Pacific Exchanges

We’re excited to share a special episode in partnership with our colleagues in the San Francisco Fed’s Community Development group. Our teams recently collaborated on a special issue of the Community Development Innovation Review in partnership with the Aspen Institute’s Financial Security program, which examined the potential ways financial technology can promote racial equity in the financial system. Today’s episode is a corollary to our recently concluded Financial Inclusion & Beyond series where we explored what we can learn from efforts around the world to improve financial inclusion and wellbeing.

The event included a fireside chat with San Francisco Fed President Mary Daly and Ida Rademacher, Executive Director of the Aspen Institute’s Financial Security Program, and a panel discussion with several journal contributors moderated by Rocio Sanchez-Moyano, a senior researcher in the Community Development  group.

Some take-aways from the live event include:

• The current financial system does not serve everyone equally. The inability to access and use financial services impedes people’s full participation in the economy. Communities of color and low-income communities are disproportionately left out of the financial system. Fintech provides an opportunity to reach those excluded by the financial system.
• Fintech shows promise in furthering financial inclusion. Improvements in transaction processing, digital identity, and use of real-time and alternative data for risk assessment could offer significant improvements to individuals currently left out of the financial system.
• Fintech solutions designed based on a nuanced understanding of lived experiences of those they serve have greater impact. Many consumers come up with work-arounds or adaptations to work with existing services that do not meet their needs. Efforts to increase diversity in the fintech ecosystem (from founders to staff, venture capital, and regulators) and greater prioritization of learning from the experiences and challenges that users from low-income communities and communities of color face can enable the creation of higher impact fintech solutions.

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Aspen Institute Financial Security Program

The views expressed are not necessarily those of the Federal Reserve Bank of San Francisco or of the Federal Reserve System.

In the final episode of Financial Inclusion & Beyond, your series hosts take a look back at key themes and takeaways from our conversations.

Some of the key takeaways we review include:

• The events of the pandemic left us all humbler at the scope of the challenge we face here in the United States to deliver full financial access to all citizens and promote their financial health.
• Financial inclusion often conveys the notion of basic access, but true inclusion is about enabling individuals lives and letting them pursue their dreams.
• Experts from a diverse range of disciplines like impact investing, behavioral economics, and community development are focused on designing new financial products and services to meet the needs of low income populations historically treated as second class citizens in the financial system.
• Regulators need to grapple with how to promote positive change through their engagement with innovative firms. A narrow focus on simply negating bad outcomes has not been sufficient to create real financial inclusion and racial equity, and a shift in mindset is necessary.
• The San Francisco Fed’s Framework for Change makes a persuasive case for the economic benefits of a more inclusive financial system. We are at a critical moment to reflect and take action, and both public and private stakeholders have a lot of work ahead of them to promote meaningful change.

The views expressed are not necessarily those of the Federal Reserve Bank of San Francisco or of the Federal Reserve System.

Our Pacific Exchanges team recently hosted a special Financial Inclusion and Beyond live virtual event that explored lessons from around the world in the use of technology and public policy to build more inclusive financial systems and drive financial health.

The event was moderated by Sean Creehan, the team's lead for financial health and inclusion, and brought together professionals from different corners of the financial inclusion and health spaces, including Greta Bull, the president and chief executive officer of the Consultative Group to Assist the Poor (CGAP); José Quiñonez, the founding chief executive officer of Mission Asset Fund (MAF); Arjuna Costa, a managing partner at Flourish Ventures; and Ting Jiang, a behavioral economist.

We’re excited to share the live event in full as a special episode of Financial Inclusion and Beyond. Regular listeners of the podcast will recognize these voices from their episodes throughout the season; the live event allowed them to discuss how they were managing the challenges to inclusion posed by the COVID-19 pandemic.

