October 25, 2012
What's All the Buzz About? (3:05)
Welcome, Julie Stackhouse (10:39)
Ray Boshara: Why Financial Inclusion Matters (18:23)
Opening Keynote: Melissa Koide (25:46)
Opening Keynote Panel (15:57)
Plenary Session One: Who are the Unbanked and Underbanked?
Moderator: Jennifer Tescher (8:36)
Presenter: Keith Ernst (22:33)
Presenter: Lisa Locke (12:10)
Presenter: Steven Shepelwich (8:36)
Plenary Session One Panel Discussion (36:26)
Introduction: Yvonne Sparks (3:31)
Luncheon Keynote: Clifford Rosenthal (38:45)
Session Two: What Products Exist to Meet Their Needs?
Overview: Louisa Quittman (5:26)
- Track One: Payment Products
Moderator: Terri Bradford (5:23)
Presenter: Haydeé Moreno (18:19)
Presenter: John Thompson (11:20)
Presenter: John Metz (14:57)
Track One Panel Discussion (26:10)
- Track Two: Credit Products
Moderator: Vikki Frank (13:01)
Presenter: Sheri Flanigan-Vazquez (13:36)
Presenter: Paul Woodruff (12:12)
Presenter: Laura Castro de Cortés (7:51)
Presenter: Jonathan Harrison (12:13)
Track Two Panel Discussion (9:32)
- Track Three: Savings Products
Full Session (1:11:25)
October 26, 2012
Day Two Opening Keynote Introduction: Ray Boshara (4:11)
Day Two Opening Keynote: Jennifer Tescher (30:24)
- Plenary Session Three: Distribution Channels – Mobile Financial Services
Moderator: Royce Sutton (4:17)
Presenter: Marianne Crowe (23:33)
Presenter: Jeanne Hogarth (19:02)
Plenary Session Three Panel Discussion (9:18)
- Plenary Session Four: Distribution Channels – Tech vs. Touch
Moderator: Sarah Gordon (5:33)
Presenter: Tina Lentz (6:30)
Presenter: Patricia Hasson (8:09)
Presenter: Laura Castro de Cortes (7:48)
Presenter: Suresh Ramamurthi (6:44)
Plenary Session Four Panel Discussion (34:50)
Closing Plenary: Reflection and Synthesis on Forging Pathways to Wealth-Building Financial Services (44:35)
Wrap-up and Adjourn: Ray Boshara (3:24)
Jennifer Tescher: Good morning, everybody. Ray and I are like a mutual admiration club, mutual fan club. So I’m just thrilled to have had this opportunity to work more closely with him in his new role at the St. Louis Fed. And thank you again, also to the Kansas City Fed and to Treasury. We really value our partnership with you and these events are just great. I think they play such an important role. So I’m really glad you all are here today. And I actually do need a little bit of an introduction, because there are lots of friends here, but there are also lots of people I have never met before. So I’m really excited to have the opportunity to talk with you this morning.
Frankly, I could have just gotten up here and said, You know what Melissa said yesterday? Ditto.” And walked off the stage. In fact, I was a little upset with her because she and I flew in together from this other conference in Las Vegas. We sat on the plane gossiping. And then she got up here and stole half of my remarks.
So I literally was like, wow, I’m going to have to rework the first half of my talk, Melissa. Thanks very much.
But today I really want to start off by telling you two stories about two different financial pioneers, financial innovators. The first story takes us back over 100 years to the turn of the twentieth century where A. P. Giannini, the son of Italian immigrants, was really discontented with the status quo. He lived in San Francisco in the North Beach neighbor. And he went to work at a very young age in his father’s produce business. He was highly successful and at the age of 31 he essentially retired a very wealthy man and had become a real pillar of the community. In fact, he was invited by Columbus Bank and Trust to join the Board of Directors. But from the very beginning he could tell that this wasn’t going to go very well. Because back then banks were really about serving the wealthy. They really weren’t about serving the mass market.
And Giannini saw a real opportunity for the bank to offer loans and services to the immigrant community, to the working man. The other directors, of course, had no intention of changing the bank’s strategy. And so frustrated, Giannini quit the Board, raised $150,000 from friends and family and opened a competing bank across the street in an old saloon called Bank of Italy. And on most days Giannini could be seen walking the streets, buttonholing, you know, the average working man, encouraging them to come to his bank and take out loans. People thought he was nuts. They didn’t think this was ever going to work.
Until two years later, April 18, 1906, when the Great Earthquake hit San Francisco and resulted in significant damage, huge fires. It’s still one of the worst natural disasters in the history of the United States.
