FinTech to Better Weather Financial Shocks

> Posted by Hannah Sherman, Project Associate, CFI

A financial shock can happen suddenly and at any time, and a single unexpected expense can push many American households into financial hardship. Something as straightforward as a car repair can have a snowball effect on a family’s finances if they are not prepared for it. A 2015 report from the Pew Charitable Trusts found that in 2014, 60 percent of American households experienced a financial shock, and that the average household spent half a month of income on its most expensive shock.

While most households have at least a loose budget for recurring expenses like housing, food, and transportation, most are not prepared for additional unexpected expenses, a study from the Center for Financial Services Innovation (CFSI) found. Consumers’ attitudes and behaviors are typically consistent with their financial health – i.e. those who are financially healthy are more likely to have recovery strategies available when setbacks strike.

With these survey results CFSI decided to focus its second annual Financial Solutions Lab (FinLab) Challenge on entrepreneurs using technology to help consumers withstand financial shocks. The Financial Solutions Lab is a $30 million, five-year initiative managed by CFSI and founding partner JPMorgan Chase & Co (JPMC), “to identify, test and expand the availability of promising innovations that help Americans increase savings, improve credit, and build assets.” This year the Lab selected nine winners.

Financial capability, among its other tenets, means being able to make informed decisions to effectively navigate the financial services landscape, decisions that contribute to financial health. A number of this year’s competition winners specifically target client behavior as a way to improve financial health.

  • Albert: For most people, money management is no easy task. Albert is a mobile-based financial advising app that incorporates all of a user’s financial services into the app in order to make this task more manageable. An unusual feature of the app is that it targets specific unhealthy behaviors. It also offers recommendations on things like lowering credit card fees, acquiring low-interest loans to help repay credit card debt, and setting up retirement plans. Albert is also synched with service providers so that users can easily take action on additional services (like signing up for new products) right in the app.
  • EARN: If it’s tough to make ends meet, it’s likely even tougher to save regularly. EARN provides tools for lower-income families that help make regular saving easier. EARN’s online platform encourages and incentivizes regular “microsaving” through financial education and support, realistic goal setting, and rewards for meeting these goals..
  • EarnUp: Similar to Albert and EARN, EarnUp offers actionable money management advice through an online platform that integrates users’ financial services and financial flows. As it can be hard to know how to save when money is tight, it can also be hard to know how to pay off loans. Based on users’ finances, financial behavior, and lifestyle, EarnUp automates micropayments to help users pay off loans and offers real-time advice on savings opportunities.
  • Everlance: Freelance workers can face uniquely difficult money management circumstances, keeping track of business expenses while on their own and on the move. Everlance focuses specifically on helping this segment, tracking certain behaviors to help users make better financial decisions. For example, for those needing to keep track of driving mileage for their work, Everlance uses GPS technology to automatically log miles on every trip.

The remaining five winners of the second FinLab competition, which span a range of areas, consist of the following companies:  Bee; eCreditHero; Remedy; Scratch; WiseBanyan.

Financial shocks are common and damaging occurrences for the average American consumer, especially for those with poor financial health and behaviors. Though the winners of this year’s FinLab competition demonstrate that the industry has come a long way in leveraging fintech, data, behavioral science, partnerships, and more to help consumers improve their financial health. For more, check out the innovations from around the world we spotlighted in our financial capability building project.

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