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)
Melissa Koide: Wow. I honestly, I feel like I’m sort of back at New America or back at CFED where I worked with Ray. This feels so nice and relaxed, particularly as compared to some remarks I gave yesterday to 1500 innovators in financial services. And I kicked it off with a joke to these folks. This was the Money 2020 Conference, which is where the Googles, the Facebooks, everybody who’s sort of really seeing around the bend comes together and sort of show their wares. So I started my remarks with them by saying, “You know, I don’t know what’s more intimidating, talking to you from The Treasury Department or actually testifying in front of Congress on small dollar credit.” Nobody laughed.
So it’s good to be here today.
So, and I have to say too, to Ray’s remark, I remember, we were puzzling, we had this idea, a lot of people had this idea, that we should be trying to think about how the federal government could leverage the billions of dollars that are going out via tax refunds in order to get low income households, under bank consumers a safe and affordable account product. And I’m just remembering because of what you said, I remember coming to a meeting where I thought, I got it. I got it figured out. It’s these new-fangled things called prepaid cards. And I remember having the conversation with the team and everybody’s sort of scratching their head, how do they work? What? Huh? What? And look at where we are today. I mean, we’ve got a pretty new, big product that’s in the marketplace. I think we have some more big institutions that are getting into this space, offering prepaid cards. So really we are, we’re moving around the bend, and I think it’s time for us to think about where we are going to be headed next.
So now let me actually turn to my scripted remarks, which getting used to the role of federal government, you actually are supposed to follow what you say, or what has been approved on the page. Reporters, don’t report that if you’re here. But it is true.
So let me turn to those. So, first of all, thank you, Ray. It’s lovely to be here. It is a real pleasure to be back with you. I want to thank Julie too. Thank you very much for having me here. I hope you like some of the remarks I have to give. And then I also want to thank of a number of my former colleagues, as well as my current colleagues, Louisa Quitman, who was instrumental in helping to put this convening together. My former colleagues, Jen Tesher [phonetic], Sarah, who were also, I think, key partners in making this event possible.
So as you heard, I’m Melissa Koide. I’m the Deputy Assistant Secretary for Consumer Policy at The U.S. Treasury Department. And if I had to sum it up, I’d say our role is to expand consumers’ access to high quality financial products and services. We are also charged with promoting consumers’ access to financial tools and products that help them make more informed financial decisions. So what we do and practice is we engage in research. You’re going to hear a little bit about a challenge that we undertook earlier this year. But we also engage directly in policy in the areas of consumer protection, retail financial services, emerging payments platforms, and looking hard at technology and how it can be used to help consumers manage their money.
So this morning there are three things that I am going to cover with you. The first is how we see technology helping to improve Americans’ financial well-being. The second is what we’re doing at Treasury to support these innovations. And the third is just a little bit on what we think is needed in order to ensure that innovation continues to be able to thrive and benefit consumers.
But before I start to answer those three questions, I have many friends in the room who have been asking me how my kids are. You’re about to hear a little bit about them. If you’ll indulge me, I’m going to do a little quick story about what we see, or what I see, as the potential future of financial services using my twin sons, Ian and Simon, as my protagonists.
So let’s imagine, if you can, the year is 2022. These kids will be around 18 at this point in 2022. And it’s any given Saturday afternoon. They’re hanging out and they’re probably looking for, they’re big kids, the latest burger joint, right? That their friends have all been Tweeting about. So they pull out their phones or perhaps at this point it’s their smart glasses, and they find the restaurant. They get over to it. Who knows? Perhaps they’re in a car that’s being electronically driven on their behalf. But they find the restaurant. They get up there. They place their orders. Ian makes a special request; he doesn’t want onions. Simon says hold the mayo. That information is captured, so the next time they come in the restaurant it’s actually a pretty seamless meal. And with a quick scan of their phone, the cost of the meal is deducted from their accounts immediately. And they then sit down and begin to enjoy their meals.