Giannini, like so many others that morning, was thrown from his bed. When he realized what was going on, he very quickly grabbed a team of horses, hitched one of his old produce wagons up, rode over to his bank, took a bunch of securities and gold and coins and loaded it in the wagon and covered it over with fruits and vegetables. And rode off to the wharf. And there he set up a makeshift desk where he sat for the next several days making loans to individuals and families and businesses that had been devastated by the earthquake and needed capital to rebuild. None of the other banks really wanted to have anything to do with that risky proposition. And Giannini single-handedly helped to spur the redevelopment of the City of San Francisco.
And the bank, his bank, which was called Bank of Italy, ultimately became what we now know as Bank of America.
Now I need you to fast-forward to the early twenty-first century. I want to introduce you to who I like to call the twenty-first century Giannini. He’s actually a hometown boy. He’s a St. Louis native – Jack Dorsey. So I think we all know at least part of the Jack Dorsey story. Jack Dorsey grew up in St. Louis. Incredibly smart guy. Like so many others of his generation, headed west to San Francisco to make his fortune. He was a coder, programmer. And at work at one of these companies he ultimately created what we now know as Twitter. I actually think that what comes next for my purposes is more interesting.
He, at a very young age, was asked to run this company, Twitter. And it didn’t go very well. He didn’t have a lot of management experience. And they ultimately pushed him out of day-to-day operations of the company. He would later say that it felt like being punched in the stomach.
So he was really on the search, on the lookout for the next thing. What was he going to do next? And during this time he was having regular conversations with an old friend, actually a friend of his from St. Louis, who among other things was an artist. And on one of these brainstorming calls his friend was lamenting that he had just lost a big sale of some of his artwork because he was unable to accept credit card payment. And this was a pretty big dollar ticket. The guy who wanted to make the purchase was like, “Well, if I can’t pay you in a credit card, I’m not buying.” Dorsey said, that doesn’t really make any sense. We have all these credit cards in our wallets and we can use them to pay for goods and services all over. But we don’t have really any way to accept those same cards for payment from others. There’s something wrong with that. And in that moment the idea for Square was born. I think most of us at this point what Square is. It’s a little piece of plastic that sticks into the jack of your phone and enables anybody from your gardener, taxi driver, the craft vendor at the summer fair to accept payment by card.
And in the same way that Giannini democratized access to banking, Dorsey has democratized access to payments.
Now why did I tell you these two stories today? I think these stories help illuminate three things. First, they underscore the role of innovation and improving access to financial services for underserved consumers. They also show how putting consumers at the center really can yield new insights and new solutions. And finally, and probably for my purposes most importantly, they remind us how financial services can be a force for good in people’s lives. And if you were listening carefully to what Cliff was saying yesterday, that’s not a foregone conclusion. It’s certainly not a foregone conclusion in the world we live in today. And I think we need to get back to that idea, because the people who we care about most, their future financial success, their balance sheet health really depends on it.
CFSI was founded eight years ago on this premise, this idea that financial services can be a force for good in people’s lives. We generate research and insights about the needs of underserved consumers and then we couple that with a variety of tools to support and encourage high quality innovation. We’re essentially in the business of helping to create more Gianninis and Dorseys. I’d like to think that if we’d have been around in the time of Giannini we would have found some way to help him get up his new bank.
I think it’s worth reflecting today on how we reach this place, why it is that CFSI invented itself in the first place, and how is that we’ve come to be sitting here today in this symposium? We’ve spent a lot of time talking about just the last two years of technological innovation. Right? And we’re all waving our mobile phones around.
But we should really look backwards maybe 10 or 15 years. Giannini took us back over 100 years. Now I’m going to back you up maybe to about 15 years ago. And as Ray reminded you, CFSI really grew out of ShoreBank and the IDA experience. And that’s exactly how I came to know Ray. And I really played the role that many of you play today in your own communities. I started and ran an IDA program. I was counseling individual savers. I was helping them to figure out how they could save money, how they could learn more about financial concepts, really helping them to live their best financial lives. And learning a heck of a lot in the process.
But I think that we’ve moved so far beyond IDAs, but I think it’s important to give them their due in terms of—in relationship to the importance we now place on the role of financial services. Because IDAs are about asset building, for sure. And one of the most important things that IDAs did was raise up this idea that assets are important, that balance sheets matter. It’s not just about income. But they also did two other really important things.
First, they gave us a fuller picture of peoples’ day-to-day financial lives. And they helped us to see that banks were only a part of their lives.
