Banking as healthcare
8 min read · May 26, 2023
New Power Labs
Tl;dr - Access to financial services is as vital as access to healthcare, yet many institutions overlook the underbanked. Innovative solutions show that progress is possible, and could be profitable.
In last week’s New Power Talks, Keith Taylor of DUCA Impact Lab made a powerful observation: “Banking is like healthcare. It is very hard to go through life without access to banking.” Economic stability is also a social determinant of health as financial resources, or lack thereof, heavily influence an individual's health outcomes in various ways.
A large part of Canada’s population faces barriers in accessing relevant and adequate banking and continues to carry debt — a load that impacts more than just their financial well-being. The State of Fair Banking report (2021) by DUCA Impact Lab looked at what is behind the gap in accessing financial services. The findings included:
A trust gap: Borrowers have low trust in financial advisors or feel uncomfortable discussing personal finances. Half of the borrowers are hesitant to consult financial institutions, and 40% limit interactions with advisors or avoid interacting entirely. The gap is more pronounced for those with lower incomes, working reduced hours or laid off.
Gaps in education: 80% of borrowers say they’re good at managing their finances, yet nearly half don’t have a budget or clear financial goals and 20% of debtholders are unclear about how their credit score gets calculated.
Debt’s ripple effects: 48% of borrowers say personal debt has impacted their ability to save and build wealth. Meanwhile, financial well-being directly impacts health and quality of life: 40% of borrowers are stressed about personal debt, and 50% of debt holders are losing sleep over their debt.
Credit rating as a major barrier: One-third of lenders say those with poor credit receive little or no service.
Only 16% of lenders offer a systemic approach to accommodating customers with low or no credit. This can force underfunded groups like newcomers, people of colour, and those with low incomes to access alternative lenders, which are often predatory.
We explored some solutions during last week’s New Power Talks:
Woveo’s rotating savings model helps newcomers in Canada gain access to capital when they lack access to banking. Informed by a model practiced in many cultures for centuries and partnering with institutions such as VISA and reporting transactions to Equifax, Woveo pools funds within groups of friends or family, who then take turns accessing the pool with zero interest, leveraging social collateral to incentivize better financial behaviours. Woveo’s pilot saw improved savings, repayment rates, and credit scores, and over five million dollars in transactions with zero percent default — and is backed by Canadian impact investors.
In their Escalator Loan, DUCA Impact Lab directly pays down a borrower’s debts and restructures their repayment plan to be more favourable, helping them move away from payday loans and other predatory products and towards wealth building. For perspective, the average payday loan’s APR is around 442 percent, while the escalator loan’s interest is prime plus eight percent. DUCA’s analysis of the social return on investment shows that for every dollar spent on the program, they’re seeing $12 in returns.
Through the growth of fintech, enabling technology and new thinking, more solutions are cropping up. QuadFi’s AI-powered risk-assessment tool aims to help newcomers access credit years before they have established a full credit score, while Rhino Food’s income-advance program partners with a financial institution to provide same-day emergency loans to employees as a way to address the precarity of sudden expenses that can expose lower-income individuals into downward spirals of debt. Windmill, a Canadian micro fund that offers affordable loans to skilled immigrants and refugees, has scaled across Canada since its founding in 2005.
From microfinance and community financial institutions to new approaches to assess credit risk and payday alternative loans, to income-advance programs and consolidation of debt programs, there are a growing number of strategies to support underbanked Canadians. While this is encouraging, few have reached scale across Canada. This is a compelling opportunity.
Limited access to capital leads to inadequate and predatory solutions. As we know from healthcare, treating symptoms with band-aid solutions is expensive and unsustainable.
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