So kids being who they are, and I’m sure I will regret saying this at some point in the future, I could imagine my son Simon getting a text message that says your accounts are low. Let’s just say, he’s not the most frugal of the two of them. He would then, I can also imagine, turn to his brother Ian and say, “Hey, can you lend me $30 bucks, otherwise I’m not going to be able to go see the movie that we had planned.” So Ian, being Ian, the more frugal, says to Simon, “You know what? I’ll lend you the $30 bucks, but first you really have to promise me that you’re going to take some steps to start putting a little bit of money away and start saving. And, hey, here is this fantastic savings app that’s going to make it simple and seamless for you to do. And there’s also a savings account that you can quickly access and begin that savings now. And if you do that, you’ll get the $30 bucks and we’ll get to go see the movie.” This is true – they would be have this way.
So Simon agrees to it, because he really wants to see the movie. And with a quick scan of his thumb, the account is opened and they’re on their way. So saying this to you, if you don’t mind me making a distinction between this audience and yesterday’s audience, that may seem pretty darn radical. Saying it to a bunch of these Fintech innovators, a lot of this stuff is already possible. This is actually really not that radical. But as I said to the audience yesterday, and I’ll say to you, in order for it to be more than sort of a one-off idea, in order for this to be the norm, that type of convenience and that type of financial access, not only do we need the creativity of these innovators, we actually need the creativity of policymakers. Because we’re just simply not going to get there if we don’t have both.
So it’s hard to predict where technology is going to lead us. But it is our responsibility to really understand what these technology opportunities are, how we can leverage them, and how we can help to facilitate innovation alongside the appropriate consumer protections.
So I’m going to back up a little bit about technology and just say a few minutes about it, or say a few things about it. It has clearly reshaped our lives. Right? We wake up in the morning with our devices by our bed. We go to sleep at night; they’re still there. We’re driving with satellite guided assistance. We’re reading books, the news, the latest gossip with our devices. We’re working, we’re working remotely. We work globally. We work all the time, thanks to e-mail and laptops. We’re keeping up with our loved ones. A lot of us do this, right? Through social media sites, as well as even the simple text message.
So we think at Treasury these technologies can be brought to bear and really powerful ways for consumers. Technology presents an opportunity to develop not only new financial tools, but frankly also this vision for the future, the ability to reshape the financial services sector so that it is inclusive, safe and accessible.
But if innovation is constrained by outdated regulations, or simply by the thinking of an earlier era, the only consumers who are going to benefit from this potential future are going to be those who are already well-served by the current system. So in my Office of Consumer Policy we are focused on how technology can be leveraged to promote and ensure wide-scale access so that these innovations can be game changers for helping to improve all Americans’ financial lives.
So I will give a couple of examples, and I realize some of these are going to sound somewhat radical for some of us. But the technology is not only the convenience and the access, but it may also offer ways in which we can solve some of our policy goals, consumer protections. So for instance, disclosures are so important, and we all realize we haven’t quite gotten those right yet. What if consumers, because of the mobile device, could watch a short video on their phone that helps to explain the basic features of the account that they are about to use, as well as the major terms and conditions? I realize that won’t totally satisfy, but, boy, think about how meaningful it could be where the consumer actually in a more in-depth way is able to see and understand what the product is that they’re about to use.
When it comes to satisfying, know your customer requirements. What if what consumers can send, financial services providers could use information from non-traditional sources - social media sites - in order to help verify somebody and to get that account opened. And fraud is a big cost. We cannot ignore it. What if the cadence of a person’s fingers on their phone helps to really authenticate them for the financial transaction that they’re about to undertake?
So there’s just a lot more for us to explore. There’s a lot of value that I think can come from the use of technology.
So backing up a little bit. The internet. When it comes to information and resources in terms of making more informed financial decisions, the internet is already providing enormous amounts of information. Right? Consumers can find budgeting tools, comparison shopping tools, find products and resources to help avoid fees, to monitor transactions. The mobile phone, it takes those opportunities and then adds the edition of the power to get personalized information, thus making a smarter decision in the moment when it really matters. Simple text messages, I know a number of you realize or have seen the value of this. But that deliver that balance alert every morning. And a lot of prepaid card companies are doing this with their consumers, is making a big difference in terms of helping to reduce unnecessary fees, and really importantly, helping to reduce the likelihood of embarrassment at the check-out counter.
