Live Virtual Event: Creating an “On-Ramp” For Financial Inclusion

This is Pacific Exchanges, a podcast from The Federal Reserve Bank of San Francisco. I’m Paul Tierno.

And I’m Sean Creehan. Welcome back to Financial Inclusion & Beyond, an ongoing exploration of what we can learn from efforts around the world to improve financial inclusion and wellbeing. Today, we’re going to try something a little different. To mark the full release of the series, we recently hosted a live panel discussion with four of the series guests.

That’s right. In this live episode, you’ll hear Sean moderating a dynamic conversation between Greta Bull, Arjuna Costa, Ting Jiang and José Quiñonez, who appear on previous episodes of the podcast. They joined us to talk about the lessons they’ve learned during the pandemic, how it’s impacted their efforts to promote inclusive financial systems and drive financial health, and importantly, where we go from here.

This episode is a little longer than usual, but everyone had a lot to say. So we think you’ll appreciate the depth and we won’t hold it against you if you listen to it at 2x speed either. All right, let’s get to it.

So, I’d like to begin by hearing what the pandemic taught our panelists about the application of innovative technology and public policy, to the challenge of building inclusive financial systems and driving financial health. Greta, I thought we could begin with you. So tell us what you’re seeing around the world. Successes and any areas where you’ve seen fall downs, where we can learn from it.

Sure. Thanks so much, Sean. It’s really great to be here talking about these topics today. So first I think it’s worth differentiating a little bit between financial inclusion and financial health, because they’re often used at the same time, but they’re kind of different concepts although obviously quite closely interrelated. CGAP focuses more on inclusion, which in emerging markets is literally about getting people access to the formal financial system. So, we know that right now, about 1.7 billion people around the world, lack that sort of access and in some poor countries, only around 10% of the population actually have access to an account.

But at the same time, we advocate that financial services should be provided responsibly, particularly to low-income households. And through this, the financial sector can play a role in supporting financial health, which involves a number of other factors, factors like income levels, levels of financial literacy and behavioral aspects. So we’re focused much more on making sure people have access to financial services and that they use those financial services because what we want is for financial inclusion to do something more, which is to drive economic opportunity and growth for low-income households in emerging markets and financial health doesn’t necessarily always encompass that aspect.

Ultimately, what I want is for poor people in emerging markets to have access to an account that they can send and receive payments from, save money in and build up enough of a track record to access credit with. I basically want poor people to have access to the same kinds of financial tools I have to manage my life. So, to get to your question, I think we’ve seen a number of successes during the pandemic, but let me give you a couple of clear examples where I think digital data and public policy coming together made a real difference. So, the first is in social protection payments, which 215 governments around the world, according to The World Bank, are designing based on needs generated during the pandemic and probably the best-known case of this is India. So, India had at the beginning of the crisis, a very hard lockdown and needed to get money that people who weren’t able to earn it because of the lockdown. And that is a pretty daunting task given the size and scope of India. So imagine getting social payments to hundreds of millions of poor people.

Under the best of circumstances, that would have been pretty daunting, but under the circumstances of a pandemic where people couldn’t go out, it was sort of impossible feeling. And yet the Indian government was able to get social payments averaging around $20 per payment into the hands of 428 million recipients of various COVID relief programs. Why were they able to do that? Because India invested in financial inclusion. So a few years ago, India created the Aadhaar ID, made it universal, which facilitated access to accounts. It mandated that low value accounts be made available to every household and it built world-class payments infrastructure that enabled payments to be made efficiently and electronically. Because India increased its rate of financial inclusion from 35% to 80% between 2011 and 2017, it was able to mobilize that infrastructure to get help to hundreds of millions of people in a matter of months.

And interestingly, women disproportionately benefited from that increased access. So a gender gap that in India sat at 9% in 2011 was reduced to only 3% in 2017. And although we don’t have exact data, we estimate that around 60% of those social payments made in the early days of the pandemic went to women. There were other countries, especially in Africa where digital payment systems like those run by mobile network operators, many people will be familiar with M-Pesa were leveraged by the government to get money into people’s hands. But India sort of provided a unique combination of public policy that kind of public infrastructure being leveraging the private sector and just being able to do something on an epic scale and get money into people’s hands.

Another quick example I’ll give is in the credit space. So in the early days of the crisis, it was pretty difficult to know what was going on. Particularly in credit portfolios, moratoria were being imposed and then extended in a number of markets. A country like Peru, which probably has the best credit data I’ve ever seen and has done for a number of years, was able to mobilize pretty quickly to deal with troubled lenders because they could see where the problems were. And because Peru’s been doing inclusive finance for a long time, there was really no question that inclusive providers wouldn’t be covered by government support to the financial sector, which was a big question mark in a number of other markets when liquidity support was being provided.

And because Peru has excellent monitoring systems in place and a special authority that oversees inclusive finance, they can keep an eye on the sector and course correct wherever they need to. Coincidentally, Peru also has pretty robust ID system and they leveraged accounts and stayed on banks as well, much like India did to get payments out to people. Was it perfect? No, but it did work mostly. And now they’re really seeking to build better infrastructure on the payments side to support those needs, including low value accounts, so each household would have a right to have and a payment system that would cover all of those. So there’ve been quite a few successes, but we’ve also seen some places where things haven’t worked. I can think of one country where we worked, where literally they were thinking about bringing in the army to take money out to people in need out in the back of the truck. So it sort of speaks to the importance of having that kind of market infrastructure in place with people having accounts and being able to get to those accounts and being able to receive money digitally.

Thanks a lot. Sounds like a lot to unpack there. I wonder Arjuna, if we could turn to you. Clearly, there’s been a lot of effort around the world to create this infrastructure. You’re an investor, you have a number of companies in your portfolio. You follow a variety of sectors in the financial health and inclusion space, whether from the domestic side or internationally, I’m wondering if you could share some insights from the pandemic that you’ve seen in the field.

Sure, Sean. Thanks. And very quickly we invest in the U.S. in Latin America, Asia, and Africa. So we are spanning the gamut of some of the countries Greta talked about where inclusion is the primary challenge through to the U.S. where most people have access, but it’s a question of helping them build a financially healthy and sustainable livelihood. So we’re operating across the span of issues. Stepping back, I mean, the pandemic provided tailwinds to the adoption and use of digital financial services as people around the world adapted to this new reality of life under lockdown. So when we look across our portfolio, we saw sort of a number of successes. We had some companies and areas of investment focus that struggled and others that were sort of in between.

Who were the winners? Clearly direct consumer digital only businesses. The challenger banks that we’ve invested in both in the U.S. companies like Chime and Aspiration companies like Neon in Brazil, Albo in Mexico, and others really saw their active account base and transaction volume surge since the onset of the pandemic. Insurance, right? Historically very hard to sell, always a push product, not a pull product unlike credit. Insurance started to see greater awareness recognition and adoption as people suddenly confronted the new reality of health crises and potentially the need for life insurance.

The second category where we saw mixed success, prime value was on credit. It was really a mixed bag. Certain models like ‘buy now pay later’ that we’ve seen both in the U.S. and across the globe held up pretty well. And that was really because there’s an element of risk sharing with the underlying e-commerce platform. And in that risk sharing some of the models that we’d invested in saw that our worst-case models of credit risk didn’t pan out over time. Other models like advanced access to your payroll and your wages were highly dependent on the underlying economic viability of the businesses, whether the business is shut down, they started laying off employees.

So the partners mattered a lot. Consumer lenders were hard hit. They reacted very quickly. They shocked on new lending. They slowly opened up as they started to understand the risk in their portfolios. But all of them are starting to think about new credit models. How do they figure out what risk means in a post pandemic world? The third category of the ones that struggled really were a lot of our companies that were enterprise focused company selling into large incumbent banks. They really struggled as the banks in the face of the pandemic did what they’ve traditionally always done, which was de-risk and de-risking, and focusing on the short-term means you don’t invest in the financially excluded of the naturally vulnerable, which is only up two, three, five, seven, ten year roadmap that takes an investment to become profitable. They ignored those segments at the expense of just focusing on the here and now.

So companies that were selling innovative technologies and to these banks, to focus on that new to banking segment, the newly included of the financially vulnerable that needed products and services to become more financially healthy, found themselves facing an uphill battle. Budgets were cut, business units were re-structured, focus moved to the top end of the banks. So they really found it challenging in this new environment as focus shifted away from a more expansive view of banking that happens every time we see a bull market versus a sort of a de-risking phase. That’s a broad picture across the portfolio. Just to touch on a couple of success stories that I think might be of interest; we have an investment in the U.S. It’s a New York based company called StrongArm. They have built a wearable device for blue collar workers in the logistics space to allow for fewer workplace injuries. It gives you real time alerts as to how you’re moving your body through space and it cuts down the risk of injury 40 to 50%.

As we became more and more dependent on e-commerce and logistics and warehousing became more and more prominent their technology became really critical in providing that health safety net for workers. But what was really interesting was they were able to pivot that technology and add a feature that gave you an alert when you buy it in the six feet social distancing norm. So people started adopting this technology as they started opening up to physical workspaces again; really interesting use of tech, helps financial health because it takes away this risk of workplace injuries, actually led into real human health and social distancing norms over time.

