The focus of my academic and professional career is redesigning financial services to work better for those who need them most. All too often, empowering tools are systematically inaccessible for working-class families. When solutions are made available, they are designed to be more expensive and punitive.
The overdraft fee in America is a perfect example. In 2018, overdraft fees generated $25.4 billion dollars in revenue for financial institutions. Many companies are profiting every time that American’s struggle to manage their financial lives, to the tune of $35 per transaction.
Overdrafts, and other expensive forms of lending, are largely a timing problem. As noted by Corey Stone, a former colleague of mine at the CFPB and entrepreneur in residence at the Financial Health Network: “The amount of shortfall that most overdrafts represent — $42 on the median check overdraft and $15 on the median debit card overdraft — are small, both in absolute terms and relative to the amounts they paid in fees.” There has to be a better way to help consumers cover these small liquidity crunches that is both profitable and more reasonable.
As I wrapped up my year-and-a-half as a Luce Scholar in India, I reflected on the next step I wanted to take in my career to help shape a better financial system. I knew that I wanted to return to the United States and build on my experience at the Consumer Financial Protection Bureau (CFPB) to directly serve the consumers I know best, but I didn’t quite know how that would manifest.
As I was researching potential opportunities I came across another post by Corey on Brigit. Brigit is building a novel approach to helping consumers avoid harmful forms of borrowing like payday loans and overdraft fees. For $10 a month, Brigit subscribers can access up to $250 every pay cycle to handle emergencies and manage expenses until their next paycheck in addition to a host of other services that are structured to simplify their economic lives. As Corey noted, what makes this model innovative are the incentives. Brigit’s central goal, and the success of the company, hinges on whether we can justify the $10 subscription by providing a range of services that enhance the financial wellbeing of our customers.
Most importantly, Brigit’s subscription can provide psychological comfort and help consumers avoid a scarcity mindset. As Sendhil Mullainathan captured in his book Scarcity (and succinctly covered in this interview with NPR): “To be clear, it’s not that poor people focus on immediate needs because that’s all they want to think about. It’s all they can think about. Scarcity captures the mind.” My hope is that Brigit’s approach to an automated safety net will help get lower-income consumers out of the scarcity mindset and on the path to financial well-being.
These tools are not a panacea. Education, affordable housing, and better healthcare are all crucial elements of a more equitable future. The COVID-19 crisis has made these inequalities even starker. Nevertheless, I hope that over the course of my career we can end punitive financial services for underserved families. The promise of fintech is that financial services can be better for everyone. In practice, that often means a better experience for the affluent. I hope to spend my time uplifting rather than penalizing communities in need. As the first product manager at Brigit, I am taking my next step to fulfill that promise.