Mobile phones, I alluded to this a moment ago, can also help to protect consumers by offering the ability to embed some of these security and authentication elements in the device itself by a metric capabilities or around the corner. And I mentioned the benefits of using the video, what that can mean for consumer education.
Smart phone apps is something that we are paying a lot of attention to at Treasury. And we think that they may be the next frontier in providing tools that can be personalized to the individual. These are apps that oftentimes key off of data about the individual. And, again, helping them make more informed, real-time financial decisions.
In our view, the smart phone and the penetration of smart phones presents a real opportunity to increase consumers’ access, particularly for under-served consumers, notably low income and minority households. Earlier this year Pew did some research looking at smart phone penetration and they found that 49 percent of African-Americans and 49 percent of Latinos over the age of 18 had a smart phone. At the same time, more than a third of households making less than $35,000 per year report owning a smart phone. And the rate of smart phone adoption is growing fastest among this particular group.
Another study found that underbanked consumers are actually more likely to own smart phones than the rest of the population. And we, again, think this highlights the real potential for mobile technology to help reach these underserved consumers.
So what are we doing at Treasury to support some of these innovations? Recognizing the potential we’ve engaged in a number of projects using smart phones to increase consumers’ financial capability. One major effort that we undertook in partnership with Doorways to Dreams and CFSI over this past summer was, it was very new for Treasury. It’s a challenge. It was called the My Money App Up Challenge. And this was a contest with cash prizes to solicit ideas from people all across the country, people from all walks of life. Tell us what kind of application you would find valuable in helping you better manage your money. So there were two components to the challenge. The first was give us your ideas. Give it to us in a 140 characters or less. And we’ve got that information listed on the Treasury website. Some really fun ideas there.
The second component was a contest to solicit full proposals. A few weeks ago we had the judging contest with a lot of these Fintech companies who came in to help us assess these ideas. And we were really pleased with both the response that we got and also the ideas, those that were selected and who won. So I want to share a couple of the ideas with you.
The winning app design was for a program or for an app called Cents. And this app is targeted at the millions of graduates or students who are carrying multiple student loans and really trying to figure out how in the world to manage those loans and manage them in the context of their own personal finances. So this app would create a one-stop vehicle or app whereby all of the information about those loans could be located. The app would then, keying off of that individual and their particular budget, circumstances, as well as their desire in sort of playing down the loan as soon as possible, it would send nudges to the individual. Try to pay a little bit earlier, in order to ultimately reduce the interest paid on the loan and the term.
Another idea, and I have to admit, I had no role in judging, by the way, that I really appreciated was one called Moola. And this app idea, and I had no role in the judging. I have to call out, by the way, the person who created this app idea was an old intern of mine, to appreciating people we work with. But Moola is designed in order to help low income households better manage their resources, and really importantly, more seamlessly be able to access public benefits. And so we think about one-stop shops that exist now where folks can go in order to enroll for public benefits, to manage their public benefits. This app idea would enable that kind of enrollment and management process all via a mobile phone. So think about the value for the individual. The time savings for the individual of being able to do that via your phone. And think about the cost savings for government in order to be able to manage using a mobile device in order to get people enrolled for benefits.
I think it’s also an important idea because it has implications not only for public benefits, but as we think about how to leverage, as I mentioned earlier, the billions of dollars that the federal government distributes to consumers across the country. Tax refunds, how could we think about an app that facilitates management, and even perhaps at some point, enrollment via a mobile phone.
And then the third idea that I want to mention to you is a fun one. This one’s called Crazy Money. And the idea here is to make managing our crazy spend a lot more fun. Nobody likes to manage it. We all like to spend. So this would create a game whereby the user would create their own plan, their own rules for how they want to manage their money. And if they veer outside of what those plans or what those rules are, not only are they going to get a signal alarm that goes off, but their friends and family or those who they selected to be in their network will also get a signal, thus helping to put a little bit of peer pressure on when that crazy spend is getting a little out of control.