Probably one other quick example Sean and this sort of highlights the need for multi-sector, multi-stakeholder partnerships. Two of our organizations partnered together to speedily move money to families in the U.S. that needed it most. One was an organization called GiveDirectly. GiveDirectly has been operating in the emerging markets in places like Kenya and Togo and other hard-to-reach African countries providing direct cash transfers, unrestricted to people to help them improve their financial lives. Propel is best known as the company behind Fresh EBT, a free app that two million people and families in the U.S. use to manage their food stamp benefits. These two partnered together, we gave them a grant to get started, to bring capital and money unrestricted to families in need in the U.S. So the power of tech was really important here. Propel through its app was able to easily identify the families that were most in need. GiveDirectly had built the financial infrastructure, the plumbing to connect a dollar of a grant or a donation with complete visibility efficiently through to the recipient.

The two of them came together; built the technology really quickly integrated in such a way that 99 cents on the dollar could reach the individual. They tapped into the need for people to have agency. People who were better off, wanted to do something for the less privileged. And so they helped raise up to $186 million to help 183,000 families. So it showed you the power of the tech. It showed you the power of being able to raise capital. And it also, it highlighted for me the importance of managing the narrative. Stephen Colbert, from one of the late-night talk show hosts here in the U.S., highlighted this as a worthy cause for people to donate to. And they were able to raise this amount of money in a very short period of time from individuals and foundations to move that money to the last mile, to people who needed it most. It really showed me the power of innovation and the power of the ecosystem acting together to help the vulnerable.

That’s a great example, Arjuna. I think it also connects to the point on the digital infrastructure that Greta was making. So you have that technological innovation, you have an app that’s identifying those most in need. You have the capital that wants to be deployed, the people that want to give at an individual level as well, but also the need to have the infrastructure in place. So I think that’s a great point and I also want to get back to the de-risking challenge you talked about, but maybe we can cover that a little bit later after Ting and José are able to join the conversation. So Ting kind of moving from that country level that Greta talked about and the company level that Arjuna focuses on, as a behavioral economist, you think a lot about individual behavior, right?

And certainly all of us, no matter how privileged or not we are, have experienced a lot of fatigue and stress during this crisis, and your field of behavioral economics and behavioral science tells us a lot about how stress and other emotions can impact decision-making, I’m wondering if you could tell us a little bit about why it’s important to understand how financial and other human behaviors are driven by stress.

Thank you, Sean. I want to give an example to shed a bit light on the psychological reality of experiencing too much stress. So I believe all of us have experienced when there’s a deadline that is very important to us and we’re so narrowly focused on it that we would forget to drink enough and maybe we even forget our meals, we’ll forget to visit toilets and everything health wise, we kind of put behind us and we were in this so-called tunneling mindset.

And what happens is that we are putting all of our attention to that very pressing urgent need at the cost of long-term interest. So if we think about this in a financial context, when we are experiencing the scarcity of say money or time, we will be running behind all of these urgent things to do, and we might neglect interesting new opportunities that could make a critical difference, but just because we have that tunnel vision towards that deadline or towards one thing they’ll have to get done. And we were so overly stressed that we’re not actually open to opportunities that emerge that are unfamiliar to us. So one thing that I think would be important for us to keep in mind is when we would see individuals, whom we offer all of these wonderful opportunities as you put it, we cannot assume that they would be having enough slack and in the mindset of trying out, there’s new things when they’re being overstressed.

So there’s this realistic, psychological barrier that can result even if you give them direct economic repeat relief, and it just takes them maybe three steps to get that actual money, but it takes three steps but the chance that some of them would still not behaviorally succeed in uptaking it would still be very high. And we do see that in empirical data that this happens. And then the question of how can we build in some of this slack and psychological empowerment that would maximize the behavioral uptake of these opportunities, I think, would be something worth thinking about. Surely, the one example, the consequence of being myopic. It doesn’t even need to be, it can be equally important in a short term, we have a firefighter when the fire is there was so focused on just getting to the destination, didn’t put the seatbelt on. And actually we have deaths resulting in that kind of so-called tunneling as well. So how can we take into account this psychological reality during, especially a crisis mode on other people. It’s worth thinking about.

And thanks, that’s really helpful. And I think that perspective can really help when we think about the product solutions, does design drive a variety of what we might consider financially healthy behaviors. I liked in our podcast interview, you talked about your field is really helping us conquer our inner Homer Simpson, right? So the examples you just used, I mean, it wasn’t even a matter of that base instinct to eat the doughnut. It was actually someone just really trying to respond rationally to a crisis and that tunneling impacted them. But also all of these areas where we aim to eat better, to save, to behave a little bit better for the future and just the ways that we fall down.

So I would encourage everyone to listen to that interview with Ting that we had, it was really a fun one. And I thought you translated these technical concepts really well.

So José, I wanted to get you involved in the conversation here a little bit about your lessons from the pandemic. We’ve heard from the country perspective, the company perspective, Ting at that very individual level. And I know you work with a lot of different communities that are marginalized and not really fully included in the financial system or the economy in general. So I’m wondering if you could tell us a little bit about the impacts that you’ve seen during the pandemic over the past year today, and kind of moving forward. However you want to take the question.

Yeah. Great. Thank you, Sean, for organizing this conversation, it’s very timely, as it always is. It’s not just timely important conversation to be have today, but really we should be having this conversation 10 years ago, right? So that while we can get to the point where everybody has access to the system, a financial system, so that they can actually realize their financial needs and obligations. At the Mission Asset Fund, we are a nonprofit organization. We work with our low-income immigrant families are trying to improve their financial security. And we’ve been doing that for the past 14 years- doing that with creating different products and services, that are relevant and are timely, that are culturally appropriate, if you will, so that we can help people improve their financial lives. So we’ve been experimenting really for the past 14 years on how do you actually do that?

When we got started, the idea was that all people needed was another lesson to how to balance their checkbooks, their checking accounts, and that will help them. Or we needed to just give them another lecture on how to improve their savings habits or teach them how to stop buying lattes, Starbucks. I mean, I was literally finding in some reports somewhere that people were just buying too many lattes and if they could just stop doing that then their fortunes would improve. And I say that in a joking way, because I want to really point it out to say that in a lot of our thinking for many years was really beholding to this idea that it was really their fault, and it is about them not knowing, it’s about them not being smart enough or them being too lazy, or they’re just doing things wrong because obviously, we’re the ones that are doing everything great, look at us, right?

So we needed to correct them. And that was really the worldview, the perspective that was either acknowledged or unacknowledged, it was either said or unsaid. But that viewpoint of blaming people for their situation was really at the premise of every policy, product, even technologies that we were building at the time. So I want to call it out because I want us to be aware of that because we’re still doing that. So what we did was to say, “Let’s not do that. Let’s do something different.” And what would that be if we do something different? And the way we build everything, really, our programs and services was more from a high concept of a strength-based approach of acknowledging the good things that people are doing with their lives.

Either acknowledging their tradition, acknowledging even the social capital that people have, they bring to the table, even though they might be poor, even though they might be immigrants, even though they might be in the shadows, even though they might be in the margins, people still have something of value. So we wanted to build upon that. So from all of that, we had to create everything from scratch because there were no technologies to be had and I couldn’t go to best buy and buy some software to do this. We had to create everything from the ground up. And so we did, and then we did that around this concept of lending circles of people coming together, saving, lending money with one another.

There’s an activity that happens the world over, but our financial system has ignored it because we deem it to be an informal activity or an activity that doesn’t really merit in us tracking it. What we did was we took this practice that in Mexico, call it tandas, cundinas, cestas, you name it as a thousand different words, and that we figured out a way to formalizing it so that we can then capture it and report it to the credit bureaus and help people build and improve their credit scores from what they’re already doing. So for us, that technology that we had to build from the ground up is really what we used in this past year during the pandemic. During the pandemic right away, we had a clear sense that this was going to be different. I mean, we were all ordered to stay home. We were all ordered to not go to work, we didn’t know how long this was going to take.

And I remember myself just feeling scared of going outside. And I remember going to the grocery stores and bringing all the groceries and having to clean even the plastic bags. I don’t know if you guys did that, but I did that. I have kids, I didn’t want to bring it home and I wanted to protect myself. So I think we were all in this initial state of fear. But for us, at MAF, we also knew that our clients were going to be hit hard, even more so because a lot of them, they were actually required to go to work. They were required to show up to work. They were deemed essential workers and now we know that three quarters of undocumented immigrants are actually considered to be essential workers. So in the moments when we were all at home, trying to be safe ourselves. Actually our system, our economy, our infrastructure required a lot of folks that we particularly serve, to actually show up to work. And because of that, really people were disproportionately affected by the COVID virus. And there were disproportionately even show up in deaths and so forth.

So understanding all of that, it really was what led us to creating a new product. We know that for us was new because we know what we do is serve as loans zero interest, zero fee loans to help people build and improve their credit scores. But in this moment we said, “You know what? Maybe a loan is not what people need. Maybe right now what they need is something different.” So within a week, we actually created a rapid response fund to actually provide people with direct cash assistance. And so we did that in a matter of days because we knew we had to do that. Now we didn’t start off with money in the bank, or we didn’t start out with a lot of donations already at hand, but we knew we needed to reconfigure our technology to allow us to do that. And so we did that and in the course of the pandemic, I mean, we actually raised close to $85 million from philanthropy, individuals, corporations. I mean, you name it, everybody stepped up, even government stepped up to try to help people that were left out.

