Take On Payments, a blog sponsored by the Retail Payments Risk Forum of the Federal Reserve Bank of Atlanta, is intended to foster dialogue on emerging risks in retail payment systems and enhance collaborative efforts to improve risk detection and mitigation. We encourage your active participation in Take on Payments and look forward to collaborating with you.
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April 9, 2018
Fintech for Financial Wellness
When you hear the term fintech, you might free-associate "blockchain" or "APIs" or "machine learning." Chances are "financial opportunities and capabilities for all" might not be the first topic to spring to mind. Recently, I've been learning about the vast ecosystem of fintech entrepreneurs seeking to improve what the Center for Financial Services Innovation calls "financial health"—that is, our financial resiliency in the face of adversity, ability to take advantage of opportunities, and ability to manage day-to-day finances.
Consumer-focused fintech projects ask the question: Can we use data to improve financial wellness for individuals?
Some of these projects are directed toward specific groups. There are apps to help SNAP (Supplemental Nutrition Assistance Program) recipients manage benefits, enable immigrants to import their credit history from their home countries into U.S. credit reporting tools, and teach recent college grads about financial decisions such as paying off student loans or signing up for employer-sponsored retirement accounts.
Some can help you to:
- Analyze your cash flows over the course of the month and tell you how much you could save.
- Save or invest when you make purchases by automatically rounding up and putting your change into an account.
- Analyze your accounts to identify peaks and valleys in your income and help you smooth it out.
- Know when you have enough money to pay a particular bill and let you pay it by swiping your finger.
- Link saving to opportunities to win prizes by incorporating lotteries.
- Know, via text message, if you're likely to overdraw your account in the next few days.
Recent research finds that these sorts of interventions can be effective. For example, in "Preventing Over-Spending: Increasing Salience of Credit Card Payments through Smartphone Interventions," the authors find that people who use an app that suggests weekly savings goals significantly reduce their expenditures. This trial took place with a small sample of Swiss credit card users. As part of the experiment, participants reviewed and classified every credit card transaction, thus making every payment more visible to them. On average, participants reduced their weekly spending by about 14 percent.
Of course, not only entrepreneurs but also economists, policymakers, and traditional institutions appreciate the importance of financial education. Increasing financial literacy makes for a stronger economy, and financial education is an important part of what the Fed does. Just last week, Atlanta Fed president and CEO Raphael Bostic spoke about the importance of financial literacy. You can read his remarks here.
If you, too, care about improving financial wellness for everyone and want to learn more, please reach out to share information and ideas.
By Claire Greene, a payments risk expert in the Retail Payments Risk Forum at the Atlanta Fed
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