And secondly, they showed us just how challenging the banking system was to navigate. For many in the social service field or in what became the asset building field, that was the first time we ever learned about this thing called check systems. Right? Because we wanted to open accounts for people and all of a sudden it was like, well, I can’t get an account because I’ve got this record at the bank. And now we talk about it like we all know what it is, but 10 years ago, 15 years ago, most of us wouldn’t have known what that was.
And even just the notion of negotiating with your local bank or big bank to house the accounts and wanting to make what we consider to be small tweaks to the account, and recognizing just how challenging that could be for an institution, how do we get small deposits into these accounts in ways that aren’t so expensive and costly for the institution, but that are convenient for the consumer? A whole boatload of questions were raised.
So when we were sitting at the IDA table, Ray and I, and everybody else was talking about savings and about the financial education piece, and about the policy piece, I was the, usually the lone voice, because I was there representing a bank, ShoreBank, who was raising up the structural financial pieces. You know, how do we make this account work for people? How do we make the system work for people?
And so this work really grew out of that experience. And the work that I did at ShoreBank post my time in the IDA movement was really trying to answer the question of how can a bank play here? What’s the role that a bank should be playing in all of this? Because, after all, IDAs are expensive, particularly from a subsidy perspective, you know, in terms of the match itself. I mean, if a bank wanted to play a role in helping people build assets, what could a bank do if there was no subsidy?
And so after my stint running an IDA program I helped to launch a whole bunch of other trials at ShoreBank experimenting with exactly that idea. And so back, gosh, quite a long time ago, I think in the year 2000, we did one of the very first tact-time experiments where we invited the Center for Economic Progress, one of the leading organizations in the country around free tax prep, into the bank’s lobbies to do, you know, VITA tax prep. And we had bankers on hand offering free savings accounts. And that was really one of the very first experiments into what will happen to people’s refunds if you give them a settlement option, a bank account, a savings account. And will they save money? And how long will they leave it in the account?
And, in fact, those of you who heard John Thompson speak yesterday, and he was talking about the way in which his clients segment out into about four different kinds of behavior, John, that was reminding me of the research we did. Because we also had four buckets of behavior. And I’m dying to go back to that research and see if they match up, if it’s the same buckets.
We also did a pilot at ShoreBank where we had a greeter in the lobby. You know, kind of like the Walmart greeter. We said, let’s try that in the lobby because we’ve just introduced debit cards and we have a very senior population, and we want to get them out of the teller lane. And maybe we can have a greeter who can help educate them and make them feel like it’s not so scary.
I had to rollout online banking at ShoreBank. This was also the big thing back then, was, oh, my gosh, the internet. Oh, my gosh, look at the power and the potential of that tool. And in a lot of ways the context for CFSI’s birth was the birth of the internet and the excitement about that.
The Ford Foundation had commissioned a report written by a former ShoreBanker and one of my first bosses at ShoreBank. Essentially saying that technology can dramatically lower the cost to serve, opening up access and creating new market for providers. And, boy, there’s an opportunity here to reach the bottom of the pyramid, and Ford, you should do something about that. That’s really how CFSI was born.
The talk then was about ATMs that were now everywhere, that could do more things than just spit cash out at you. And the birth of debit cards and point-of-sale machines, all these new analytical tools to better underwrite consumers and consumer risks.
Again, this was all before the mobile phone. I should just point out. This now feels like ancient history, but this is actually not that long ago. And this really enabled a whole set of new entrance into the market. New partnerships, new marketing and distribution to meet consumers where they are, with products and experiences that had the potential to really meet their needs.
I mean, think about it, if 10 or 15 years ago John Metz had stood up here and said, “Yeah, we’re Walmart and we’re partnering with American Express to offer some alternatives to a checking account.” We would have looked at him like he was insane. I mean, just the notion that those two brands would even be in partnership. I mean, I don’t know about you, but I still think of American Express as being kind of like that exclusive brand. That’s not what American Express wants us to think anymore, and I think they’re doing a pretty good job of convincing us that they’re not just the brand of the exclusives. But what a fascinating relationship those two companies are in, that we could never have imagined or predicted 10 or 15 years ago. And there’s lots of examples of strange bedfellows, if you will, being in business together in a way that tries to put the consumer at the center and really meet them where they are.
I mean, who would think that essentially there are apps that allow us to have a piggy bank on our phone? Right, to set up a goal and to save for it. There’s a bank somewhere in there. Right? There is a bank somewhere in there protecting those funds. But the bank isn’t necessarily the front door.
Or a growing number of banks starting to offer more transactional services like check cashing, or as Steve said, putting out the “ we loan money” sign in the window. Again, something you probably wouldn’t have thought about 15 years ago.
Or check cashers and credit unions partnering to increase region access, which has been going on now for several years in New York City.