Now, we did something dramatically different than other efforts. It was that, we actually focused our grants to be the people that were actually excluded from any federal assistance, because you might recall, even in the three past federal stimulus, a piece of legislation from the care sock and on. They actually excluded over 11 million people from receiving cash assistance and so, we wanted to sort of focus on them because nobody was actually targeting those individuals that really needed the help because those individuals were also the ones that were actually being required to be even more exposed to the COVID than others.

So, we use technology to do that, we have figured out a process to make that happen because in the course of the pandemic, I mean, we received over more than a quarter of a million applications from people, needing help and because this pandemic, we all needed help. The question for us was, how do you target the people that could use or use benefit the most from a one-time grant? And so we use technology to do all of that, because again, we had this experience of doing that for the past 14 years in a very, very specific to this community that people were just sort of ignored, even in other sort of efforts.

So, I mean, there’s a lot more that I can say about it and I’ll do it at another segments, but to me, technology has always been front and center to everything that we do, but our vision about that is about how do you use technology and use the best of finance in the service of poor people? Not the other way around, because to me that is critical because, to me, it’s not about touting the beautiful bells and whistles of technology, because we all know that, but the issue is that none of that has been applied to the realities of the problems or the challenges that poor people are facing.

And even more so, I know undocumented immigrants coming up with an ID, asking them to give me a photo ID. That’s actually a very difficult question, it’s a tricky question to even answer. So how do you build an application around that? So you have to think about what … how does it look from their perspective and then build technology around that? So, that’s why we’d done it and I think there’s a lot more insights that need to be shared about that, because I think, one we’ve definitely, I seen the limits of technology in terms of serving this community. We’ve seen the limits of accounts serving this community that I think need to be understood in order to see how we can further our mission having a truly inclusive and equitable society.

Well, thank you, José. It sounds like it’s been a very busy year for you and your team and a lot of important work and a lot of success, but a lot more to be done. I do also want to thank you for your work serving on our Community Advisory Council. I can share that our team during the crisis, we were pivoting towards crisis relief measures and thinking about how we could get access to credit for small businesses through various programs. And I remember vividly several calls including one that you were on with that Community Advisory Council. And these are important for a for us to hear from the community and to hear the struggles of the people that are trying to provide finance to marginalized communities. So, thank you as well for just for participating there.

I wanted to kind of pick up on the path forward, but actually before I do that, just one more quick reaction to what you said, José, on financial literacy and the historical focus there. To me, in a lot of ways, if you think of a low-income person with liquidity challenges, they more than anyone really know how to make their money work because they have to, right? And I think that’s one of the failures of decades of too much focus on education and literacy and sort of a patronizing assumption, right? It’s a failure of imagination, kind of ignorant.

And I think a lot of us fell into that trap in the past. But to me, there’s just so much persuasive research out there, and so thank you for making that point. And when we’re talking about inner Homer Simpson’s or tunneling, what I think is interesting about Ting’s work is that we can really have that confidence in every user of a financial product to know that they have that intelligence that may be asking, help them maybe ask them questions but then how can the technology help them in that moment of stress?

Because it’s not that they’re … some people may not know some of the basics of finance, but a lot of people do and it’s just, how can we help in those moments of trouble, whether it’s through product design, design of relief measures, et cetera. So, with that reaction to the panel’s comments, I do want to get into kind of the path forward. And you have all already talked a little bit about some of the ways that you see this influencing your work moving forward working with companies, with the policymakers in various countries, but so kind of moving from the pandemic, José what is path for, maybe you can kind of continue to pick up on in the work and what you’re seeing out of this ,and then we can get to the rest of the panel that they’re working on.

Yeah, that’s exactly right. And I personally, I’ve been thinking a lot about this because, this experience that we’ve gone through as a country, as a world, it is unique, but what’s not unique is that people have experienced moments of crisis themselves, right? I mean, I think about the realities of immigrants, particularly that they have to leave their countries of origin because of civil war or because their fear for their lives. I mean, they’re living traumas themselves, right? So, what we experienced through the pandemic is just another crisis in their lives. And I think we’re going to live other crises as a society, as a world, as a people.

And so, to me, it’s like, how do we learn from what we’ve experienced in this moment together, so that way we can prepare better for the next moment of crisis. So, I think, this is where we need to have a conversation about how, one, calling out our wrong assumptions or the wrong ways of thinking in terms of addressing this question. So that’s why I think we need to call that out because the idea that it is people’s own fault. I think we need to kind of get rid of that because it’s not and it’s also not that we don’t need financial education because we all need to learn something. I mean, none of us are born into this world knowing that two plus two equals four.

I mean, somebody has to teach us that, right? And now, but it’s a question is the way in manner that you provide that information is really important, because if you provide that information in a way that degrades people in a way that requires people to lose a little bit of their dignity. That it makes people actually worse off from that, so I think we have to … we have to pull the F, of course, we all need to know, we all need to learn and we need each other to teach us that, right?

And so that’s important, but also we have to understand that right now we’ve built a lot of our infrastructure, our technology with very specific people in mind and again, I think this is very common in the design world that every time a new product or new policy is developed, or in particular, a new financial product, we always come up with a user profile. It’s like, “Oh, let’s come up with a user profile.” and sometimes they draw, they do caricature of the user profile. They sometimes, even companies come up with names, call them little cute names of like, “Here’s a user profile that likes this and so forth.”

And then they build products around that particular person, right? And you need to do that because as a designer, you have to think about those realities, but I can assure you that financial institutions, FinTech companies, even policymakers, never think about poor people in that way. They never come up with a little caricature of, unless it’s negative, of course, but of low-income immigrants, right? And so in a sense, then those people they have to become like secondary users to the products that are designed for other people in mind.

And that’s, to me, one of the main, disconnects between our … where we create in this norm, I mean, in this ecosystem of ours and the realities of the people that we particular serve at the mission as a fund is that they’re always a secondary users of products and services. I mean, and again, just to throw out one example, about checking accounts? We have these checking account products where in order for them to be free, we have very high minimum requirements to say, if you have more than $5,000 on a daily balance then this product is, you can use it for free. But if you have less than $5,000, then we’re going to charge you $25 a month or $20 a month, or whatever it is that that institution is charging, right?

So that means that, here’s this product that we all need and we all need to be plugged in to the financial system, that people that are well off, is designed for them to have it for free, but it is not designed for poor people to access it for free either. So, there’s many other products like that, that I think we need to sort of revisit in a way where there’s an understanding that we should all have access to their financial system through a checking account. And so, I think that’s one of the ideas that we need to sort of start revisiting, but I think we need to one, make sure that our assumptions from before don’t seep into our next, in the way that we need to sort of re-envision the solutions in the future.

Thank you so much for that, José. I could see any of the panelists react to that. Ting, I want to give you a chance to talk a little bit about some of the ideas that were just brought up. I mean, I was going to ask you, how do you think about building designs to build resilience, but really José brought up a lot of interesting points there.

Yeah, I really find it useful, the point about how we look at the sophistication of decision-making of some of our biases or seemingly irrational behavior actually coming from the super intelligence of humankind and kind of coming up with mental shortcuts to deal with repeated decisions and processing so many decision and information at the time. So some of these shortcuts are usually, we call it heuristics and shortcuts because they do work 95% of the time, just in 5% of the time we’re going to make errors. So indeed this nonjudgmental way of approaching it can increase resilience through sort of positive psychology. As we know, if we experienced a lot of guilt and shame, or sort of sense of failure and lack of self-worth, we’re going to be more avoiding, trying to avoid those failures instead of proactively learn from failures.

And so that aspect, I think is key and what we have seen the kind of education that has some potential for making a difference would be not just the knowledge about what is a good decision, but the knowledge about how we fail to implement on our best intention or how our own behavioral patterns. Understanding how we can acquire better habits or when are we going to act in about it the rational way. Having that knowledge of when we’re doing that and how to overcome that could potentially help us be more sophisticated in managing our own behavior as well. So at Duke, actually, before I left, we started kind of the process of measuring people’s sophistication in behavioral design and you can call it maybe the behavioral science literacy, right? So, and we were going to do some research on how this literacy of our own behavior, can it actually make a difference in then the actual financial health of it.

So all that, just to say, I think we have to be scientific in approaching why individuals fail and some of these subjective beliefs as to why … actually tend not to be backed up by scientific evidence, both from a policymaker point of view, all the way to the decision-makers themselves. I think we have to revisit the level of scientific literacy and not only that we would … build maybe some of these solutions, which is also of course, very key. Can we also empower everyone with those literacy, but I do want to emphasize that sometimes the design of the environment or the choice environment, so called choice architecture, like what’s the default when people are indifferent, or don’t actually have time to analyze that decision. We want the default to be the one that really support the best decision.

So we know of this example of like organ donation and where you have seemingly very similar countries like Holland and Germany, and Holland and Belgium, France and Germany, they have such kind of different organ donor rates, but it’s all because of how the form was designed; either by default their an organ donor or not. And so this kind of design, well the least friction to kind of reach the good decision, always say, let the Homer Simpson do the right thing, maybe even for the wrong reason or without needing to kind of accept a lot of additional cognitive energies in analyzing can be extremely helpful and sort of overlooked.

