Week of February 7, 2014

In this week’s New and Noteworthy, we highlight responses to the USPS’ white paper on providing financial services, the impact of small dollar fees on the US health care system, and a new publication projecting the potential for digital payment markets in Africa.

  • A new McKinsey & Co. publication shows the gap between current levels of payment digitization and what levels in other African countries would look like if they matched Kenya. The report demonstrates that there certainly is a business case for supplying digital payment services if demand puzzles can be solved.
     
  • Last year on our blog Dan Rozas pointed out the risk of a substantial repayment crisis in Chiapas, Mexico. Hugh Sinclair has a new post laying out the case that Peru, and MiBanco in particular, is at high risk of a repayment crisis.
     
  • Now that the Affordable Care Act is in full swing, so is the Innovation Center, a research outfit funded by ACA to discover how to most effectively deliver health care. However, many researchers say the Innovation Center is missing out on key opportunities for deeper insights into health care policy by conducting demonstration projects and not RCTs.
  • In a post for NextBillion, FAI affiliate Ignacio Mas outlines three types of “money stories” people tell (or in other words, ways of mental accounting) and how providers can translate those stories into financial products that serve the needs of the poor.
     
  • Danielle Ofri, a physician and an associate professor of medicine at NYU, authors an opinion piece for The New York Times that discusses the impact of small dollar fees on low-income patients’ health. She asserts that it is “literally the pocket money, that often has the most profound and palpable effect on the concrete currency of health.”
     
  • Last week’s white paper from the USPS Inspector General exploring how the U.S. Postal Service could offer non-bank financial services spurred a number of interesting responses (many thinking the plan doesn’t go far enough), including articles from Adam Levitin for American Banker, Felix Salmon at Reuters, and David Dayden for The New Republic.
     
  • Is there value in microinsurance? Drawing on several years of original research as well as other evidence from the field, the MicroInsurance Centre’s MILK Project and the ILO’s Microinsurance Innovation Facility provide concrete insights into how, when, in what ways, and to what extent clients receive value from microinsurance in a new brief.
     
  • Transport for London announced plans to go completely cashless on its fare systems for central London buses, beginning this summer.
     
  • Last year, Rebecca Ackerman, a Code for America Fellow working with the San Francisco Human Services Agency, signed up for food stamps to view enrollment from the client’s perspective as part of a larger project to improve the program's retention. The Atlantic profiles her experience and the results of the project, which include an interactive timeline of over 20 letters she received in her seven months of benefits.

Week of January 31, 2014

This week’s New and Noteworthy includes resources to help distinguish between e-money and Bitcoin, find out more about the US Postal Service’s possible expansion of financial services, and explore the impact of the financial crisis on banking behavior in the US.

  • A new paper from Una Okonkwo Osili and Anna Paulson show that individuals who have experienced a banking crisis are 11 percentage points less likely to use banks in the US than their peers who emigrated from the same country but did not experience a crisis.
  • As Bitcoin gains in popularity, it’s easy to confuse the digital currency with other forms of e-money. CGAP’s new infographic provides a quick reference that contrasts these products.
  • PopTech profiles the Trust Card, a product developed by IPA with support from the Ford Foundation, designed to act as an “un-credit card” – establishing access to affordable credit coupled with debt consolidation and financial counseling with the goal of improving financial stability for cardholders over time.
  • In his annual State of the Union Address, US President Barak Obama advocated raising the federal minimum wage, a topic of recent debate in Washington. The Economic Policy Institute released data showing the value of minimum wage is 23 percent less than its peak inflation-adjusted value in 1968 but low-wage workers are more highly educated than they were in the late sixties.
  • Writer Dylan Love shared his experience with Slate of using an invitation-only, no fee, virtual bank called Simple. Spoiler alert – after two weeks, he swore off brick-and-mortar banks for life.
  • Piggy-backing on the success and rapid growth of M-Pesa, Safaricom now offers a number of additional mobile financial tools like savings tools and ways to pay school fees electronically.  But are these services reaching those who could potentially benefit from them the most?  NextBillion says no - research shows the poor or those in rural areas are currently the least likely to use these add-on products.
  • A new Postal Service Office of Inspector General white paper explores how the U.S. Postal Service could offer a suite of non-bank financial services (in addition to the current money order and transfer services) targeted to serve America’s unbanked populations.

Week of January 24, 2014

This week’s New and Noteworthy highlights the power of heuristics in decision making, a theory on the future trajectory of Bitcoin as a global currency, and the economics of strengthening payments security.

  • Antoinette Schoar of MIT’s Sloan School of Management and ideas42’s Saugato Datta released a new paper on using heuristics (or simple rules of thumb) to help individuals make “reasonably good decisions,” even in complex situations. The paper builds on Schoar et al.’s previous research that found evidence in the Dominican Republic that microentrepreneurs who received a rules of thumb business training curriculum fared better than those who participated in a more traditional accounting course.
     
