Should banks be financial physicians?

If you place yourself between two opposing sides, you are likely to become a target for both. If both sides respect you, however, you can be the means to channel divergent views into a common good.

Jennifer Tescher and the organization she founded and leads, the Center for Financial Services Innovation, walk in that middle ground every day.

Although the center’s name suggests a group dedicated to enhancing the role of financial institutions, CFSI’s reason for being is to help improve financial health for the majority of Americans. It is not a lobbying organization. It is not a traditional consumer advocate. In large measure, its 13-year existence has centered on raising awareness of a largely overlooked, but widespread situation: the financial difficulties faced by a majority of working Americans—an ongoing, and often stressful, struggle to make ends meet. The recent presidential election shined a spotlight on this issue.

CFSI is no longer bank-centric. Although banks are financial supporters and bankers sit on the board, so do representatives of credit unions, fintech companies, and technology companies.

Tescher grew up in Florida and says she has always had a strong interest in issues related to poverty and inequality. This led her to a journalism degree from Northwestern University, after which she worked at the Charlotte Observer in North Carolina for several years. When she went back to Chicago to get a graduate degree in public policy from the University of Chicago, one of several jobs she held was an internship at ShoreBank, where she eventually worked full time. The bank, since closed, was the country’s original community development bank. Tescher’s work involved helping people to save and build assets. While at ShoreBank, she became taken with the idea that finance can be a force for good in people’s lives and that the private sector can bring significant scale to this work.

After about seven years, Tescher joined the Ford Foundation, one of the bank’s shareholders. The foundation tasked her with creating a strategy to implement the findings of a paper on how the internet was going to reduce the cost of serving bank customers and dramatically increase access.

Foundation officials liked her plan so much they handed her a check and said, “Go do that.” This three-year funding commitment launched CFSI.

This was in 2004, the year Mark Zuckerberg invented Facebook in his dorm room, and three years before the rollout of the iPhone.

Thirteen years later, CFSI has 55 employees and 99 member companies; hosts a major financial health forum called Emerge; and operates the Financial Solutions Lab. Tescher is president and CEO of the Chicago-based organization.

One notable CFSI research project was the U.S. Financial Diaries. The seven-year project followed the lives of 235 low- and middle-income families/individuals through a year, and chronicled the financial distress of many working Americans in a time of unprecedented prosperity. The research culminated in the publication this spring of The Financial Diaries (Princeton University Press).

The following dialogue, edited for length and clarity, is based on an hour-long interview with Tescher.

Q1. CFSI uses the term “underserved” now versus “underbanked” and “unbanked.” Why the change?

A. When we started, we were about putting the un- and underbanked on the map—working largely with banks, trying to show them that these groups represented a business opportunity. Over the next ten years, three big things happened. One, the iPhone was invented, and between the iPhone and prepaid debit cards, access became a nonissue.

Second, the financial crisis and recession really laid bare the fact that the majority of Americans were financially challenged. Up until then, it had been masked by overindebtedness. This wasn’t just a blip. The financial struggles of Americans continued after the economy began to improve.

The third thing was Silicon Valley waking up to the opportunity to disrupt the financial services industry—the rise of fintech.

So all three reasons led us to conclude that access for the un- and underbanked was no longer the right focus. Having a bank account, in and of itself, is no guarantee that you’re going to be in good financial shape. We realized that what we really cared about was financial health. That is the ultimate outcome we are promoting. Further, we think that everyone else in financial services should be promoting it too, because that’s the business they’re in; that’s what their customers want from them. We believe financial health represents the future basis of competition, because location doesn’t matter anymore and price increasingly doesn’t matter, but engagement with the customer around their financial well-being does.

So we’ve spent the last three years working with a range of companies to define financial health, measure it, and create a set of indicators and metrics, and we’re using that to think differently about the kinds of products and experiences being created, and ultimately about how financial services companies measure their success.

One other thing has evolved. When we started, we were heavily focused on products. But we realized if products were the answer to improving people’s financial health, we’d be there by now. It has to be more than that. It has to be in the DNA of a financial institution that the business it’s in is to help consumers improve their financial well-being, not just to sell another checking account.

Q2. The Financial Diaries profiles the Johnsons, who are not poor and use many financial products, yet struggle to make ends meet. The book says “The system is not working for them.” How can it be made to work for them?

A. I have two answers. The first is that technology can help to optimize decision-making with people—for example, an app that tells you when and in what order to pay your bills, which was a big problem for the Johnson family.

What if you could draw down money you’ve already earned, but haven’t been paid for? That could help you smooth out your cash flow. That solution exists today. Companies, such as Activehours and PayActiv, offer it. So, for example, if I normally get paid on Friday for a week’s work, but I have a bill due on Wednesday, after I’ve worked three days, it would be really helpful to me to have that three days’ pay rather than having to get an advance. These companies, essentially, are making your pay available on a more frequent basis. It’s different from a payday lender because being given money you’ve already earned isn’t credit—the money already belongs to you. [Activehours has no fees or interest rates, but most users leave a “tip” for the app. PayActiv charges a flat $5 per transaction fee, which some employers pick up.]