And I think the other thing that’s important to note is that we often focus on product. What’s the new product? What’s the product that this consumer needs? So much of this work and so much of what’s exciting about it is that it’s about the experience. It changes the experience of banking. It changes the way in which we interact with our money. And that’s powerful for everybody. Not just the underserved.
So technology change continues unabated. And at an absolutely unbelievably rapid pace that I think makes us all a little dizzy. So payments are now increasingly digital. We can move money faster and with a lot less friction. Mobile technologies enabling us to engage with our money anytime, anywhere. So the notion that checks feel like such a stale and blunt instrument at this point because everything feels like, well, isn’t it real time? We’re still not at real time in the financial services industry. We all think we should be. And that’s frankly where a lot of the customer confusion comes in.
Social media is providing real time information and peer support, sort of a cheering section, if you will. And also providing new tools for helping providers and lenders understand us better.
And all of these things have the potential to help consumers make better financial decisions that will ultimately help them speed the journey to assets.
As it was said many times yesterday, technology is just fundamentally changing the way we live our lives. It’s disrupted whole industries. Forget about financial services. Think about publishing. Think about music. Think about shopping. So it’s not really a question of whether technology will change financial services experience, it’s just a question of how.
But if I were you sitting out there, I’d be thinking, well, how the heck am I supposed to make sense of all that? In a way that is going to do right by the consumers that I’m serving? How in the world do I make sense of this landscape? And I want to spend the rest of my time talking about that today, because I think it’s the most critical question.
And I think the answer plain and simple is, if by putting the consumer at the center, and if by marrying innovation with quality, I vow after the end of this talk to never again use the word innovation without the modifier before, high-quality. I intentionally didn’t do it in the beginning of this speech, because I wanted to make this point. But we cannot simply talk about innovation. It has to be about high-quality innovation. And in defining high-quality, it’s got to be about is this a net positive to the consumer? Is this helpful for the consumer? It’s not about technology for its own sake. It’s about how can this enable the kind of things we want to see happen for the consumers we care about most.
But the big question is how do we know what quality is? How do we know what good is? That’s been one of the central challenges for CFSI, because we talk a lot about quality. But unless you can define it, or at least know it when you see it, it creates challenges in the marketplace.
I think that we have two really important opportunities to define what quality is. The first is with the creation of the Consumer Financial Protection Bureau. You heard a little bit about this yesterday, but I think this is really important to underscore. The CFPD has a dual mission of both consumer protection and access. They get to dance on the head of the pin. That was one of the exciting things about working at ShoreBank was navigating that tension. Doing well and doing good. Melissa made the point yesterday that those two goals are not at odds. And I agree with that. But it is a challenge.
But why I’m most excited about the CFPD is they’re less focused on form and they’re more focused on function. So right now, and I’m grossly oversimplifying, the FDIC regulates small banks. The OCC regulates bigger banks. The Fed regulates bank holding companies. The state—NCUA regulates credit unions. The states regulate money service businesses. The CFPD writes rules for and in most cases regulates all of them. So when they write rules about credit products, or transaction products, they have to write those rules so that they’re going to work no matter who’s offering the product or service. And that’s incredibly exciting and that is an opportunity to truly level the playing field. And let us again put the consumer at the center and approach it like a consumer would. Because when a consumer wakes up in the morning and says, “Gee, I need to cash my check today,” or, “I need to send money home,” or, “I need to pay a bill,” they don’t say, “Gee, I need to find that FDIC regulated bank where I can do X. But I’m going to go to this state regulated thing over here, Y.” They don’t think like that at all. They don’t make these distinctions. Nor should they have to. Consumers should be educated consumers, but that’s a way too high a bar. We can’t expect that from people. We have to make it seamless. We have to make the system work the way consumers think and operate.
So I’m actually excited about the role that the CFPD can play here. But let’s be honest, it’s going to take a while. For the CFPD to write a new rule on anything, it’s a minimum 2-year process. Just simply if you added up the days where they have to give notice and give people a chance to comment, and back and forth, it’s a 2-year process. And it’s a new agency. And it has a lot of stuff it’s got to do. It’s got a lot of competing priorities. So it’s going to take a little while.
So what do we do in the interim? We decided, CSFI, to tackle this head-on. And so last year we introduced something called The Compass Principles. These are principles that are meant to guide the design and delivery of the everyday kind of financial services people need to live their best lives. The four principles are: Embrace Inclusion, which is about serving new markets. Build Trust, which is about building businesses that offer real value; no tricks or traps. Promote Success, which is about designing experiencing to help consumers succeed with the products in their wallet. And Create Opportunity, which is about enabling people to take the next step.