  • FAI Affiliate David Roodman has a new paper reflecting on the current state of the microfinance industry and where it can and should go next: Armageddon or Adolesence? Making Sense of Microfinance’s Recent Travails.
     
  • In light of its recent customer information breach, Target leadership is calling on retailers and banks to strengthen credit card security by adopting a PIN credit card system, similar to what is used in Europe. However, The Washington Postexplores the economics behind digital payment systems in the US and argues that building a more secure payments system is not as easy (or as cheap) as one might expect.
     
  • Social media sites like Facebook and China’s RenRen have a combined membership of almost 2 billion users worldwide – many of whom are in the developing world and might have profiles but no bank accounts. CGAP explores the potential of these sites to enter the money transfer sector and what that could mean for remittances.
  • T-Mobile announced a new personal finance service that integrates a prepaid debit card, ATM access, and mobile banking – free for wireless subscribers and fee-based for all others.
     
  • The New York Times featured an opinion piece on the impact of providing unconditional cash supplements to the poor. The author reviews a longitudinal study of a Cherokee community that divided profits from a casino to tribe members. The study found that income supplements had long-term mental health benefits, specifically for children and actually saved the community money over time.
     
  • The most recent Pop Tech features various perspectives on financial inclusion, in the US, including thoughts from FAI’s Tim Ogden on the US Financial Diaries Project.
     
  • Bitcoin is paradoxically one of the most publicized and least understood new technologies. Marc Andreessen explains Bitcoin, its potential as a digital currency, and why it matters for the future of online commerce.

Week of January 17, 2014

This week’s New and Noteworthy includes a history of the CFPB, reflections on the “war on poverty” in the US, and research showing a preference to receiving wages in cash over mobile money among garment workers in Bangladesh.

  • Barbara Ehrenreich, author of (among other things) Nickel and Dimed: On (Not) Getting By in America, explains in The Atlantic how it’s more expensive to be poor than not poor and the many restraints that low-wage jobs puts on workers’ lives.  
     
  • The New America Foundation reminds us that the troubled launch of healthcare.gov was not the first time bad technology created problems for individuals seeking government services - the digitalization of social safety nets has a history of unintended negative consequences, especially for the poor.
     
  • Fifty years after former US President Lyndon Johnson waged a “war on poverty,” Pew Research provides a demographic snapshot of who the poor are, where they live, and how far the nation has come in addressing this issue.
     
  • The Washington Post’s Wonk Blog published an in-depth history of the Consumer Financial Protection Bureau, tracking the evolution of the agency since its inception.
     
  • Sendhil Mullainathan (an FAI co-founder) and Eldar Shafir’s book, Scarcity: Why Having Little Means So Much, has gotten a lot of much-deserved attention (including from FAI). Alex Counts of the Grameen Foundation blogs his reaction, describing how insights from the book and behavioral have implications for microfinance and international development specifically.
     
  • When given the option of being paid with cash or via mobile platforms, garment workers in Bangladesh preferred the former because it allows them to meet pending expenditures immediately and reduce some risks like scams at agent outlets and cash shortages, say new research from Financial Inclusion Insights.
     
  • The New York Times reviews the pros and cons of using the elements of a lottery– savers are entered into cash prize drawings if they meet certain deposit criteria—to promote savings.
     
  • CGAP provides a roundup of ten data sources to measure financial inclusion, including both demand-side and supply-side sources.
     
  • Daniel Altman responds to a new book by Paul Polak and Mal Warwick that claims the potential profits from untapped markets at the bottom of the pyramid is in the trillions of dollars. Altman contends that if you adjust for local purchasing power and currency values, the number is a lot less. He also argues that inefficient markets in the developing world can obstruct scaling of products, therefore further reducing profit potentials.

Week of January 10, 2014

Our first New and Noteworthy of 2014 features different perspectives on financial literacy, an investigation into debt collection practices, and a resource for commentaries on global income inequality.