So on that note, Arjuna, I know you think a lot about user-centric product design, we talked about it in our interview. What’s your reaction to these ideas and maybe connecting it to what you see in the pandemic and work moving forward to drive financial health and access essential inclusion?

I want to step back just for a second and reinforce something that José said is, especially in the U.S., engaging with the financial system, it’s expensive to be poor. It costs a disproportionate amount of resources that you don’t have to participate in the banking system, right? And what the pandemic has done is exposed that vulnerability of this population that doesn’t have a safety net and a cushion, and it’s exposed what countries don’t have safety nets to be able to transfer money to people to just to step in and provide that cushion.

So I think that’s a really important point that we should keep in mind throughout this, getting back to your question, Sean, I think the future of financial services with all of the creativity and the user centricity that Ting and her colleagues are coming up with and the tech coming at it from the other end, should be that financial services are intuitive and invisible, right? Right now, it takes so much cognitive load to figure out what to do with your financial services, but it doesn’t have to be that way. And what we found in the pandemic as things are shifting. I’ll talk about one trend in particular, when I look across the emerging markets, and this is across the different regulatory regimes, it seems like everybody is, or is on the path to becoming a FinTech. As we digitize there’s new opportunities to impact financial behavior, to new touch points.

And it’s really this idea of the rise of embedded finance, right? I see embedded finance as sort of the integration of traditional retail financial services into these platforms that millions of us are using on a daily basis intuitively and without thinking about it. And those platforms have really gathered momentum during the pandemic. Let’s think about what these platforms might be. Gig worker platforms that are creating earnings opportunities for the mass market, small e-commerce platforms that are delivering goods to neighborhood stores to make sure that you have the convenience of the store around the corner, because you might not be as comfortable as José said, going into a big grocery store and standing in a line behind 10 people, and then taking the bus back home, you’d rather just pop across the street. Now there are platforms that are serving those small corner stores.

Agricultural supply chains, right? Where somebody is figuring out how to lend to a farmer, buy that produce, bring it all the way through to the market and either deliver it to a household or to a small grocery store or to a small restaurant. All of those platforms are becoming vital financial services players, and they’d naturally integrate payments as they’d grow a number and gather more data and they’re building trust and engagement. That’s allowing them to add on more financial products and services.

I know we talked about this when we recorded a podcast two years ago about the growth of these platforms in Southeast Asia, maybe come back to that in the last few weeks, we’ve had a lot of news out of Southeast Asia with Grab, which is one of these ride-hailing platforms that has become that much more now announcing a $40 billion merger with a SPAC to go public. And in their statements, they said that one of the three key pillars for them, as they build the company, is to build out financial services for the mass market, because they’ve got all these touch points. Grabs’ biggest competitor in Southeast Asia company called Go-Jek just announced a mega multi-billion dollar merger with an e-commerce platform in Indonesia and the region, right? Again, integrating now, ride-hailing and financial services with e-commerce and financial services and everything else in between.

So all of a sudden we’re taking basic lifestyle choices that we’re making everyday, interacting with a technology platform and embedding the financial service behind it to make it intuitive and invisible. If I take this all the way to its extreme, right? I want to … I can envision a world, taking into account José’s point of view that people in the mass market are very savvy about their money. Ting’s point around choice architecture and enabling good choice and building products and services that allow for that. What if we had every dollar you made, let’s say you’re in the right ride-sharing platform and you deliver for Instacart groceries for a living. Every time you make a dollar, some fraction of that gets put aside for savings, a different fraction of that pays back a loan that you were enabled to take, to buy a new secondhand car, to be able to deliver groceries.

Some portion of it pays for the insurance against that car, then your life insurance gets paid for. It’s all rules space that you set up, but it just takes away the friction and the mental energy, every time you have to interact with a financial service and on and on until whatever’s left, becomes your discretionary fund. And to José’s point go and enjoy that Starbucks latte because you know you can afford it, right? How could we make that technologically possible from Ting’s point of view, from a design perspective possible, keeping in mind the very real challenges that people face? I think this embedded finance idea has lots of potential, and we’re starting to see it take hold across the emerging markets and here in the U.S.

Yes Arjuna, it also makes me think of Greta’s earlier point trying to distinguish between financial health and efforts to just promote basic access and financial inclusion, because what you’re all talking about really is, as José says, meeting people where they are, designing products to make low-income people the first order users of a product, not someone that’s getting the hand me down, that’s designed for a wealthy person and everything you just talked about, Arjuna, this idea of producing frictions and just really connecting these products to people’s everyday life challenges.

But I wonder, but I know you think of this a little bit differently because you have the challenge of banking people that have no access to the formal financial system. But I know here in our country, for example, an estimated 7 million households are unbanked, according to the FDIC, some of that may be because they don’t have a bank branch in their community, or they have digital divide challenges, they can’t, they don’t know how to use it, they don’t have access to a good smartphone.

I think I saw someone in the Q&A already bring up this point for developing countries. And so there may be basic access challenges, but maybe also a lack of trust, or just a lack of relevance of these products, “This banking system isn’t serving me, so why should I engage with it?” And I wonder if, to the extent we can make progress on the side of technology, innovation design, really just having that empathy coming at these challenges, imagining the challenge of a low-income person.

If we kind of push from that side on the financial health side, that’s what I come to think of it as promoting financial health and usefulness, if that could also assist with getting people to be interested in joining the formal financial system. And then, another challenge I know Greta that we see in emerging markets is folks get that bank account, but then they don’t use it. Maybe they get the payment transfer, the benefit transfer from the government and then they cash out, and they go back to the cash economy. So just wondering how you would react to that, Greta and I know you didn’t necessarily have a chance to talk about the pandemic work for that you see, but just kind of reacting to some of these other points from the panel there.

Yeah, there’s so much to build on here. I’m going to have to try to see if I can organize my thoughts around this, on the fly. So, I think certainly the point that Arjuna made and I was going to make this at the outset about the digital economy really growing. I mean, there’s just no question that the whole world is going digital and that’s true in emerging markets as much as it’s true here, right? So people are communicating with people there, working there, buying there, doing everything online. And we see that in low-income populations too. So Arjuna talked about gig work, that’s increasingly coming, people buying and selling through informal e-commerce. All of that stuff is happening online and we are seeing growth in embedded finance and that’s all great.

But I think a couple of things we need to bear in mind, one is you have to have an on-ramp to the digital economy, all of these value propositions on platforms and digital require a couple of things. One is that you have some sort of account that’s digital that can be fed either digitally, or you have access to a cash-in cash-out network so that you can then transfer and use that money digitally. So you’ve got to have an account and you got to have a phone and increasingly you’ve got to have a data plan and that means a smartphone, right? And so those are pretty big cost barriers and a lot of people, 1.7 billion don’t have access to those very simple things, right? And when we talk about designing products for poor people, and I would distinguish between the mass market and poor people, right? We’re talking about a lot of people who earn less than a $1.90 a day, right?

That’s $700 a year, there’s not a lot of money to go around, to feed a business model. And so, one of the challenges in the financial inclusion space in emerging markets is finding ways to get the business models to meet that price point challenge. And I think José was saying, a lot of people … well, the Findex asks people why they don’t save in a savings account for example, and in many cases, it’s because that money disappears. I mean, you don’t have enough money to pay those fees, so why would you put it in account? Because by the end of the month it’s gone, just in fees to the bank. And so there is no value proposition for poor people oftentimes, in being part of the formal financial system. So I think that speaks to a lot of things that José and Ting were talking about.

We need to figure out how to meet people, where they are, because for all of the profusion of FinTech and platforms and all of that stuff. Some of them genuinely are serving low-income populations, but lots of them aren’t. They’re serving the mass market, which is not as … it’s a bigger group of people, right? And the risk is that you meet a floor, you start designing these big systems that rely on scale, and you just can’t get below a certain level. And if people don’t have those on-ramps to get into the digital economy, not only does that cut them off from being able to transact and being able to save and being able to do all the things that we think are really important, increasingly it cuts them off from income-generating opportunities, right? So for me to be a gig worker, I have to have a phone and a bank account, or I can’t get paid.

For me to sell online, I need to have those same things, right? So we’ve got issues with a sort of digital divide. And one thing that concerns me coming out of the pandemic is that, that grows and we need to make sure that people have access to those on-ramps to the digital economy, just to build on another thing that was brought up. Well, a couple of other things… we do know that poor people are actually very smart money managers. There’s plenty of evidence on that. Very low-income people … and financial health isn’t necessarily that closely correlated with income, people who earn very little, can be quite financially healthy if they have, some of the right behaviors, and practices and tools. But I think we have to recognize that it’s pretty hard if you’re very low income. And so figuring out how to manage … people are good money managers when they’re poor, because they have to be, they don’t have that many choices.

I think the other thing that we have to be very attentive to, particularly with embedded finance and the growth of embedded finance is consumer protection. Because, just to give you a story, I mean, I was talking with a colleague of mine who’s very sophisticated, runs a FinTech in India. And she was telling me, she bought something on Amazon in India and a couple of weeks later found out that she defaulted on a loan because she paid for that thing with a loan and didn’t even know it was a loan, right. She didn’t need a loan and somehow it ended up being a loan. And so I think there are real data protection and privacy and consumer protection concerns that arise with some of these embedded platforms. So for example, if you’re a gig worker and you work in construction and you buy your tools from a platform, does that mean you sell your services only through that platform, or do you have other options? And there are just lots of things that are going to have to be disentangled, with some of these new innovations in the platform space as well. And I think it’s just really important that we keep it focused on the poor, and making sure that they have access, on-ramps, and protections once they get into the digital economy.

