Insights from the Financial Solutions Lab, 2014-2019

• Context
• The study
• Key findings
• Points to consider

Context

The Financial Health Network (FHN; formerly the Center for Financial Services Innovation) partnered with JP Morgan Chase to design a programme called the Financial Solutions Lab, which aimed to improve the financial health of low-income and vulnerable US residents through innovative fintech solutions. The Lab seeks to identify, test, and scale up innovations with the potential to help U.S. residents increase their savings, improve credit, and build assets. The Lab provides capital, partnership opportunities, expertise, mentoring, and industry insights to develop a new range of financial products and services.

The study

This 2019 report from FHN and JP Morgan Chase reviews the activity of the Financial Solutions Lab over a five-year period between 2014-19. The project focuses on identifying and supporting entrepreneurs, cross-industry collaborations, consumer-centric design, innovative insights, and financially responsible business models that prioritise the consumer. The report provides an overview of the project’s activity over the five years, as well as offering insight, expert opinion and lessons for developing a successful fintech business.

Key findings

In 2014, the fintech sector consisted mostly of financial tracking tools such as Mint, and e-commerce platforms like Braintree. Barriers to entry included a complex regulatory environment that posed challenges for companies looking to enter the sector, as well as established companies looking to innovate.

• Numerous developments occurred in the five years of the review including:
  • Specialised solutions, including advances in fraud protection and financial abuse.
  • New distribution models and data use, including partnerships with large firms such as Walmart to offer budgeting tools to its entire workforce.
  • Impact investing, with a growing number of fintech companies and start-ups securing increasing amounts of seed funding and investment from venture capital funds.
• Overall, Financial Solutions Lab companies have served more than 4.5 million US consumers, helping them save an estimated billion dollars between 2014-19.
• Over the five-year period, the Financial Solutions Lab work helped to develop several principles when designing products for lower- and middle-income (LMI) groups, including:
  • Striking the right balance – it’s necessary to strike the right balance between innovation and viability, offering practical and realistic ways for consumers to improve their financial wellbeing, while still being a profitable venture.
  • Building consumer confidence – fintech companies need to develop business with a transparent and sustainable revenue stream, inspiring trust and confidence in both consumers and investors.
  • Meeting users where they are – fintech solutions must be easily accessible to LMI consumers, and designed specifically for hard-to-reach consumers.
  • Continuing to add value – companies must continue to grow and cultivate their relationship with consumers, by continually adding value to the relationship.

There were three main areas of learning identified by this report:

1. Technology limitations – recognising the limitations of technology when providing solutions to consumers means investing in other areas such as delivery channels and marketing.
2. Ecosystem barriers – the fintech ‘ecosystem’ comes with a particular set of challenges including limited investment opportunities, a highly complex regulatory environment and difficulties reaching target consumers. Understanding these barriers is crucial to the success of start-up fintech companies.
3. Revenue model considerations – Possibly the greatest challenge for fintech start-ups is working out how to generate enough revenue. In an industry where consumer confidence is already low, finding a revenue model that reinforces consumer trust is crucial.

The report also gives several considerations that fintech investors must pay close attention to when developing products and services, including:

• Customer acquisition and innovative distribution models;
• Partnerships with the non-profit fintech sector;
• Network engagement;
• Awareness of the business model, and not being afraid to charge money for a valuable service;
• Diversity and culture must be considered from the start of development, and is fundamental to building a business that reaches potentially vulnerable populations.

The report concludes by suggesting four interconnecting workstreams that will help secure success in future fintech ventures, including:

1. Building a thought leadership platform, embracing blockchain technology and artificial intelligence.
2. Engaging a broader field of disciplines, including health, housing and the workforce.
3. Encouraging innovation across the financial health ecosystem more broadly.
4. Testing what works and measuring/evaluating consumer impact.

Points to consider

• Methodological strengths/weaknesses: While written from arguably a commercial standpoint, this report provides some detailed and seemingly robust analysis of the advances and barriers to growth in the fintech sector, and is an important record of progress within the US context
• Generalisability/ transferability: This report is of significant interest to policymakers, stakeholders and other parties interested in evaluating the success of fintech solutions, and looking to innovate within the fintech sector.
• Relevance: While these findings are based on innovations in the United States, some of the learning outcomes may be transferrable to the UK’s fintech sector.