  • Tilman Ehrbeck of CGAP takes a different take on “financial literacy” forHuffington Post by exploring the intersection of language and finance when designing services for illiterate consumers.
  • Meanwhile, Helaine Olen explores the conventional definition of financial literacy (education around the basics of money management) claiming it is “both a failure and a scam.”
  • In India, the Committee on Comprehensive Financial Services for Small Businesses and Low Income Households has published its long awaited report. We’ll be blogging about it soon.
  • In the past few months, there has been a lot of press on the pros and cons of unconditional cash transfer programs. This article from de Correspondent of the Netherlands investigates the history of similar initiatives in the US and Canada, including forgotten research pilots showing potential successes of minimum income programs.
  • Also from the Netherlands – an article wondering whether Bitcoin could lead to a future of low or no cost international remittances or if the risks are too great for feeless transfers to become reality.
  • Project Syndicate’s most recent “Focal Point” feature gathers a number of perspectives, policy recommendations, and commentaries around the issue of global income inequality.
  • A new report from the Kaiser Family Foundation explores the causes and consequences of medical debt among Americans who have health insurance. The report finds cost-sharing health plans (even when relatively modest) can prove to be unaffordable because expenses are often unexpected and most Americans do not have adequate savings to deal with the financial shock. 
  • 30 million Americans are currently being pursued by debt collectors. Of these, more than 100,000 report being subject to illegal tactics, an issue currently being investigated by the Consumer Financial Protection Bureau.  Al-Jazeera America reports on some of the more unscrupulous tactics of debt collection agencies in this investigative piece.
  • From The New York Times: a map of poverty distribution in America; highlights of a study that finds a correlation between diabetes-related hospital visits and times of the month when food budgets are stretched, and the use of psychometric testing by our friends at the Entrepreneurial Finance Lab to determine credit worthiness.

Week of December 20, 2013

Our last New and Noteworthy of the year includes new research on poverty rates in the US, racial disparities in retirement savings, and commitment savings devices in the Philippines.

  • The African Development Bank released a new report on the state of financial inclusion on the continent, highlighting opportunities and challenges for expanding access to financial services for the poor.
  • According to a new study from researchers at Columbia University, government safety net programs like food stamps and unemployment insurance helped reduce the percentage of Americans in poverty from 26 percent in 1967 to 16 percent in 2012. However, the economy by itself has failed to improve the lives of the very poor in that time period.
  • The National Institute on Retirement Security released a study on the racial disparities in retirement savings - fewer than half of black and Latino workers have retirement plans on the job or benefit from tax breaks and policy incentives designed to increase savings, putting them at greater risk for downward mobility in retirement.
  • In the latest installment of its Debt Inc. series, ProPublica explores the effect on payday loan recipients when their lenders decide to sue for money owed.
  • In case you didn’t make it to London in October for the Financial Inclusion 2020 Forum, CFI published a magazine with a roundup of key sessions and forum highlights.

Week of November 26, 2013

In this special Holiday (at least in the US) edition of New and Noteworthy, we take a look at the global status of bitcoin, analyze the gender gap in financial inclusion, and observe the intersection of the American military and the payday loan industry.

  • NextBillion has a two-part interview with Ideas42’s Alex Fiorillo. In part I,  “The Power of Choices,” she gives an overview of the principles of behavioral economics. In part II, “People-Centered Finance,” she describes how behavioral economics can be used to design better financial products and promote healthier decisions.
     
  • Coin, a new startup, has begun taking orders for its battery-powered electronic credit card. In essence it can alter its magnetic strip to mimic any of your credit or debit cards so that you only have to carry one card. While slick, it is an innovation for people who are already very well-served by formal financial services. At first glance it appears that the most value would be for people who are juggling lots of credit accounts and carrying 7 or 8 credit cards. What those people need most is likely credit counseling, not an easier way to carry multiple cards.
     
  • New York City’s Center for Economic Opportunity officially launched the enrollment phase for a new pilot project called Paycheck Plus, which adds to the annual amount that low-income workers without dependent children receive through the federal Earned Income Tax Credit (EITC).
     
  • Washington state can add “barrier to access for the unbanked” to the list of issues surrounding the launch of Obamacare.  While plan payment methods include money orders, the first payment must be made by credit card, debit card or electronic funds transfer from a bank account.
     
  • A website called fiatleak has a map drawing information from all the major online bitcoin exchanges, like Mt. Gox and BTC-e, and shows what country’s residents are buying bitcoins in real time. Much of the activity is concentrated in China, a point also noted in a recent New Yorker article on regulation of the digital currency.
  • This Economist article delves deeper into the global gender gap in financial inclusion and what can be done about it. One strategy could be the recent women-only bank launched in India – the first public-sector bank of its kind in the country’s history.
     
  • Nearly seven years since the Military Lending Act came into effect, government authorities say the law has gaps that allow the payday loan industry to target service men and women with potentially negative financial effects.

Week of November 22, 2013

This week’s edition of New and Noteworthy highlights some innovative approaches to financial inclusion: a banking van, a new iPad app, and a new approach to delivering subsidies.

  • The World Bank released its most comprehensive report on financial inclusion to date.
     
  • “Gamification” was the hot buzzword a few years ago but has faded more recently. Nonetheless  this Wall Street Journal article illustrates that it’s still happening:   gaming behaviors and strategies are being used to promote financial literacy and management.
     