Great points, Greta. I’m wondering if this is an opportunity to move on to some questions about how we actually get more specific about defining financial health outcomes. And so, taking your point, Greta, that it’s the mass market, or what that kind of average or whatever percentile customer FinTech may even think it’s targeting, and it’s calling itself inclusive but they’re actually leaving out a large part of the population. If we could think of a fundamental baseline with minimum standards, minimum outcomes of financial health, that we should be aiming for everyone in the world to have, right?

And one other connection that I’m making, hearing you all talk is, José, I know in the past, I’m not sure you’ve brought it up today, but I know you like to talk about the hierarchy of financial needs. And so thinking about from an emergency savings perspective, all the way out to our greatest aspirations for our lives and our economic goals, education, retirement, what have you, I’m wondering, maybe we can start with you, José, but thinking about how we can work from sort those sort of theoretical frameworks, but really to us at the San Francisco Fed as well, I mean, we’re trying to get more specific. If you think about it from a supervisory or regulatory perspective, if you’re not specific, if you don’t know what you’re actually talking about, when you say financial health, well what can you do with it, right? So maybe we can have a conversation about that starting with you, José, and then we can move to the rest of the panel.

Yeah, thanks for bringing that up. I think that’s a fundamental question, what are we talking about here? Right? So it’s important to note that. Many years ago, we were grappling with that question ourselves. We said like, “Yeah, through our program Blended Circles, we were able to help people improve their credit scores. Yeah us.” Right? We saw people increasing their scores by 120 points, 130 points, people that had no credit, they had a credit. I mean, it was great. But the question was, for us like, “Well, did we change their financial lives? Their financial lives, have they improved because of that?”

And in order to answer that question, we didn’t know how to answer it because at the time we didn’t know, “How do you evaluate that?” Right? We can count a credit score because it is a number you can see go up or down. But this bigger question, we didn’t know how to do that. So frankly, we went through a process of creating a mental kind of framework to figure out, “How would we answer that question if we could?” And really, basically, I turned to Maslow’s hierarchy of needs, as a model. Because in his model he basically asks a very basic question about, “What is it that people need to do in order to improve their human potential or realize their human potential?”

And from that basic question, he laid out these ideas of what people actually need to do, in a hierarchy, sort of standpoint of meeting their physiological needs, their safety needs, their love needs, and so forth. And now of course, a lot of data, whether it’s right or wrong…. But to me, it was like, “Well, that’s a good starting point.” Because from that, we asked a similar question to say, “Well, what is it that people need to do in order to realize their economic potential?” And from that we saw a lot of parallels from like, from the bottom of the pyramid, for us, is about income. It’s about cash flow. It’s about meeting the basic, just income obligations. Right?

And, on the safety level, it was about insurance. People need to have insurance products to insure their assets, to ensure their health. Because for most people, the most valuable asset is their body. Right? I mean they go to work and they use their body to work, and that is the most valuable thing. And so, to insure that, is really important. Because they break an arm, there goes their economic potential.

And then it’s about credit, savings, and investments. So very quickly, we kind of realized this sort of hierarchy of needs, that people have, and that we all have. And so from that idea, from that premise, we actually came up with sort of a working definition for ourselves, about what is financial security.

I completely agree that even a poor person can be financially secure, because it’s a question about, “Can you meet your financial needs and obligations, as outlined by this hierarchy of needs?” Because we all have cash needs and we all have insurance needs and we all have obligations on credit, savings, and investments. It’s just a question, can you meet those needs and obligations? And if you can, within the context of their financial lives, then they can get to the point of being financially secure. So to me, that was a moment of realization, frankly. Because before that, it was all about, “Well, how much do you earn? You need to earn $100,000 in order to be financially secure.” Well maybe, but maybe somebody that earns $100,000 may not be financially secure because it’s all debt. Or, it’s all premised on this one source of income rather than multiple sources.

So what we saw within our community was that, people were using a lot of creative strategies, what I call mixing and matching, from using formal financial products, using government programs to help manage their needs and obligations and also informal practices. And so through those practices, programs, and products they were mixing and matching to actually meet their needs and obligations. But they were doing so in a way that may not necessarily be a recognizable in the financial marketplace. So the question for example, of how people save? Well, they save in a lot of different ways, and even they save in many different time horizons. People save today so they can pay the rent at the end of the month.

Unlike in, for example, us, we’re saving now for money that we’re not going to see in the next 30 years when we retire. Right? So there’s a lot of different time horizons. And they also save differently. They don’t just save by putting money in this little cookie jar or in this little account, sometimes they save by not cashing their check. We have stories of people, it’s like, “I got this check. I’m not going to cash it, because if I do, I’m going to spend it. So I’m going to hold on to it. I’m not going to go to check cash.” Or “I’m not going to deposit into account because I’m going to save it.” And that is a form of saving. Or sometimes they save by giving money or lending money to their brother or to their sister. So then like, “Here’s a hundred dollars, you hold it, use it, but next month I’m going to need it. Okay?” So they save in a lot of different ways.

So that’s why I always try to put them in the center of us trying to build different products. Because to them, putting that 5% aside, they actually need that 5% to pay their bills right now. So we have to kind of see that. And so again, to me, the idea of starting from the premise of financial security or financial wellness or financial, whatever term you want to use, is really a premise on the idea of being able to meet people’s financial needs and obligations. Because we all have financial needs and obligations, whether you’re poor or rich. Right?

And so if you can do that, if you have access to the products, the programs, and the practices to do that, then they can actually realize that state of financial wellness. So that was a big realization for us. And from that, again, we were trying figure out, “Well, how can we help minimize the tension,” like Arjuna was talking about, “How can we formalize some practices, so we can bring some peace of mind to this transactions? Or how can we design it so that we can make it easier for them to do that?” Because mixing and matching is actually hard, it’s actually taxing, like the way, Ting was talking about, so how do we bring more to bear to help them.

And really, I’m making reference to Hernan De Soto, when he talks about The Mystery of Capital, that formalizing informality, frankly, is really best approach because when we bring some structure, some order, to that, we can actually reduce the mental stress on people that are now outside of the financial system. So to me, it’s relatively simple and straightforward. It’s just that our system as a whole, we have been so distracted by these ideas of just blaming the poor or blaming them for their own problems that we have sort of given up our own responsibilities of making sure that our technology and our system actually is as at the service of poor people. And because of that, we haven’t really done well in creating good products – I’ll end there.

Thanks José. I should also acknowledge a lot of work around the world, and this country, just in trying to think through how we think about financial wellness, wellbeing, health. In fact, I think earlier today, Financial Health Network was releasing a new paper just before our event, at the Brookings Institution, on how to measure this. And so certainly a lot of conversations to be had moving forward there. Our colleagues at the Consumer Financial Protection Bureau also have some surveys around this. So a lot of different angles to come at this. I wonder, Arjuna, maybe I can ask you what you see from portfolio companies that you work with or just others in spaces. I know you know, a lot of different stakeholders in financial health here in the United States as well, but any indicators? I mean, to José’s point, this is a really complicated problem, and you can’t necessarily perfectly track one or two indicators that would be comprehensive anyone.

As was also pointed out, you could have someone that has a very high income that you would normally assume would put them in a good position to be financially healthy. And maybe they’re not because they’re debt ridden. But so with that sort of framing, I wonder if you could share some of your insights.

Yeah, very quickly, Sean, I think one of the things I want to be careful to distinguish, is some of the terms we use. Right? When we’re investing in early stage startups, for-profit models that generally focus on what I term the mass market. And I want to be careful to distinguish from what Greta is focusing on, which might be the poor. Right? And very generally, if I were to think about the structure of these markets across the emerging markets, they’re sort of these diamonds, so the top 20% or so are comfortable, are well served by the financial services systems. The bottom 20% are probably living on the $2 a day that Greta talked about.

A lot of my work is focused on that middle 60%. They’re generally connected. They have some level of formality potentially through access to a phone so that they’re searchable, they’re discoverable. We’re not investing in a lot of models that are actually trying to work to bring people out of informality and out of poverty. And there’s a real strong role as all of the other analysts mentioned for government, for social safety nets, to focus on that end of this, on the spectrum. So when we think about the range of viewpoints here, we’re all coming at it, but slightly different angles on this idea of inclusion and health.

Sean, you touched on the Financial Health Network, they’re a grantee of ours. We do a lot of thinking with them. They talk about financial health across sort of four simple categories, how people spend, save, borrow, and plan for the future. And from that lens, more than two-thirds of Americans are not financially healthy. And while there’s been a small bump in 2020 numbers, for instance, because of some of the social transfers from the U.S. government improving numbers of 2019, financial health disparities across those four dimensions have widened by race and income and continue to persist across gender. So all of the measurements we do, we still come up with very sobering numbers. Compared to 40% of men, only 28% of women were financially healthy in 2020. Again, spend, save, borrow, plan. If you keep that in mind, as sort of the basics around financial services.