Some take-aways from the live event include:

• The COVID-19 pandemic has dramatically affected efforts to improve financial inclusion and health. Organizations like CGAP, a World Bank Group affiliate, and MAF, which traditionally focus on the longer-term issues of inclusion, had to re-focus efforts almost overnight to deal with issues related to public health.
• Those countries which had invested in digital financial system infrastructure could respond with stimulus relief quicker than those which relied on traditional models. Ting Jiang zeroed in the pandemic's effects at the individual level.
• At the individual level, it is important to adapt behaviors and develop products and technologies that withstand moments of stress.

• The poor shouldn't be forced to be secondary or third-order users of financial products but should have access to products designed for their lifestyles at an affordable cost. Fintech should be celebrated when it is also in service of the poor, not simply because it is a shiny new toy.

The views expressed are not necessarily those of the Federal Reserve Bank of San Francisco or of the Federal Reserve System.

In episode nine of Financial Inclusion & Beyond, we spoke with Grovetta Gardineer, the Senior Deputy Comptroller for Bank Supervision Policy at the Office of the Comptroller of the Currency. As a veteran bank regulator with more than three decades of experience in banking supervision, policy and regulation, Grovetta is a well-known leader and expert in the space of compliance and community programs.

We sat down to discuss lessons learned from the COVID crisis, financial inclusion challenges here in the United States, as well as the role public policy and regulation should play.  Key takeaways from the discussion include: 

• The US financial system has failed to provide equitable access for people of color. The barriers to financial access have prevented excluded populations, African Americans in particular, to achieve a healthy financial life and to build generational wealth.
• To tackle inclusion challenges, the OCC and other regulatory agencies have taken concrete steps to engage in a collaborative effort, Project REACh. The project focuses on three broad areas: bringing so-called “credit invisible” populations back into an inclusive financial system, increasing affordable housing, and recognizing the crucial role that minority depository institutions play in the United States.
• This effort must leverage the strength of various stakeholders, including all types of financial institutions, businesses, and community groups. For example, fintech firms’ approach to alternative credit scoring can provide opportunities as they partner with innovative banks.
• While there are benefits offered from collecting financial data, strict privacy guidelines and expectations need to be established to ensure consumer confidence and trust of the financial system.

Join Our Live Event May 18!

We will be hosting a live virtual event to mark the release of Financial inclusion & Beyond, the fourth season of our Pacific Exchanges podcast with a panel of four experts who appear in the series. We’ll discuss their lessons learned from the COVID-19 crisis and how the pandemic has underscored the importance of building inclusive financial systems that enable everyone’s financial health and promote equal opportunities. Details and registration link here.

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The views expressed are not necessarily those of the Federal Reserve Bank of San Francisco or of the Federal Reserve System.

In episode eight of Financial Inclusion & Beyond, we spoke with Tracy Basinger, the recently retired head of supervision here at the San Francisco Fed. Tracy has spent her career focused on the impact of financial services on everyday citizens. From leading consumer protection here at the San Francisco Fed  to overseeing a nationwide team considering policy solutions for small businesses suffering during the COVID-19 crisis, Tracy has thought long and hard about the role of  public policy, regulation, and technology in promoting a more inclusive financial system. 

We get into examples of financial innovations that are promoting inclusion and the challenges for regulators and policymakers who want to minimize risks to consumers and the broader financial system while not getting in the way of positive change. And we talk about how to shift from a historical mindset that focused on preventing exclusion to one that thinks about ways to promote inclusion and broader notions of financial health and wellbeing. 

Key takeaways from the discussion include: 

• The challenges of 2020 made it abundantly clear that our financial system is not fair and forced financial regulators to re-consider rules and policies to ask how they promote or detract from efforts to build a more inclusive financial system.
• Historically regulators have been considered successful if they prevent bad things from happening. Shifting to an approach to not only protect consumers, but help them meaningfully participate in the financial system, requires a different mindset.
• Regulating modern financial technology is not simple. The rapid adoption and scaling of new innovations increase their potential both to create benefit and cause harm. To the extent technology is clearly providing a benefit, even an only incremental one, without causing obvious harm, regulators should be enabling it.
• Providing clarity around rules and regulations to firms is crucial to enable innovation that drives inclusion and financial health. Regulators and supervisors should be engaged from the very beginning to understand the role of new technology, provide guidance when necessary, and avoid reacting after the fact once a problem has surfaced.