So we at Treasury, we’re also, I mention this a little later, but we are also doing some research to understand what is the landscape of these financial capability, or financial app tools? But we realize that the value of those types of products oftentimes can be rather meaningless if they don’t have the data to feed them or to fuel them. So we are working to help expand consumers’ access to data that can enable more relevant and effective financial capability tools. We call this idea Smart Disclosure. This is something that’s been taken up by the administration. And Smart Disclosure is the idea that data of different types about consumers is available at consumers’ consent and made available for these types of—a range of different tools, but in this context for financial decision making tools. And that the data is available in what’s called machine readable form. That means that if you consent to sharing the information with a third party who can be building these types of tools for you, there is just merely some efficiencies in how these app developers are able to use that information to then build tools that work for consumers at large.
So as part of this initiative, we are engaging other federal agencies, because federal agencies themselves also harness a lot of data that can be put to good use in terms of building financial capability tools. The initiative for us at Treasury we have created a one-stop shop on our website where data sources, 50 different databases can be accessed for some of these innovators who are developing these tools. And that data includes data about national income data, small business data, as well as housing data.
And already I would point out, government data is helping to seed some of these innovations. For example, one start-up has built an engine that helps employees better understand their 401-K plans. And they’re doing that by utilizing data from The Department of Labor.
Another start-up is providing a service that monitors consumers’ debit cards for suspicious charges. And they’re drawing on data from the CFPB’s credit card complaint database. So you can see and you can begin to imagine a lot of ways in which data could be utilized for financial capability building purposes.
So as technology reshapes the landscape of financial services, we are committed to finding new ways to empower individuals with tools, information, and also education that enables them to make more informed financial decisions. So just like how we acquire such basics of personal safety, that we learn from our parents. Right? We learn to put our seatbelts on and buckle up at a young age. Children and what they are able to learn early on also, we believe, has baring for their financial lives.
So there are many strategies in place for providing financial education resources, and I am sure a number of you in the room are doing this for young people, but we also realize that there’s a lot more to learn about what, how you provide information and education to youth in a way that resonates and sticks with them.
So our office is engaged in research right now in order to test the idea that if we can deliver some basic financial education to young people, along with delivering an account, these are banks and schools, doing this in a randomized controlled way, we will then be able to test what kind of effect that’s having in terms of what these youth know. So we have been embarked in a research project for the past couple of years, and I think we should be having some of the research findings later this year. Is that right? Or early into year, Louisa?
So youth are another important area that we are focused on when it comes to financial education and financial capability building.
So now I’m going to come to my last point, which is what do we think is needed in terms of promoting innovation for going forward? To start, I want to acknowledge that there is the sense that policy and regulatory goals are not always consistent with new business models, and that there is the perception that this inconsistency is likely to reduce the viability for new ideas. I think we’ve got to move beyond that idea. That there is this inherent and unavoidable tradeoff. I think it’s a false dichotomy. It doesn’t have to be that way. And it isn’t always that way. So we are looking to start a new conversation together because we think we can use technology to help meet our policy goals from consumer protections to ensuring the safety and soundness of the institution and the system overall.
We can chart these new paths forward. And so my office is committed to looking around the bend at what’s coming, how the landscape of consumer financial services is changing, and how policy and regulation can be developed in ways that support innovation that benefits consumers. We’re excited to explore how technology can be empowering consumers. And to that end, at the end of November we’re hosting a 2-day convening with a number of stakeholders. We will be inviting in some of our regulators to really think about how we can leverage technology to meet these public policy objectives.
So I’m going to wrap it up now. But I want to conclude by coming back to the future of my kids. This time I’m going to continue to pick on my son Simon. So he’s getting ready to go off to college. And he’s got a lot of things he’s got to sort through. Right? Let’s say he wants to be a Russian literature major. (laughter) Great. How is he going to pay for that? Right? And what’s the right decision in terms of what loans he takes, what schools he goes to?
So when we get to that point will we perhaps have some type of technology, data-driven tool that utilizes information from the Department of Education about default rates? That builds on information about income projections? Right? As well as for those, depending, who decide to be Russian majors. And then mashes that information up about Simon and his own financial behavior and his own savings behavior. And then gives him some guidance on perhaps maybe you should choose a more affordable school than the one he might have in mind. I hope so. But that’s the kind of future that we can imagine technology, the direction technology taking us. So I’m looking forward to the conversation that ensues from here.
And, Ray, shall we have a couple of questions?