A Conversation with Jennifer Tescher, President and CEO of the Center for Financial Services Innovation
Jennifer Tescher is the founder, president, and CEO of CFSI. As an entrepreneur, innovator, and forceful voice for change, Tescher has focused her work and career on the idea that, by aligning consumer and provider success, business can be a force for good in the lives of consumers, communities, and the economy.
The Center for Financial Services Innovation is the nation’s authority on consumer financial health. CFSI leads a network of financial services innovators committed to building a more robust financial services marketplace with higher-quality products and services. CFSI informs, advises, and connects its network to seed the innovation that will transform the financial services landscape.
1. The Center for Financial Services Innovation (cfsinnovation.com) was founded to shine a spotlight on the needs of the un- and underbanked. Now the organization is focused on financial health. Why the shift? And what does financial health mean?
In the wake of the financial crisis, it became clear to us that millions of Americans were struggling financially, and that access to financial services was no longer a niche problem. Moreover, the crisis demonstrated that access alone was insufficient to ensuring good outcomes for consumers. So we asked ourselves, what is the ultimate outcome we want for Americans? The answer we came up with was financial health.
Financial health is when your daily financial system helps you build resilience and take advantage of opportunities. Just as people who eat balanced diets and have good health insurance today are more likely to avoid disease and be more physically active later in life, people with good saving habits and access to affordable credit today are more likely to avoid bankruptcy, handle unexpected expenses and be prepared for retirement.
Financial health is about how financial products and behaviors make life work: your ability to spend, save, borrow and plan for life. Instead of narrow measurement tools like credit scores, measuring financial health is a holistic way of measuring financial condition – a tool for the 21st century.
2. What are the most common misperceptions about those individuals (or households) with financial struggles?
According to CFSI’s research, which you can find at bitly.com/ConsumerFinHealth, 57% of the country is struggling with financial health. That’s 138 million people, more than twice as many as the FDIC categorizes as un- and underbanked. These people are not just low-income households, they are also those making near the median income and some higher-income households. In fact, more than one-third of households making more than $100,000 per year are struggling financially, while 85% of those struggling with financial health have a checking account.
3. What unique challenges are faced by fintech startups, and how is CFSI’s Financial Solutions Lab (finlab.cfsinnovation.com) trying to help startups to overcome these challenges?
The Financial Solutions Lab is a $30 million, five-year initiative managed by CFSI in partnership with JPMorgan Chase to identify, test and expand the availability of promising innovations that help Americans increase savings, improve credit, and build assets.
Before launching the Lab’s first Innovation Challenge, we spoke with hundreds of founders, investors and nonprofit leaders to better understand the unique needs of fintech entrepreneurs. They said they needed help overcoming a perception among the investor community that the financially challenged are “too poor” or a “niche market”; access to expert regulatory, legal and design services; networking opportunities and introductions to partners; and financial services industry education and knowledge.
We designed the Lab to address these challenges. Challenge winners receive capital, but more important to them is access to our unparalleled network of financial services experts and business partners and to our data and insights into the financial needs of consumers. We are happy to have First Annapolis Consulting as one of the resource partners to the Lab.
Our goal is that the Lab will help set participants on a faster path to national scale and help position them as industry leaders in helping consumers improve their financial health.
4. What is your view of credit availability for the low-to-moderate income individual – are conditions improving and, if so, in a responsible way?
Aside from auto loans, consumer credit availability for near- and sub-prime borrowers is tight – not surprising given regulatory uncertainty. The OCC has curtailed bank deposit advance products without providing guidance on what a good alternative might look like and the CFPB has not yet released its draft rules on credit. While the CFPB has shared the broad outlines of its likely approach, it’s the details that will make the difference.
Still, a range of innovators are pioneering with new ways of serving these markets. We spent the last 18 months working with a group of lenders to experiment with a range of new products and features, and we have also been looking at best practices in the installment loan market. While not all innovation is consumer-friendly, there are some promising developments – for example, an installment loan that rewards borrowers for timely payments and saving with lower interest rates or a loan that underwrites borrowers on their ability to get their friends and family to pool small partial guarantees.
5. For years, it seemed as if prepaid was the dominant vehicle to address unmet needs, but now with mobile and the fintech revolution, a range of new concepts have surfaced. How is fintech influencing the efforts of CFSI?
Prepaid is still critical, but less so as a stand-alone product. Prepaid card products, and the regulated financial institutions and infrastructure that underpins these products, are an important building block for many consumer financial technology solutions, and a primary access point for consumers.
CFSI has been seeding and supporting technology-driven financial services innovators for over a decade, long before we all started calling it fintech. I’d say that prepaid providers like NetSpend, GreenDot and TxVia were among the earliest fintech innovators. They have helped pave the way for what has come since.
6. There is so much innovation in financial services today: personal financial management tools, new money transfer solutions, cryptocurrency and the blockchain, alternative lending platforms, ‘robo-investing’, etc. What areas is CFSI most excited about as we approach 2016?
We are particularly excited about the efforts to speed up the payments system because the potential benefits to paycheck-to-paycheck consumers are enormous. American household incomes became 30% more volatile between the early 1970s and the late 2000s, and this volatility creates a timing mismatch between when money comes in and when bills are due. Cash flow-challenged households need immediate liquidity and are willing to pay extra to avoid the typical delays created by our outdated payments system. Real-time payments will reduce the expense, friction and stress in people’s lives.
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