Conference Presentation, Keynote
The Next 3 Billion in Financial Services
- The U.S. financial services landscape is characterized by high concentration in banking and credit card sectors, alongside a $320 billion annual alternative financial services market and a $58 billion payday loan and money order market.
- Significant financial hardship exists with 46% of Americans unable to cover a $400 emergency expense, $1 trillion in credit card debt, and fees reaching 10% of assets for low-income populations.
- Income volatility affects low-income workers by up to 60% and the median income by up to 30%, creating challenges for saving and budgeting due to "lumpy income" patterns.
- Approximately 90 million Americans are mispriced for credit, with a subset entirely outside the credit system, while globally 77% of the poor and nearly half of the world remain unbanked.
- Startups are deploying diverse technologies to address these gaps, including income access apps like Earnin, round-up savings tools like Digit, spending capacity analytics via machine learning, and installment financing for assets like cell phones and transit passes.
- Debt management solutions utilize behavioral data and broader customer information to improve collection rates, which typically range from 1% to 2% for traditional collectors, and help users prioritize obligations with varying interest rates.
- Credit scoring innovation includes augmenting traditional signals with behavioral data, connecting global bureaus for international movers, and using device signals like Android updates to build scores for small-dollar lending in emerging markets.
- Emerging markets present specific opportunities, such as Indonesia's 250 million population with only 2% credit card penetration, where smartphone penetration is projected to reach 70% by 2020.
- Proven models in developing regions include M-Pesa's 30 million users in Kenya over 10 years and partnerships between fintechs and telcos to lend prepaid units based on repayment behavior.
- Strategic expectations include startups becoming de facto credit bureaus, companies capturing users at specific spending inflection points, and the potential for new billion-dollar financial services brands to emerge in the next few years.
- Market participation is driven by venture capital funding the next generation of financial services companies, with entrepreneurs aiming to improve the financial lives of tens of millions of Americans and many worldwide.