What’s even more sobering is how it disproportionately impacts people of color. Data from 2020 showed that while close to 40% of people who identified as white were financially healthy, that number drops very quickly to 24% for Latinx and 15% for black communities. We’re starting to see some innovation. There’s a wave of digital banks, for example, that are shaping a demographic segmentation to their offering. They’re focusing on communities of color or immigrant families and designing around their specific needs. But this gap has persisted for a long time. It’s systemic, it’s structural. And I think it takes more than just innovation and tech to address, it takes a concerted effort from policymakers, as well as other influencers in the system.

Greta, just picking up on that point from Arjuna, focusing on equity or lack thereof, the unfairness in the financial system. I know a lot of your work internationally, and you mentioned some of the experience during the pandemic, in terms of women’s inclusion in the financial system, but could you touch a little bit upon your focus there?

Yeah, actually and maybe before I do that, I’d like to just quickly touch on some of the points that were made before, because I think these are really important points. In terms of building financial health, I think it is actually a different challenge in a lot of emerging markets versus the U.S., I mean people are just in really different starting points. Right? And the way we at CGAP are thinking about it now is through a couple of lenses. Right? One is, how can financial services help people generate income, gain access to essential services. We work with a lot of households that don’t have power or water or education, on a consistent basis, so how can we leverage financial services to help people get that access to essential services? And then how can we help people build resilience tools that have been so crucial during this pandemic?

And we’re still a long way away from everybody having access to those basic tools that people need to do what our Arjuna is talking about in terms of spending, saving, borrowing, and planning. And so we still have a lot of work to do to just get people in the system. And, José, I think, was mentioning, people use informal mechanisms. Informal mechanisms are very popular where we work. And I think the challenge to the formal financial sector is, “Well, why is it that people aren’t using the services in the formal financial sector and they’re using these informal ones?” Clearly there’s some value in those. And so I think there’s a real question to the formal financial sector about the value that they’re providing to those low-income households.

In terms of financial health, I mean, you asked how we should measure that, I think there are a few very clear ways that we can measure, in our markets, whether people have access to financial tools that help them build financial health. So one is, access to an account. If you don’t have access to an account when a pandemic hits or a climate crisis hits, that digital payment can’t get to you. You have no way of getting social payments that might be a safety net for you. Other safety nets are, people can draw on friends and family from far away and get money from them, so having that account is super super important, and we’re not there yet.

Beyond that, I think it’s important for people to have access, to savings, a place to store money and not have it disappear over time. And so just a cheap sort of safe store of value. And that’s particularly important for women by the way. If they have privacy around what they have, those assets that they have, it’s really important for households.

And beyond that, I think consumer protection, so that people aren’t victimized by the financial sector, really important. And over time, I think, giving people control of their own data is actually really important for kind of financial health, because then they can take that and use it to get access to credit, et cetera.

And so I think there are building blocks and others have mentioned this, but I think that the survey that the Fed does every year starting in 2013, that sort of talks about financial health, those kinds of things, we should be monitoring. Because then there’s a role for public policy to come in and provide the subsidy that’s needed for people who just simply don’t earn enough. And so I think there’s, again, a really important interplay between private sector solutions and public policy. And that’s something important to think about.

Just touching on women really quickly, because that was the point of your question. There is a huge and persistent gender gap in access to financial services. It’s been at 9% in emerging markets since 2011, it hasn’t budged. And of those 1.7 billion people I’ve talked about who lack access to an account, 56% of them are women. And in some countries, that gap is huge. In Bangladesh, it’s 29%. Pakistan, it’s 28%. Nigeria, 24%. That is a huge gap between men and women having access to accounts. And frankly, if we want to talk about full financial inclusion, the math is pretty clear. You don’t get there, you don’t get to 100 without including all women. So we’ve got a lot of work to do to figure out how to get women into this system.

And so just to speak very briefly about the kinds of things CGAP’s working on to try to make this change. I mean, there’s a whole push for better sex desegregated data. How do you design products, as Ting was talking about, or public policies, if you don’t know what half the population needs? And when you look around out there, there is very little data on women, and women are half the population. As I said before, getting accounts and phones into the hands of as many women as possible is crucial. The gap on phone ownership is just as big. Actually, it’s bigger for mobile phones, especially when you’re talking about smartphones. And if you think about this as being an on-ramp to the digital economy, the fact that women, sometimes women who can’t even leave their homes, if they can’t engage in that sort of informal e-commerce, or find some way to work, they’re not able to sort of productively deploy their time.

And then last, we really need to think about designing for women. So what is it that women need in financial services and how is that different from men? And I think there’s a lot of work that needs to be done on building financial services for that part of the population. So I spoke about Pakistan having a huge gender gap, well I remember talking to a provider of financial services in Pakistan and asking, “Well, what is it going to take to close that gender gap?” His answer to me was “There are so many men who are not included, why would I bother with women?” That’s kind of what we’re up against in a lot of emerging markets. So I think there’s a real task ahead to bring women into the system because we’re not going to have the kind of economic growth we need to see coming out of this crisis without including everybody in the financial system.

Thanks, Greta. I wanted to give Ting a quick chance to react on just definitions of financial health and wellbeing, or how would you think about it, whether from a data perspective or just more of a principle that you would use? And then I think we’ll move to the audience Q&A. So just, I want to echo the chat is welcome for people starting to have any questions.

The definition that we take into account, where we take into account the psychological realities, that financial resources are the means to the ultimate end of people being able to enjoy life. So I think I really resonate with José’s definition on how we can enable them to feel the peace of mind so that they can truly focus on living a good life. So meeting obligation, but also just psychologically feel the peace of mind, needs to be one of the indicators that I think we should track. So if they are feeling all the stress… You can imagine even some of us earning 100K or even more, a year, that don’t feel actually the peace of mind to be able to focus on life, I would feel that’s not financial wellness. So it actually doesn’t always correlate with the amount of money you have. So I think what Greta mentioned about some of the critical safety net and where people know that structurally, they are protected.

And, I think one thing that we might overlook is the social supports protection. And we see that more in collectivist cultures where there’s this risk sharing, going informally. But I would say from a psychological perspective, quality of connection is one of the most satisfying experiences in life, both in kind of giving us that peace of mind that we’re connected and we have that support from each other and we can give each other help when we’re in that sort of crisis mode. But also, very effective in getting people to act, so it’s very motivating when it’s come. We know about social accountability and social proof and social norm, it can really motivate actual behavior.

Interesting. Okay, so I think we can now open it up for Q&A. So I see some people already inputting questions into the Q&A function. Just click on that in Zoom.

Before we do that, we did want to begin the segment by welcoming some perspectives from several experts in the space who either participated in the series or are doing work that we think is relevant. So I first wanted to call on Chris Calabia, who’s the Senior Advisor for Supervisory and Regulatory Policy at the Financial Services for the Poor Program at the Bill and Melinda Gates Foundation. Chris, if you could please unmute yourself. I should also note that Chris was a guest on the series, in one of those episodes you can find in the chat. Chris?

Thank you, Sean. And thanks to our colleagues at the San Francisco Fed for putting on this great event, with four terrific panelists. So thank you all for joining us today. Research that we’ve sponsored at the Gates Foundation suggests that historically, one of the biggest drivers of inclusion in low and middle-income countries, has actually been low cost digital transaction accounts, like M-Pesa, that we discussed earlier this afternoon, in Kenya and other mobile money products offered by non-banks. And it seems that it’s only later that consumers seem to realize the benefits of other financial products like savings or credit or insurance, that have also come up today. And Greta mentioned how important transaction accounts are, during the pandemic, in terms of getting relief payments to vulnerable groups. So I’d love to hear from the panelists on what product should we focus on next to promote greater inclusion, or maybe financial health, or maybe help vulnerable people weather the next crisis. And I’d be curious whether you have views on what products are more helpful to underserved women versus men.

If I can jump in, we talk about M-Pesa a lot in our field, and I’m really glad they’re there. They do serve as a great example of what could happen when we actually design with people in mind. But I think we should also talk about some of the problems that we are hearing about and experiencing when loans, for example, are provided through a mechanism that kind of keeps people in perpetual indebtedness. And so sometimes technology could be great, very efficient at delivering assistance.

But that same tool at the same level of efficiency can actually be used to keep people in this high level of indebtedness. So I think we have to be very careful, to do that. Because I think, it’s a question of… we talked about access, people need to have access to accounts and I think that’s exactly right. But within that, there’s a lot of other questions, of identity and how do we even prove who’s who? And the worldwide level, that’s a huge issue of like, some people don’t even have birth certificates, in this country. There’re millions of people that don’t have official forms of identification. So there’s a lot of questions about that, in terms of the access question.

To me, we have to also think about the question of availability, are products really available for people, even created in the context of their own problems. There’s another source of questions of design, and so we talked about that.

But the third component is about affordability. And I think we’re not thinking about that enough in terms of what’s actually applicable to this community because I think it’s not a one, or all of the three, but all of those three issues of accessibility, availability, and affordability, that need to be considered in designing products in the context of people’s lives, not in the context of our own spreadsheets or our own sort of conferences that we have or sponsor, but in the context of their lived experiences. How can we think about all of those three components, so that we can build the products that are relevant to their lives?