But technology, in and of itself, is not the answer—not the full answer. The other part is engagement. I hesitate to call it counseling because it could be virtual. It would involve one or all of the financial providers in the Johnsons’ lives looking at the big picture with them—having a real conversation about not only the problems they’re having with their checking account, but conversations about their goals, or at least what their next goal is.

We have a framework of eight indicators of financial health built around spend, save, borrow, and plan. It’s a way to organize your engagement with the customer. If improving a customer’s financial health was measured, then even the way we compensate front-line employees would be different. It wouldn’t necessarily be on product sale, or even necessarily on a satisfaction score.

Q3. What was the goal of setting up the Financial Solutions Lab?

A. We were founded to answer the question: How can technological changes in financial services benefit those who need help the most? That has involved, essentially, two things: one was research and writing, but also, from the very beginning, we have been investing in innovation.

In the early days, we literally were investing off our balance sheet. Later, we helped create and then spun out a venture fund called Core Innovation Capital. We also have done some hackathons and other competitions.

Several years ago, JPMorgan Chase approached us about doing something together. We combined all our experiences up to that point and said, “Let’s create a lab as a competition to find the most promising entrepreneurs to solve consumers’ financial health challenges.”

We decided not to just give the winning entrepreneurs money, but to give them exposure, connection to legal and regulatory resources, marketing support, and, most importantly, connect them to the broader CFSI network for advice, partnerships, and potential exits.

This spring we completed our third cohort of companies. [Those companies competed at CFSI’s Emerge Conference in June for top honors as well as support.]

Our model is unique because we’re working with a diverse array of companies, organizations, and stakeholders. The interconnections are really where the most exciting things are happening.

Banks do not submit entries into the CFSI lab competition. We work with banks through consulting and other ways that do not involve a financial investment. The lab is a different format.

Q4. CFSI came out in support of the fintech charter proposal put forward by the Comptroller’s Office. Why was that?

A. It’s an increasingly unpopular position, isn’t it? I don’t think any of us know what will happen on this issue, particularly in this version of Washington. But technology is changing everything in our lives so dramatically that to think that regulatory structures and frameworks we’ve put in place for decades will stand the test of time without any alteration is shortsighted.

I appreciate that it’s difficult to make changes when you’re not 100% sure what the end state is going to look like. But we can’t wait until we get to some stopping point. It doesn’t work that way.

Is the fintech charter as envisioned perfect? Absolutely not. Do I applaud the OCC for being willing to evolve how it does business? Absolutely. Regulation is more art than science.

Whether or not this charter comes to pass, introduction of the concept is already doing some important things. For instance, it has really lit a fire under state regulators, causing them to think how to modernize and engage with newer actors.

Q5. How do you view the new administration from the perspective of CFSI’s work?

A. The Trump campaign and election shined a spotlight on the financial challenges of everyday Americans. We have been focused on that for a long time. So to the degree that this administration is raising this issue and causing more conversation and, hopefully, action, that’s a positive.

Some of the choices that the President is making, whether in his budget or some of his executive orders related to retirement or savings, are contrary to helping everyday Americans improve their financial lives. So I think it’s a mixed bag.

When I talk about financial health in regard to the government, my dream is that government would see it as a matter of affirmative responsibility to promote financial health of its citizens. It would be analogous to what it does with public health, where we have a surgeon general, the Centers for Disease Control and Prevention, standards, and regulations.

Q6. You’re not a fan of checking accounts. Can you explain why?

A. I’m all for financial services that meet people’s needs and provide some level of convenience. But the world has changed a lot from the time many of these products were created. Many don’t reflect the financial lives people live anymore. As an example, a checking account is predicated on liquidity, right? The idea that you have funds in your account. In the past, when you deposited a check, it didn’t really matter if the bank was going to give you all the money right away because you had a balance in your account. But as more and more people live paycheck to paycheck, there is no cushion. A checking account doesn’t make a lot of sense.

To get on my soap box for a minute, the fact that we are still using checks in this country is crazy. Checks are like a blunt instrument. They cause so much of the problem for people who struggle financially. Getting rid of checks, in and of itself, would be a huge help for people from a cash flow perspective. We really should phase out checks entirely and use all the time, money, and energy spent managing and handling checks and use it for faster payments or spending more time with the customer.

Q7. What has changed to have so many people struggling financially now?

A. Part of the challenge we have in this country is that wages haven’t kept pace. They have been stagnant. People have spent the last 20 years filling the gap using credit. Products that were originally envisioned as a courtesy, like overdrafts, have become the way in which people get by on not enough income [or not enough at the right time].

It’s not that people aren’t working hard enough. It’s not always because they’re poor money managers, either. We have an income problem in this country. Banks can’t solve an income problem, and there is a fine line between helping someone bridge a gap and setting them back.

After 13 years, I’ve learned you can never stop telling the stories of real people and their financial lives to remind people in business and government what many consumers are dealing with. Because if you haven’t had that kind of life experience yourself, it can be hard to relate to it. That’s why The Financial Diaries is so valuable. It doesn’t just talk about a particular decision a family made or what products they use, it tells how they actually live their lives.

The more we can put ourselves in the shoes of our customers, the more we can actually design and deliver an experience that’s going to meet them where they are.

This article originally appeared in the June-July 2017 Banking Exchange magazine