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The views expressed are not necessarily those of the Federal Reserve Bank of San Francisco or of the Federal Reserve System.

In episode seven of Financial Inclusion & Beyond, we spoke with Matt Homer, Deputy Commissioner of the Research and Innovation division of the New York State Department of Financial Services. Matt is an expert on the use of data and technology for social good. He has previously held positions in the U.S. government and financial technology sectors where he has focused on issues like the role of digital identity in promoting financial inclusion and wellbeing.

We get into the benefits of inclusive technology, but also the potential for digitization to exclude some vulnerable populations, and the unexpected challenges policymakers and firms face in delivering new financial services to people that previously lacked access We also discuss the broader trade-offs between inclusion, privacy, and other emerging data rights.

Key takeaways from the discussion include: 

• People that aren’t a part of the formal financial system don’t dream of things like getting access to a bank account—a traditional indicator of financial inclusion in the past. They want tools to access the digital economy, whether to operate a business or save for the future.
• Universal digital identities that enable people to verify themselves with financial service providers are critical infrastructure for any efforts to include more people in the financial system and broaden their ability to transact in the digital economy.
• Policymakers and private companies designing digital identity and other enabling infrastructure must be careful to provide multiple pathways for people to gain access. Matt provides the cautionary example of a brick maker in India whose fingerprints were so worn down that he needed his son to help him provide biometric verification for financial transactions.
• Protections for customer data rights, from privacy to ownership, are also crucial in promoting inclusive digital financial systems. Matt argues that in countries like the United States, we need a new trust framework to govern data use in the emerging digital economy, helping people better understand and control the use of their data.

Please note that the initial interview was recorded prior to the onset of the COVID-19 crisis. 

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The views expressed are not necessarily those of the Federal Reserve Bank of San Francisco or of the Federal Reserve System.

In episode six of Financial Inclusion & Beyond, we spoke with Chris Calabia, the Senior Advisor for Supervisory and Regulatory Policy, Financial Services for the Poor at the Bill & Melinda Gates Foundation. Chris leads the Foundation’s global efforts to promote a regulatory framework that enables digital financial innovation. Previously he was a Senior Vice President and Banking Supervisor at the Federal Reserve Bank of New York.

We sat down to discuss how to drive financial health for the world's poor by improving access to essential financial services through better public policy and regulation. Chris also shared his insights from the Gates Foundation’s efforts to help promote access to financial services among the unbanked, poor and women, especially in lower and middle income countries around the world. Key takeaways from the discussion include: 

• There has been focus among policymakers, regulators, central banks, and others, to try to improve access to a financial services account in the past 10-15 years. Despite visible progress, there are still 1.7 billion people globally left without access.
• Evidence suggests that access to financial services can improve economic opportunity for the poor and help them build resiliency against unexpected shocks. Regulation should ensure that providers are able to serve the poor, and welcome new providers such as mobile network operators, fintech companies, and social media platforms into financial services.
• Gates Foundation research found that countries with functioning digital financial services were far better able to deliver pandemic-related relief to their citizens.
• One example of digital solutions helping improve efficiency and access is India, where the government has started to digitalize social welfare benefits. Elsewhere, the Gates Foundation has sponsored experiments to encourage digitalizing payroll in Bangladesh and other developing economies.
• Digital infrastructure, such as digital identification systems, can facilitate various banking functions such as e-KYC and remote onboarding of customers by financial institutions. Other segments of the economy including healthcare providers or the education industry could also benefit from digital identification which will make a huge difference in the lives of the poor.
•  

Please note that the initial interview was recorded prior to the onset of the COVID-19 crisis. 

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The views expressed are not necessarily those of the Federal Reserve Bank of San Francisco or of the Federal Reserve System.

In episode five of Financial Inclusion & Beyond, we spoke with Ting Jiang, a behavioral economist who researches and designs products for behavioral change. At the time of this recording, which took place prior to the pandemic, Ting was associated with Duke University's Center for Advanced Hindsight.

