Finance app aims to help unbanked
Entrepreneur wants to reach those who are left out
Lower-income people, those in rural areas, immigrants and young people without credit histories are many of the roughly 32 million U.S. households the Federal Deposit Insurance Corp. considers “unbanked” or “underbanked.”
Those are people who either don't have a bank account or have an account but still use financial services outside the banking system, such as payday loans, to make ends meet.
More than half of unbanked households cited not having enough money to keep in an account, 30 percent said they don't trust banks and 9 percent reported banks are not in a convenient location, according to a 2017 FDIC survey.
The study also found that the percentage of Americans who accessed their bank accounts through mobile devices has nearly doubled since 2013, climbing to over 40 percent
in 2017. About 15 percent of households reported mobile banking was their primary means of accessing their accounts, nearly triple 2013 levels.
A lack of access to banks continues to worsen as more and more branches close, MSNBC reported. Between 2014 and 2018, 1,915 more branches in lower-income areas closed than were opened, according to data from S&P Global.
Sheena Allen, 30, grew up in one such underbanked enclave, outside of Jackson, Miss. Her hometown of Terry had plenty of cows and horses but only one small bank.
“Most people in my area cashed their checks at the grocery store” and used payday lenders and other oftenpredatory financial providers, Allen recalls. “We've lived the problem, so let's be the solution.”
After spending most of 2016 researching the financial industry, she came up with her solution: CapWay, a social fintech app maker that Allen wants to use to provide better financial services to the kinds of people she grew up with.
Currently, CapWay can show your bank account balance and transaction information, and it also warns you if a monthly Netflix or Spotify withdrawal is about to drain your account. It's a humble effort compared with the many banking apps available, but Allen is betting that her tech will reach the people who don't have access to the offerings of bigger banks.
She raised an early $25,000 from Backstage Capital founder Arlan Hamilton, a fellow Mississippi native who raves about Allen's “grit, determination, and conviction” and has connected Allen with the investors who are leading CapWay's next fundraising round.
“She could be underestimated when she walks into the room, but she's relatable, and knows what's happening in the real world,” says Hamilton. “It's so expensive to be poor.”
CapWay is still pretty early stage, though it's launching a debit card this spring, with smartphone-enabled microloans coming later this year. (Don't have enough in your account to cover this month's Netflix charge? CapWay can spot you $25, for a fee.) The debit cards are combined with financial education, recommendations and opportunities to help guide users to financial health.
“People argue there is no money at the bottom of the pyramid, yet the predatory economy is bringing in billions off of the lower-to-moderate income population and those who lack financial literacy. There is a way to be profitable while focusing on this group and not robbing them,” Allen recently told Forbes.
Allen admits that she's still figuring out her company's revenue model, which so far involves a combination of payments from colleges that use CapWay's financial educational materials and fees from customers using its debit and loan products.
This can be the trickiest part of providing non-predatory financial products to lower-income people, who often get gouged by fees, but financial industry watchers praise what Allen's accomplished so far.
“This is a tough business, and she's got a complicated challenge to figure out a model that works,” says John Thompson, chief program officer for the nonprofit Center for Financial Services Innovation, which focuses in part on underbanked consumers. “But what they've proposed feels like a substantively better option than operating in cash, or with check cashers.”
Allen, meanwhile, is undaunted by the complexity of her chosen market.
“We can be profitable, have a social impact and have a great company,” she says.