility and get data analytics and open up credit markets for larger enterprises. Good morning, I'm Bill Marcu with DLA Piper an important topic and a great panel. So it's great you're addressing it. Wonder rates, one issue that we've talked around the last two days which is regulation and its impact on access particularly to the lower economic part of the economy. And it's specifically it's the impediments that are imposed or put up because of regulatory requirements. Such basic things as you know is know your customer rules and a money laundering in the insurance sector where I work rules on licensing of intermediaries. People who are in villages who might be able to help promote these products who are then deemed to be transacting the business of insurance without a license. So what do you see happening? And what do you think? Obviously if every country has to address this in a different way, U.S. or non-U.S. it becomes cumbersome. But what do you see happening in this space and what do you think the best way forward to kind of knock those issues on its head? Let me say one thing about it and then I'll open up the panel. So on the know your customer rule and a money laundering rules, I think you'll find pretty widespread agreement that our current system is pretty bad at catching bad guys really quite expensive for the financial sector and harms access both in the U.S. and around the world. So I think there is a consensus that our current system is kind of broken and then the problem happens as soon as you ask what are we gonna switch to? There's a political pushback you get. People say you're kind of soft on crime or worse. There's a financial sector pushback from vendors who like the current system. There's concern about government agencies about taking the leap with new technology. But I think it's with distributed ledger and blockchain potentially leading one of the answers to this, a huge opportunity for progress and the kind of approach that India's taken on authentication is one aspect of that. I'm not an expert on regulation, but let me just try. So I think the fact that it's digital is God of a print. And the moment you have a footprint, you can do a lot more with it to safe and secure the entire system unlike cash, which is anonymous. Having gone and said that, the fact that it's digital is that it's time for regulators to start evaluating options of how they deal with technology as well. So we've seen cases of Rectac emerging in development economies. We've seen stuff happening in Philippines, we've seen stuff happening in India who's talking about it. I'm sure there are other countries as well, the FRA in UK is talking about it. That is when the product has already been launched. I think that there's also need to step back a little bit and for the regulators to say, can we start developing a safe regulatory sandbox? And when we say safe, which means that you work in partnership with the regulator to test out the products. It's not an isolation. So it's a safe sandbox. You can go there and test stuff out. I think the third thing which is emerging is shared infrastructure. So if there is a blacklist of people which is there, why should it be restricted to one organization and not be shared across with others? So there are whole loads of things which are emerging, which is just because now the technology is available, you'll be able to utilize them in a far, far better way to handle authentication at the time of enrolling all post transactions. Like India is now entering into a stage where we are saying, can you use your thumb to pay? So you can actually land up at a store and ask for, well, goods or services and use his pass machine by just rotting in your thumb and in your pink. So you're starting to build huge amount of trails, but the regulator now needs to have the ability to be able to read those trails and make sense of those trails. So I think there are just, oh, we're going to take one last question. And then, unfortunately, we'll need to go right to the next panel. But I'm also going to take the martyr's privilege to suggest, Bill, that you connect with Pawn and Kay after the break on your insurance question because there's exciting work going on in that area. Hello, everyone. Good morning. My name is Courtney Stokes. I'm a first year MBA in the Ross School of Business with a major in focus in economics and global strategy. So the other day I read an article in Forbes that said that average wealth for black Americans and Latinos in the United States would reach zero by, I think, the year was 2030. So my question is, how can we use FinTech to not only manage money but also create wealth and wealth for low income people in the United States and abroad? And what challenges do you all think exist in that space? Yeah, great question. And number one, I'd recommend, I'm guessing the Forbes article may have quoted, but the organization called Verity Now has done some really fantastic work about charting out the racial wealth gap and really carving out that picture. I think part of the solution with FinTech may be that in providing access to additional products and services, you reduce the use of wealth stripping products by creating better products to take things like payday, some of the higher cost loans to lose this point in the small business space. A lot of those products you often see either particularly targeted at minority communities or at least congregating there. So I think providing additional product options that will, number one, just avoid the use of some of the wealth stripping products is a benefit. And then secondly, and particularly when it comes to credit, if you're going to build wealth, oftentimes you need credit to do it. Thinking about things like mortgages, small business loans, college, the additional access to credit either by using analytics to be able to underwrite people that haven't been underwritten before, or to just provide additional sources of capital I think can help to solve the equation. I think one of the challenges particularly we think about the alternative data space and looking at minority communities that you do have to take into account is you've got another black box. And how is that black box? Is there an opportunity for disparate impact either most likely unintentionally through machine learning algorithms and the like to essentially kind of create a virtual redlining approach? But I think the potential, again, this is a place where there's a lot of potential to help solve the problem. But of course, the need to manage the risk as well.