Two years ago I attended a luncheon speech given by JP Morgan Chase CEO James Dimon. Impressed with his talk, I wrote him a letter suggesting how Chase should partner with financial innovators to positively impact financial services for the under-served in the United States.
First, I believe the Chase Liquid prepaid debit card is an excellent product that benefits low–balance customers, who need cheaper ways to pay bills, get access to ATM’s, while they avoid the pitfalls of high NSF fees. The Credit Card Form Blog agrees, with some reservations, saying:
…the $4.95 monthly fee isn’t always going to be cheaper. However, when you consider the fact that you can avoid paying reload fees, ATM fees… the amount you pay at the end of the month will likely be cheaper.”
JP Morgan Chase Partnerships Grow Financial Solutions Lab
On May 29, 2014 JPMC announced a $30 million investment to create the Financial Solutions Lab in collaboration with the Center for Financial Services Innovation. Tapping the expertise of entrepreneurs, non-profits and academics, the effort will help people save more money and build better credit.
The new venture is geared towards helping those who are not fully served by the current financial system. (See the short video explaining the Lab’s purpose and benefits.) American Banker says “The new lab sponsored by Chase is but the latest example of a financial services company helping foster tech efforts designed to attack personal financial problems.”
Eliminate Expensive Payday Loans for U.S. Consumers
Payday loans and overdraft charges are outrageous. In 2011, $44B of payday loans were issued. According to USA Today by May, 2014: “Payday loans average $375, have a term of about two weeks, and carry an average fee of about $55 per pay period. The average borrower keeps a loan out for five months and spends $520 on finance charges to repeatedly borrow the same $375, according to a research paper from the Pew Charitable Trust…”
These short-term loans are expensive, don’t reflect loan risk nor help consumers build credit, even if payments are made as agreed. While payday loans are necessary, they hinder economic mobility.
Chase Should Take the Partnership Lead
A $500 million to $1 billion debt initiative, targeting profitable, responsible payday alternatives, might empower Chase to partner with leading innovators, who would market lower-priced services to millions of consumers. Moreover, the new competitive climate would encourage development of fair-priced financial products, generate strong financial return and lessen the need for government regulations.
The changed environment would spawn commercial opportunities compliant with state and federal lending laws. Other benefits of this approach include:
- Scale efficiently
- Accurately demonstrate lender track records
- Offer credit based on risk-based pricing, complete credit reporting, full amortization and term flexibility.
- Make available competitive rates (6%-11% APR) to funding sources which support desired products
Target funding organizations include:
- California-based Progreso Financiero (Hispanic focused)
- BillFloat (direct, third party distribution)
- FairLoan (employer distribution)
- NeoLoan (near-prime auto loans)
- ActiveHours (allowing W2 employees to get immediate access to wages earned)
Other potential partners:
- Texas-based Think Finance (an online lender)
- US-based Wonga (also online) with some changes to current offerings.
Core Innovation Capital, a venture capital fund specializing in financial technology for the under-banked, has direct access to these and other potential targets.
JP Morgan Chase partnerships–a top Corporate priority.
JP Morgan Chase, the largest U.S. bank, showed 2014 4th quarter profits of 4.9 billion dollars, down 7% from 2013. It also faces continued regulatory scrutiny over Federal accusations of manipulating foreign exchange markets. But these challenges are not new to JPMC. With great wealth and power comes increased public scrutiny and responsibility.
Now is JPMC’s moment in history to demonstrate its capacity and willingness to take the lead in serving the public good.