And we might be surprised that they’re already doing those things. I mean, I think that’s where a degree of humbleness is really important, because many a time, our industries, our organizations, don’t have that. And so we come into those conversations with the answers already preconceived, and then we just sort of impose solutions. And so I’m actually very sensitive to that because, as a person that comes from that community, I’ve seen that many a time, solutions when they get imposed from somebody else that thinks they know more about my reality. It’s one of those barriers that is hard to overcome.

But I think, once you overcome that, then you can really appreciate what people are doing, which is really not just about the individual, but it’s about the family and community that are building those relationships that are really are the way of them guarding against risk. When they are actually investing in their own social capital, that is really what keeps them alive and allows them to thrive throughout life. But our systems have never really, truly, I believe in my view, even given them any sort of credence to their social capital. And so I think those relations that people bring, the connections that they bring with each other, are really fundamental. And I think we’ve seen that play out even in a pandemic, in how we did our work at math. But I think we need to have that conversation first, before we get to the actual thing.

To say, “Oh, here is the one product, the one solution, the one click of a button that’s going to save everybody’s lives,” because I don’t believe that’s going to be the case. Cause it has to be contextual to the communities that you’re talking about, whether it’s gender, whether it’s country base, whether it’s what communities across different states. It has to be relevant in the context of their lives. From that, then we can say, “Here’s the product that actually can help people improve their financial security.”

Thanks, José. Anyone else from the panel have a reaction? Greta?

I could just respond quickly to this because I think it’s this question of supply meeting demand, right? So, payments come… if you think about M-Pesa right. What was their business model? I mean, people needed banking services, but it’s too expensive for banks to provide services to low-income people.

Right? So what M-Pesa did was they created the interface. They could manage the distribution, they could manage the cash management and they could do a very low-cost interface that would allow people to both send money and by the way, save and get loans because they’ve got the insurance product. Right? And so I think what the MNOs did with the model that came out of Africa was actually to crack a real problem in supply of financial services. And you can layer on the savings and credit. It’s just not clear that we’re doing it as effectively as we could because the demand’s not there. People aren’t using the services or they’re using it for a very limited use case. And so I think we need to think a little bit, sorry about that ‘mobile network operator.’ Yes. We need to think about that a little bit in terms of why people are using off-grid services, why people are saving cash, why are… people are happy in West Africa for somebody to come and pick up savings from them.

Sou sou collectors are very, very common. Why is that better for people than saving an informal and a formal account, or why is rotating savings and loan association better than saving in an account? And so there’s really a question for the financial sector of how you provide a value proposition to poor people. So I… I don’t know that it’s so much demands and supplies, just getting those two things to meet. And, and I think there is demand, but it’s meeting people where they are and designing solutions that work for them.

Just as you, as you answered there, I was looking at the Q&A and someone asked you, Greta, if you could speak to the challenge of getting meaningful data and our information and African emerging economies, some of the key problems that need to be addressed there, just wondering seem to connect to what you’re talking about.

So maybe we can… We can answer that right here?

Yeah. Just very quickly. Data is not super available in most of Africa. And when it is available, it’s not necessarily used by people. It’s not useful to people who have it and it’s not necessarily used by people who need it. Right? So you have mobile network operators who are managing huge transaction volumes and they’ve got a lot of data, but they haven’t typically… I think they’re starting to get their heads around this now. They haven’t typically used it. It’s not accessible to somebody else. And I, as a user of that service, can’t take my transaction history and take it to a lender. And so you get this kind of fragmentation in the data ecosystem in Africa, but it’s true in other places where the data is not flowing very effectively. Now you have the entry of big platforms, mostly in bigger markets, not in Africa.

Africa has got a problem of fragmentation from a market point of view too. And so you’re going to see for a while, I think this fragmented data landscape, and I think it’s something that really needs solving finding ways of getting data aggregators who put control in the consumer’s hands. There’s something that India is playing around with. It’s something that’s being played around with, in, in Europe with open banking in the U.S as well. We’re not seeing as much of that in Africa. And I think it’s really an important space for us all to be looking at, to empower low-income people in particular.

Thanks, Greta. Arjuna, I thought I saw you unmute earlier. So if you had a reaction to Chris’s question?

I, as a… Greta stated everything, I would’ve said Sean, it’s… It goes back to the fact that people have figured out how to manage money. They’re doing it in cash, which is higher friction, higher cost it’s informal and it’s riskier, but they’re doing it. They figured out how to spend, save, borrow, and plan. They do it through social networks. They do it to informal channels. How do we build a value proposition that’s formal and increasingly digital that meets… that meet people where they’re at that’s figures out what their real pain points are and drives a user engagement model that, that works.

Ting go ahead.

I think we talked a lot about savings based on some of the work and data we collected, in Africa. We actually saw quite a lot of people, the low income themselves regretting on certain spending decisions for expenses. Where we just give them the freedom to say, hey, what’s your financial goals. And they would talk about betting, sometimes even for women would be like hair salon costs and some of these costs are even, even at a time, some… Something that is repeated and, and of course more each time, but it accumulates to tomorrow. And I think there is a question of also not just looking at on the saving side. Can they make better repeated decisions that give them more money to save? So, and how these individuals themselves have that intention, but still suffer from that intention behavior gap.

And sometimes it’s a coordinated thing. Like if you, you have your weekly payout on Friday and, in your social network, everybody wants to go and drink and celebrate, and you don’t want to do it, you will be left out. So we actually found out that some of these people don’t suffer from overspending on drinking. What were the one that I… The margin of the network. And so how do you create also a norm, a coordinated sort of change in some of these spending habits where everybody would support and expect the change towards better habits. So that’s something that we need to be a little bit more mindful of in terms of when we… When we see them spend in areas where it’s seemingly very irrational, that oftentimes there’s either a social reason or individual reason why they spend it that way and kind of take away those barriers and, and be able to sort of redirect and change some of the habits, could be a complimentary part to the sort of one-off behavior.

José?

Just one quick point to make, I think, in us going through the process of thinking about what is the next set of products to create and to uplift. And I think that’s exactly the thing that we need to do. I think we… I think we also need to sort of make sure that we realize that if we keep thinking in the premise of this hyper individualistic notions of our viewpoint of the world. Then we’re going to be still stuck in creating products that may not necessarily work for the people that we’re trying to help. Because you know, the norms or our assumptions or their values, that that guide this hyper individualistic ideas or viewpoints of the world may not necessarily be applicable to some of the people that we’re talking about where they may not necessarily think about money in that hyper individualistic framework, but they may think about money as, as a way of relating with each other, with family and community in a different sort of values or different ways.

And so I think we have to step away from that idea that everybody has to do it, or manage their money in the way we do it but rather actually put that into a question and then really think about how other societies or cultures actually think about money. And so, because from that we might actually see more possibility of, at creating uplifting other products that are… do not necessarily have to adhere to this hyper individualistic sense of our, ourselves. And so I say that because again, we’re talking in a very global context of financial inclusion, and I think we have to sort of understand that not everybody thinks about money in the way that we do. They actually have different values, different perspectives, different even utilities of money.

And so, I think that’s an important conversation or else we’re going to get stuck in the loop that we may not be able to get ourselves out of because the world is not conforming to our only vision of this hyper individualistic selves. So I think just underscore that point.

Thanks, José. And we’re going to take one more live question. And this one is from Eric Sprink, who is the CEO of Coastal Community Bank, which is a bank in our district that is thinking a lot about how to leverage new technology to serve its customers. Eric, if you could please unmute yourself and ask your question.

Great, thanks, Sean. And again, the panelists are amazing. My original question has been answered, but I’d like to follow up and just context for everybody. I’m going to humble Coastal and say we’re U.S-focused only.

And we do banking as a service. So we partner with technology companies to provide financial services to differential demographic segmentation in particular. So we have Ellevest, which is primarily women-focused, Cheese and Sable, which is migrants in the U.S, CAIR which is Muslim base, Greenwood which is a black and brown bank, Possible (small dollar), Brigit (Credit building), Till (youth), et cetera. The list goes on 85% of our founders are minority or female based. And 75% of our FinTech partners are focused on diversity and inclusion. So we’re… We’re heavily focused on this. So my question to you guys for the US would be to the panel is, you have Sean on the phone. He announced that we’re a member of the 12th district of the San Francisco Fed. What would you ask of the Fed to help the US diversity and technology specifically with fraud prevention or anti-money laundering, if there could be something helpful that I, as the bank, or the San Francisco Fed or the Fed policymakers as a whole?

And I, I wish I would have listened to Chris on the policy and improve regulation access panel last month. But anyway, so what will you guys want out of your banking partner in the U.S and what would you want in the fed in the U.S to help you guys with.

Arjuna go ahead.

That’s a great question Eric. And I’m thinking about what my portfolio companies would ask me to ask Sean for, right? And we’ve got a whole number of early stage startups that are all wondering about this. I go back to just one question that has always been on my mind. I live in Silicon Valley and I’m surrounded by kids at Stanford and Berkeley who all want to build something. And when they talk about that business plans, they should be tackling the meaty issues that we’ve been talking about for the last half an hour and a half, instead of starting another chatting app.