We sat down to discuss the way behavioral scientists and product designers can work together to build better financial products that help people take action to improve their financial health. Key takeaways from the discussion include:

• Identifying the source of unhealthy financial behavior is a critical step for product designers or policy makers that wish to promote health. While financial literacy is often emphasized as a tool to help low-income populations improve their wellbeing, most poor people understand very well how to manage their money, but there may be other barriers that get in the way.
• Behavioral science-informed products can help people remember and act upon their good intentions (e.g. to save money or buy insurance) when the complexities and stresses of daily life might otherwise interfere. Technological and human interventions can help bridge the intention-behavior gap.  These designs can appear simple but are effective in behavioral change.
• New technology can also help people better imagine their future selves and the potential unexpected shocks of life, suggesting actions to take right now to build resilience for tough times.  The more concrete and tangible the future opportunities or stress scenarios feel to an individual, the more likely they are to take action.
• Improving the financial wellbeing of a subset of a population can lead to a win-win situation for the individual, their communities, and the financial system.  For example, a financial firm helping urban migrant workers in China helps their communities and networks in rural areas, and in turn grows their potential client base.  

Please note that the initial interview was recorded prior to the onset of the COVID-19 crisis. 

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The views expressed are not necessarily those of the Federal Reserve Bank of San Francisco or of the Federal Reserve System.

In episode four of our series Financial Inclusion & Beyond, we spoke with José Quiñonez, the founding chief executive officer of Mission Asset Fund (MAF) and a visiting professor at UC Berkeley, Department of City and Regional Planning. MAF uses innovative national models for integrating financially excluded, low-income communities into the mainstream.

We sat down to discuss how the formal financial system leaves credit invisible (individuals without a credit background) behind. José discussed how MAF is helping those that have typically been left out get integrated into the formal financial system. MAF is drawing on the rich tradition of lending circles to help the low-income and immigrant communities develop a credit history and join the financial system. Key takeaways from the discussion include: 

• José draws on his experience and insights from working with the local San Francisco immigrant community and shares his view on how to improve financial inclusion and financial health.
• Low-income individuals traditionally are secondary users of financial products. Banks and fintechs can ‘meet people where they are,’ by building products to address the primary concerns of the low-income community.
• The growing awareness of financial inclusion and financial health reflects a broader understanding that there are more systemic issues at play that keep many low-income individuals credit invisible.
• Having a bank account is only the first step towards financial actualization. For poor people to manage complex financial lives, financial services providers, regulators and non-governmental organizations all need to come up with innovative solutions tailored to specific needs of underserved users.

Please note that the initial interview was recorded prior to the onset of the COVID-19 crisis. 

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The views expressed are not necessarily those of the Federal Reserve Bank of San Francisco or of the Federal Reserve System.

In episode three of Financial Inclusion & Beyond, we spoke with Arjuna Costa, managing partner of Flourish Ventures, a leading social impact fund focused on financial health. Arjuna invests in entrepreneurs around the world to catalyze innovations that help people achieve financial health.

We sat down to discuss the way entrepreneurs are harnessing the power of behavioral economics and customer-centric design to meet the everyday financial challenges of low income populations. Key takeaways from the discussion include:

• For too long, financial systems have thought in terms of standardized products that do not always meet the needs of customers or enable their life goals.
• Challenges common in emerging economies often force individuals to become micro-entrepreneurs out of necessity, spurring demand for new financial solutions. This has led to many innovations that are now coming back to developed countries like the United States.
• Partnerships between incumbent banks and fintech start-ups can help spread inclusive innovations throughout the financial system, emphasizing the need for banks and regulators to consider how to enable more collaboration.
• While financial product innovation can do a lot of good, inclusive economic growth and robust social safety nets are essential to provide the steady income streams that support financial health and resilience in good times and bad.

Please note that the initial interview was recorded prior to the onset of the COVID-19 crisis. 

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The views expressed are not necessarily those of the Federal Reserve Bank of San Francisco or of the Federal Reserve System.