Disrupting the Disruptors: Collaborating to Advance Financial Health Through Technology

More than half of Americans struggle with their financial health. They lack a savings cushion, face high levels of debt and poor credit, or have irregular income—or all of the above. And while governments and financial institutions spend millions of dollars each year on traditional financial literacy efforts research shows this is not enough. Traditional financial literacy efforts like classroom workshops have little impact on developing better financial behaviors. What’s more, the impact of financial literacy diminishes over time and is less effective for low-income populations. To improve their financial health, people need relevant, engaging information delivered via products designed to meet their needs.

To achieve this goal, JPMorgan Chase partnered with the nonprofit Center for Financial Services Innovation (CFSI). Together, we launched the Financial Solutions Lab to support the development of technology-based products that improve the financial health of American consumers. The lab identifies challenges facing consumers and holds an annual competition to encourage companies to develop financial products that address these challenges. The program provides participants with capital and customized technical assistance from CFSI, JPMorgan Chase, a network of industry partners, and a diverse community of experts.

The lab cohort engages in a design session.

Although we are only three years into this five-year program, we are excited to share our impact to date, as well as several lessons we have learned that may be useful for others seeking to drive social change in highly regulated markets.

Impact on Consumers, Innovators, and the Market

To maintain accountability and continuously refine our lab model, we sought from the beginning to balance the need for experimentation and flexibility against the demand to measure performance. We identified three categories of impact—consumer, innovator, and market—and created a process for measuring and tracking our impact in each category. Here is a look at their design and our results so far.

Consumer impact focuses on the effectiveness of lab winners’ solutions. To measure impact, the lab relies on CFSI’s Compass Principles, an industry-wide framework to assess quality in financial products and innovations. We also solicit input from a variety of nonprofit leaders to ensure that winning solutions are safe and affordable. In addition to a robust initial screening, the lab requires ongoing consumer financial health metrics from each lab company to measure performance and maintain accountability. The structure of capital and agreements with the winners ensures that they have an incentive to advance consumer impact—and a disincentive to stray from this mission.

The 18 organizations supported by the lab so far have cumulatively grown to help more than 1,000,000 Americans—10 times the consumer base they served before joining the lab. First year Lab winner Digit, for example, has helped clients save more than $350 million. And EARN, part of the lab’s second class, found that 83 percent of its clients develop a habit of savings, with low-income households saving an average of $558 over six months.

Innovator impact measures our performance and efficacy in developing a model and set of tools to help winners accelerate their growth and impact. Success metrics include follow on capital, acquisitions, user growth, product enhancements, and improved commitments to promoting financial health. To help track this, we engaged UNC’s Center for Community Capital, which conducted a thorough analysis and evaluation of our model. CFSI and UNC also conducted several in-person and electronic surveys of participants to determine their satisfaction with the lab’s approach.

The program has succeeded on multiple levels. Collectively, lab companies have raised more than $100,000,000 in capital since joining the program. On average, the companies have doubled the size of their teams, and one company has been acquired.

Market impact measures how we have positively shifted the market for financial services. The lab seeks to de-risk early-stage innovation and create a path toward scale—by far the most challenging type of impact to measure. Our goal in measuring market impact is to ensure that we are building the processes, tools, and systems we need to communicate our work, respond to feedback, and track how our work is driving broader activity. Our success metrics include engagements and partnerships with important stakeholders in the financial service ecosystem, media impressions, and high-level financial metrics such as capital raised and equity value. Because we are supporting early-stage innovators, we also assess indirect impacts, such as copycat products, new entrants, interest from other stakeholders, and increased investments in related products.

The lab has dramatically elevated the profiles of winners and the need for inclusive financial technology solutions. For example, the lab and its companies have been featured in nearly 100 media articles over the past 18 months. We have also engaged regulators and policymakers to drive awareness of the power of these solutions and barriers to market implementation, and nonprofits serving low- and moderate-income consumers are starting to pilot these technology products with their clients as program enhancements.

Lessons for Innovators, Funders, and Policymakers

1. Align impact with the scale of the problem. Simply counting outputs is not going to tell you what kind of progress you are making. In our case, we need to know more than the number of new accounts or amount of interest saved. We need to know how many people we are serving, how it is improving their financial health, whether the solution is significantly better than the alternative, and if other stakeholders recognize this and will help tackle these problems.
2. Incentivize. Funders need to provide both patient, flexible philanthropic grant capital to seed markets and a path for early-stage innovators to access commercial capital. But grants alone aren’t sufficient to entice the types of innovative firms that can drive user growth and attract funding. For us, it was equally important to signal the potential of lab companies to other investors looking for consumer-friendly, financial technology companies. To do this, we provided capital via an innovative use of a convertible note—a widely used capital instrument for early-stage technology firms. Since the capital “converts” to equity for a future round of funding, it allows investors and founders to avoid complex negotiations over valuation while quickly deploying much-needed capital. We found that by aligning our capital and long-term interests with founders and other investors, the lab could better ensure that companies prioritized the financial health of their consumers over a longer period of time than may have been possible with a time-bound grant. By leveraging a widely used and highly flexible capital model, we also incentivized high-quality firms to partner with us. Meanwhile, the long-term nature of the capital mechanism ensures that entrepreneurs view the lab as a serious commitment.
3. Work with diverse stakeholders that want to solve the same problem and can meaningfully contribute to the solution. Being intentional about the resources needed to scale solutions—and finding the right partners to fill those gaps—is crucial. We recognized early on that even $30 million was unlikely to drive significant change in a market as complex as the US financial services industry. We also realized that while market-based financial technology can help reduce costs, increase reach, and improve security, it’s not a panacea. Building off of CFSI and JPMorgan Chase’s expertise in financial services, data, and networks, we identified the additional resources and partners needed to help us complement these assets and drive deeper impact. Organizing around the collective goal of advancing financial health, we engaged a variety of market participants—including nonprofit organizations, investors, and policymakers—who were willing to contribute resources and serve as a bridge between technology solutions and the people we designed them to serve.
4. Focus on competencies and mission, but stay flexible on how you achieve it. The lab works with specific kinds of companies, at a specific stage, and in a specific way. That sometimes means saying no to great ideas, great entrepreneurs, and seemingly unique opportunities to expand our scope, mission, and reach. But by remaining disciplined, we can help the firms that will benefit most from our resources, network, and position. Part of that discipline requires that we track data and continuously refine our model to ensure that we are providing value and adapting to the changing conditions in the market.

Tackling social problems as complex and intractable as financial insecurity requires collaboration, experimentation, and adaptation. We hope these insights have relevance for grantmakers, social impact investors, and policy makers in other highly regulated or complex industries where innovation is often costly and requires significant collaboration. 

Read more stories by Ryan Falvey & Colleen Briggs.