But the friction to starting a business in a regulated industry is so high that they all go, I’d rather hire another Ph.D. computer scientist than a chief counsel, right? So how do we… How do we take all the innovative minds and the creativity out there? The technological prowess and simplify the regulatory system. I think I do have those people build a digitally native regulatory system, such that friction comes out of the system, right? The regulator and the service provider can talk digitally. And we don’t have a high friction, high cost sort of barrier to more innovation. That’s – I don’t know that if I were to, to simplify what the portfolio company would ask me, it’s probably lower friction system, greater clarity, create a coordination against, amongst many of the regulators in the U.S. Sean, is that… Is that something that resonates with you?

Cause you’re… You’re at the other end of this so people asking you for, for the guidance.

Yeah. We’re… I mean, that sounds what we would call also suptech and reg tech. So making kind of real-time interactions, but yet simplifying making it machine-readable standardized language kind of making it easier to parse for, for a new company. I may get a little bit beyond my, my scope here if I go to much further, but yeah, that does make sense. I was going to actually ask José though, I’m thinking of it from another perspective given efforts to reach populations without a credit score, and you made a really good point earlier that, okay, we can even give them credit or get them a score, but then is it actually going to help them in their financial lives? And that’s a whole another question. But if we really think about that specific challenge, how do we use alternative data?

When we say alternative data, it can be something that’s not particularly wild it’s… it’s cashflow-based analysis on, based on the deposit account or some sort of bank account, right? Or maybe they pay their utility bills or, a telephone bill on time. So thinking about the role there of regulators, I’m just wondering if that’s an area where you might have some input.

José Quiñonez: Yeah, definitely. I think that the key point is this is that people’s financial insecurity sometimes, most of the times for the people that we serve has nothing to do with their financial management. There’s a political dimension to people’s lives that actually is at the root of their financial insecurity. And what I mean by that is that we know we work with primarily immigrant families, individuals that may or may not necessarily have a social security number, or they may or may not have an ITIN number, or may not have any of those things.

And because of that it actually prevents them from actually realizing their full economic potential. And, and that is a political consideration. So I think as regulators, I think we have to acknowledge that. That without people having immigration status that hinders their potential. That’s weighs them down because of that. And so… so I think its acknowledging that again, that political dimension. But I think within the regulatory space, I think there’s big issues or real big work that we could do or should do related to how do I deal provide identities? How do we create better ways to manage people’s identity flows? Because right now our system is built on this idea that your social security is really your primary point of identity.

And within that everything happens in, in a lot of problems in that sense. So I think in a regular as need to come up with more creative ways to, to allow more people to, to identify themselves in so that they can partake in a system overall. I mean, they’re just flue of different ideas, but I’ll leave you with this one because I’m actually advocating this in our, at every chance that I get while we’re learning from the immigrant populations that we’re serving is that through the pandemic that they’re getting that they’re heavily in debt by the either background or utility, utility payments, or even just debt that they had to borrow from their family or their friends just to make partial payments on their different bills that are coming on.

But as far as, as people are coming out of this pandemic one of the things that we’re noticing is that they’re really truly are, have amassed this level of debts that is going to be really hard for them to pay off with just a job. And a job is great, but it’s not going to be enough. So I think the Federal Reserve System can come up with creative ways of figuring out how do you minimize that burden, because this debt could become easily morph into this zombie debt, that might be unpayable for some people, and that will truly decimate their economic potential for years or generations to come. So I think regulators need to think about them more constructively, creatively, how do you do debt relief to individuals in a way that we’ve done debt relief at the international level – how does that happen in because again, I’m fearful that there’s the zombie debt can really zap people’s potentials economic pretentious for years to come.

So picking up on that and moving to the Q&A chat, there’s a question specifically for José, and just mindful of time, we have about 10 minutes left. Question for José, how we can make sure that recovery efforts are equitable moving forward and not leaving people behind you. Again, I think that touches on the zombie debt that you just mentioned. And then there’s also a question that’s kind of connected on just equity. You’re thinking about childcare providers. How do we… How do we think about reaching so many of them when they might be a part of an informal economy unlicensed, et cetera? José, I don’t know if you want to react to the overall question. And then if any of the other panel has thoughts on creating an equitable recovery?

Well, I’ll take one minute and just to throw out another idea out there, the way we’re trying to try to make sure that the recovery is equitable is, is really trying to provide services through what we call a financial equity frame and framework. Financial equity, meaning that we take into account people’s income streams we take into account their financial obligations and the barriers that they’re contending with in life.

And then from that analysis, we are able to target our help to the people that can use the most benefit from our services. And that is the way we’re kind of getting into this more equitable recovery frame because we’re acknowledging that in the moments where everybody needs help there are people that are lasting the least people that need just a little more time to fill out the application or hit the submit button. And so how do you identify them? How do you focus on them? And so through this final financial equity framework, I think we’ve been able to sort of target our efforts a little bit better. So I appreciate that question because I think this speaks to the idea that we… It’s not a question about ‘technology’ or ‘not technology.’

It’s about how you use technology and how you apply that in the service of poor people. And I think we can be… We can do much better in the U.S In making that happen and then do it in a way that we actually advance our mission of providing equitable services to the people that need the most.

Thanks, José. There’s just one more comment here, just talking about the usefulness of technology during the pandemic in marginalized communities, in developing countries where there’s no access to smartphone, that digital divide point that I think Greta was making. So I’m not sure there’s much of a question there, but thank you for that comment. So we… We have a few minutes left, maybe just a very quick lightning round for the panel is one change in your space that you’ve seen during the pandemic that you’d like to see continue.

If you’d like to take this from a personal perspective and not so professional feel free. So maybe I will start with Arjuna.

What we do has been driven so much by the digitization tailwind, Sean. I’ll talk personally about how we do it has changed as well. I have… I was somebody who lived on a plane was more likely to see Greta, not in DC, but in a lounge somewhere on our way to somewhere in Africa, Southeast Asia. That’s changed. I just did a diligence of trying to meet some small shopkeepers in Brazil over Google Meets. I had the company’s salesperson in the store having a Portuguese conversation as somebody in the company’s head office in south Paulo, simultaneously translating in Google Chat for me. And I was asking questions in English. It was a level of creativity and connectivity that we haven’t used before. I think we’ve just got to get smarter about how we operate; the tools are there. That just for me, is a reflection that I think about trying to serve this last mile, how I do it might change radically over the next year.

Greta?

Yeah. I would completely echo Arjuna’s and some desire not to be on airplanes any longer, but I guess from more of a systems perspective, I’d like to see that progress – we’ve made huge progress. The pandemic has been an accelerator for including people in the formal financial system. And people are seeing the opportunities that the digital economy provides. And so I’m hoping that we can use this to kind of boost participation for poor people in the formal financial sector because they will see value in it. I mean, people were not able to use cash in the same way. They did understand that they needed to have some digital store of value and be able to use it. And so I’m hoping that it will have got people over the hump in terms of comfort with using these solutions and that there will be sort of a virtuous circle in terms of keeping people in the system and making the services more meaningful.

But I think as I said, we still have a lot of work to do on that.

Makes sense. Ting?

I work a lot with people who suffer from health during the pandemic. And one thing that really shocks me is that the ones who is in most need of health improvement or change in the health domain are the ones who avoid it the most. And I think how do we keep in mind the psychological need of feeling positive about things we do—self-image, any actions that we take and how can we frame these, any actions we need to take to improve on financial wellbeing for these particular population, without any stigma, or any kind of framing that makes them feel bad about, or any judgment that implies like sense of failure, et cetera, so that they have the most positive psychological state to actually overcome challenges, because it would be not just literally challenging, but psychologically very challenging to work on areas where we deem as the most frightening.

Thanks Ting. José last but not least.

Again, thank you for having this conversation. And I think I would love to continue this type of conversation post-pandemic because I think we need to have the space and the time to challenge our assumptions; you know, challenge what we thought we knew, because trying to come up with a new set of assumptions, it’s going to be difficult, but we need to do that in order to create those the better products, the better services, the better policies that really truly can impact people’s lives and do it in a way that is actually the matters to the people that are called the last and the least. So I, I’m actually very excited that, that we’re at this level of conversation because this is the moment that we have to do that.

So I’m, I’m energized by this, but I know that we need to continue to do this even more moving forward.

I feel the same way. Thank you so much. Also, just want to quickly say a huge, thanks to Paul Tierno who has organized and run this entire show behind the scenes and the events team that put this together and led by Jennifer Calderon and Vivian Sam, and then just a lot of other members of our SF Fed team that made this happen. If you haven’t listened to the podcast, yet we gave you a bunch of links, but please check it out. And do reach out to us, we would like to keep the conversation going, of course, with José and Ting and Arjuna and Greta, but all of you out in the audience. So please do reach out and look forward to more work to come. So just a final, thank you so much; Arjuna, Greta, Ting, José, for all of your time preparing for this event and the podcast before and being patient with us as we released this during the pandemic, just a really great conversation. It left us with a lot to think about. So have a great day. Thank you so much.

We hope you enjoyed this special live episode. We were thrilled that our guests were able to come together in conversation and reflect on what we’ve learned among the pandemic.

And while we aren’t planning any immediate release of new interviews. We will be sharing some reflections on what we learned and our path forward at the Fed. So please do stay tuned for that. For more episodes like this, you can find us on iTunes, Google Play, Stitcher and Spotify. And if you like what you hear, please leave a review. Feedback from listeners like you will help more people find us. And for even more content, look up our Pacific Exchange Blog available at frbsf.org. Thanks for joining us.