  • A new study on the 2009 Credit Card Accountability Responsibility and Disclosure Act shows the legislation, which requires more regularity and transparency around credit card fees, has cut the cost of credit cards, particularly for borrowers with poor credit. The estimated overall savings for American consumers is $20.8 billion a year.
     
  • NPR explores “banking deserts.”  As banks close branches in economically depressed areas, residents experience a void of formal financial services not dissimilar to historical patterns of redlining and exclusion.
     
  • The Economist explores the trend of branchless, digital banking and its growing customer base – tech savvy 18-29 year olds.
     
  • For a different take on “mobile banking,” new programs in Uganda, Rwanda, and the Phillipines are bringing financial services like microinsurance, bank accounts, and financial literacy directly to their customers through banking vans.
     
  • According to a new report from The Pew Charitable Trusts on economic mobility,  43 percent of Americans raised at the bottom of the income ladder remain stuck there as adults, and 70 percent never make it to the middle.
     
  • Enno Schmidt’s work to promote a “basic income” policy in Switzerland was recently featured in The New York Times. The basic income approach would provide a lump sum of money to all citizens to cover living expenses, replacing separate housing, food, and other subsidies.
     
  • Researchers at IMTFI review the link between social capital and the use of mobile banking services like M-Pesa. These women often act as “brokers” – connecting groups who would not otherwise be connected. 

Week of November 8, 2013

This week’s New and Noteworthy highlights new research and findings on ways to encourage savings, measures of poverty in America, and a discussion of financial capability.

  • Some of the mobile apps promoting saving behaviors profiled in this American Banker article could possibly address savings challenges highlighted by FAI’s Julie Siwicki earlier this week.
  • In more savings-related news, FAI co-founder Dean Karlan together with colleagues at CGDEV released a working paper reviewing researching on savings groups and constraints that may hinder the adoption and effective usage of savings products and services by the poor. The SEEP network also released a research review of savings groups, focusing on seven specific RCTs from various countries.
  • In separate but equally compelling reports, Lisa Servon, a professor at The New School and NPR’s Pam Fessler take an investigative, first-hand look “under the hood” of the payday loan industry.
  • Perhaps the most common application of insights from behavioral economics is using defaults – for instance, automatically enrolling people in savings programs unless they opt out. While such defaults may help nudge many people toward savings, those who are motivated enough to opt-out are most likely the people who need help the most. CFED discusses the use of behavioral economic approaches in asset building and points to the need for more nuanced understanding of participants’ motivation and psychology when designing nudges.
  • Nearly 40 percent of Americans between the ages of 25 and 60 will experience at least one year below the official poverty line and 54 percent will spend a year in poverty or near poverty, making poverty a mainstream occurrence, according to Mark Rank of the University of Washington.
  • At FAI, we’ve written a lot about initiatives focused on the ultra-poor like BRAC’s graduation program. Trickle Up outlined why focusing on this subgroup of the BoP is important for development practitioners.
  • While NPR added to the call for new ways to measure poverty in America, The Washington Post featured a report from the United Way of Northern New Jersey that warns of a hidden new economic class – Asset Limited, Income Constrained and Employed (ALICE).  ALICE individuals live tenuously at the lower end of the middle class and while they are characterized by financial insecurity, they are often not poor enough to qualify for social safety nets.

Week of November 1, 2013

This week is one of big announcements - the latest research on unconditional cash transfers made a splash in the media, the World Bank released its annual Doing Business report, and I am launching my month-long Sorry, Cash Only project. I encourage our readers to follow my adventures of a peek into a cash-only economy on Tumblr, Twitter, Instagram, and Facebook.

  • IPA released a policy brief showing initial (encouraging) results of its evaluation of Give Directly’s cash transfer program in Kenya. While many bloggers and news outlets covered the announcement, this piece from The Economist offers a succinct look at the CCT/UCT debate. and
  • FAI affiliate Ignacio Mas offers a borderline sci-fi blog post as he speculates whether cash will disappear or we will move to a world of “smart notes.”
  • Recently, the book Scarcity provided a deep dive into the impact of poverty on the way we think and act. New research is building on those ideas and shows that poverty can cause long-lasting changes in the structure of our brains.
  • Ukraine is the most improved economy and Singapore is the easiest place to conduct business according to the World Bank, which released its annual Doing Business report on entrepreneurship and regulations.
  • Over at the Why Nations Fail blog, Daron Acemoglu and James Robinson take a different view on Karlan, et al.’s paper on the economic returns of cows in rural India, looking at the phenomenon through a social and institutional (rather than purely economic) lens.
  • CGAP reveals the practicalities of implementing mobile payments through the story of Mushtaque, a rickshaw driver in Bangladesh, and his challenges in using mobile wallet products.
  • The New York City Housing Authority announced it will provide bank kiosks that look like ATMs to allow unbanked residents more convenient locations to make rent and bill payments.