We had a year-long process, probably more, of engaging with a wide array of stakeholders from all corners to help create these principles. I’ll tell you that the last one around create opportunity is the one that gives people the most pause. And I say that in this audience because I think one of the fundamental questions that we’re all wrestling with here is where do financial services take us? Do they lead to the promised land of assets and balance sheets? Or are they just an important precondition, but there’s not a direct connection? And we’re all hoping that there’s a real direct connection and that if we can just get someone into some good financial products and services and behaviors that that will really speed them and grease their path.
But for a lot of product providers, particularly folks who are offering a single product, they’re troubled by this because they feel like it excludes them from being a good actor. Well, I just do one thing, but I do it really well, and I’m giving the consumer good value. How do I fit into this equation? And so I think one of the things we really have to wrestle with is this idea of bundling financial products and services and experiences versus the a la carte approach. And there are pros and cons to both of those things. We live in a very a la carte world. Not just in financial services, but in a variety of other arenas. There’s some advantages to a la carte. There’s a lot of transparency is a la carte, because when stuff’s bundled together you’re not always quite sure what’s in there.
But the more a la carte we are, the more the question becomes how do we knit all the various products and services together that we use as consumers to create something that holds together and that helps us to take the next step? I don’t have an answer for how we do that, but I do know it’s the central question that we need to continue to grapple with.
I want to spend just a minute telling you a little bit about the values that undergird these principles, because I think it helps you to understand more fully sort of our thinking and our philosophy about what it’s going to take to build an inclusive marketplace. The first is we’re talking about profitability here. This is not about charity. This has got to be something where we can build a business around it. There are times where we can’t build a business around it, and then we do need to think about the role of policy. But there are lots of opportunities here to build businesses that are of mutual value.
The second is these ideas, these principles, these products, they need to be informed by deep customer knowledge. We have to have the consumer at the center.
The third is safety. There’s got to be a baseline threshold of these are good for people. And we are following all applicable laws and building things that are not obviously meant to hurt people. We think choice is really important, and I made this point yesterday. That there isn’t a one-size-fits-all here. We’re talking about millions and millions and millions of households. They don’t remotely all look the same. And that moreover these principles need to be the basis for competition. They’re not meant to be a template or a checklist, because there’s too much value in diversity. And what one consumer needs may be different from what another consumer needs. And what kind of business can offer is going to be different than what some other kind of business can offer. Choice is good.
I mentioned earlier this idea of mutual responsibility. That both providers and consumers have a responsibility here to each other. And that, finally, this has got to be a cross-sector approach. These aren’t industries’ principles or advocates’ principles or regulators’ principles. These have got to be everybody’s principles. We all have to be able to embrace these if we want to create a common understanding of what quality is in the marketplace.
Over the last six months we’ve been on a mission to spread the word about these principles and to get a variety of stakeholders to embrace and adapt them. So far seven companies and organizations have made public commitments, what we call Compass Commitments, to develop or change products or experiences to reflect these principles and to measure the impact on the consumers and on their own bottom lines. Because there are a lot of assumptions built in here and we need to test some of those. It could be that we’ll learn that we were wrong about some of them and we want to go back and change them. So this is also a learning experience.
I want to point out that this is not just an opportunity for financial services providers. We are working with a lot of non-profits. And, in fact, one of our most recent commitments comes from the National Community Tax Coalition. Their commitment is around identifying and pushing out through their network a high-quality prepaid card product that tax refund recipients can use, not just to receive their refund, but ideally once tax time is over as an ongoing product. And so one of the goals that they’ve built into their commitment is around encouraging ongoing direct deposit to this product. And they’ll be measuring a whole set of metrics around consumer success and around business success.
I really applaud all of you for taking time to come to St. Louis to gain a better understanding of the opportunities and the challenges and to grapple with what this means for you and the people that you serve. As Melissa said yesterday, technology in many ways does not make our lives any easier, because it’s very hard to come to a conference like this, knowing that your e-mail is piling up and there’s a lot of work to do when you go back. But, you know, this is all happening real-time. I can’t emphasize that enough. This is all happening real-time. And there aren’t any easy answers here. But I do know that we have to keep talking about it. We really need to be talking about innovation and quality to ensure that they are ultimately one and the same. We believe that this is the only way to restore credibility to the idea that financial innovation can be positive, and that financial services can indeed be a force for good in people’s lives. And this is the way to ultimately ensure that the consumers we care most about have access to the kind of twenty-first century financial products, services and experiences that ultimately lead to healthy balance sheets.
Thanks very much.