Recent pandemic-related volatility notwithstanding, the financial health of the average American has not kept pace with the U.S. economy’s overall growth in recent years. According to a recent survey by the Financial Health Network, an organization dedicated to promoting financial stability, only 28 percent of adult Americans are financially healthy. The remaining 72 percent — a full 180 million people — struggle with some element of their financial lives. Those struggles include credit card debt, student loans, medical bills and pricey mortgages in a seller’s real estate market.
Digital technology has opened an opportunity for fintech startups to design new products to promote financial health in the wider community. Fintech investment peaked in 2018 and remained strong into last year, giving entrepreneurs room to test financial health products among the general population. San Francisco fintech companies have taken up the challenge, with a number of technological products designed to address common causes of financial instability.
A Heavy Credit Card Balance to Carry
The problem: According to NerdWallet, monthly credit card balances reached $466.2 billion in December 2019, a figure that has increased nearly 37 percent in the last five years.
The business model: Tally has built an app that automatically tracks and manages credit card debts and repayments. The company pays down debts on a user’s behalf, and synthesizes the various accounts — with overlapping annual percentage rates, due dates and maximum balances — into one monthly fee. Tally says the APR on its line of credit is much lower than traditional credit cards, meaning users pay less interest on any carried balances.
How it promotes financial health: By automating the monitoring of credit card balances and due dates, the technology is built to help users avoid missing repayments and save on interest fees.
Overdraft Fees Make the Poor Poorer
The problem: Consumers forked out more than $34 billion in overdraft fees in 2017, according to financial research firm Moebs Services.
The business model: Chime is one of several so-called “challenger banks,” or tech-driven banking institutions with no physical outlet. Last year the company rolled out fee-free overdrafts, which let consumers keep spending up to $100 after their debit card balance drops below zero. Chime pays itself back the difference — without any additional overdraft fee — once the user’s next paycheck arrives. Chime says it makes its money from Visa credit card fees, paid by merchants.
How it promotes financial health: Critics say overdraft fees are yet another way traditional banks increase financial burdens on their most vulnerable customers. By finding a way to eliminate overdraft fees, challenger banks are removing an additional source of financial stress from an already stressful situation.
Interest Compounds the Problem
The problem: A recent conservative estimate puts the per capita cost of interest on American student loans at $641 per student, per year. For mortgages, the average American homeowner pays more than $5,600 per year in interest alone.
The business model: Credible provides an independent comparison tool to help users compare all the relevant specs on student loans, personal loans, mortgages, credit card debt and more. The goal is to arm consumers with the knowledge they need to make smart decisions — and minimize their interest payments. Every time a user takes out a loan through its service, Credible takes a fee from the lender themselves — a fee which the company says doesn’t impact the options presented or how they’re displayed.
How it promotes financial health: Some 45 million former students now owe a combined total of about $1.6 trillion in student debt. Helping students shave a few percentage points off their interest repayments can alleviate a portion of a student’s future financial obligations.
No Savings Cushion
The problem: According to the Financial Health Network, 45 percent of Americans do not have enough savings to cover at least three months of expenses.
The business model: For users who live paycheck to paycheck, a hospital stay or car accident can quickly send their lives into a financial tailspin. HoneyBee works as an employer-provided benefit that gives employees credit-free access to funds. The idea is to provide an alternative to 401(k) savings or payday loans in the event of a financial emergency. Employers pay HoneyBee to use the service, meaning the end user doesn’t bear any direct costs on top of their existing debt.
How it promotes financial health: Relying on payday lenders or drawing from a 401(k) account may help avoid financial disaster in the short term, but they can cause just as many problems in the long run. Meanwhile, HR professionals are increasingly recognizing that promoting financial health among employees is also a boon to productivity at work.
The Lack of a Plan
The problem: According to the Financial Health Network, 40 percent of households do not plan ahead financially.
The business model: In addition to a range of technological tools to help maintain financial health, Brightside also provides users with a dedicated financial assistant to answer questions about student loans, accessing emergency cash and lowering their overall debt. Employers pay Brightside to provide their employees with the service, which then guides them toward their financial goals.
How it promotes financial health: The wider community of government departments, nonprofits and companies thinking about financial health has recently begun to assert that providing users with savings tools and products is not enough. To have a meaningful impact, companies need to give users guidance — in this case, through a human advisor — on how to save money effectively.
