Matthew Cooper travels to Washington D.C. once a month so regulators at the Consumer Financial Protection Bureau (CFBP) can help him understand how to better serve and protect customers through EarnUp, an application that helps customers make micropayments (a portion of each paycheck) to pay off their loans all in one place.
EarnUp and fintech companies like it stand in contrast to traditional financial institutions like loan company Navient and mortgage company Ocwen which are being sued by the CFBP for alleged deceptive practices. At the same time, Massachusetts is suing Ocwen for “abusive” mortgage servicing practices. As Republicans call for the abolition of the CFBP or the dismissal of director Richard Cordray, Cooper and others like him seek to maintain close relationships with the agency so that they can create products that better serve and protect consumers.
“The CFPB is the primary regulator in our specific space,” says Zach Perret, CEO of Plaid, a company that creates the infrastructure needed for fintech applications to communicate with banks. “The ever-changing fintech landscape is one of the biggest challenges for us … We have found it incredibly valuable to engage with the regulators”
James Garvey, CEO of Self Lender, a credit-building loan application, believes that companies can help develop better consumer protections by talking with regulators. With the goal of helping consumers build credit cheaply, Garvey wants to make sure that his application is fair and easy to use while Cooper measures his business success by how often customers are able to accelerate their loan payments.
Working with behavioral economics professor Dr. Dan Ariely at Duke University, EarnUp has been a part of research aimed at persuading customers to improve their financial health. Ariely and Cooper run tests on data collected by the company to determine what “moves the needle” for consumer behavior. Users were more likely to accelerate loan payments if they rounded up to a clean number than if they were invited to increase the payment by a small amount, for example. They also were more likely to accelerate payments if they were given the impression that their actions resulted in “earnings” as opposed to “savings.”
Self Lender now gains 200 customers a day. EarnUp manages more than a billion dollars in loans on its platform. Both CEOs profit off of making consumers’ financial lives easier. “There’s a tradeoff between meeting and working with regulators and building your business,” Perret says. “If you don’t have a meaningful business with consumers or customers, engagement with regulators doesn’t matter. So it’s kind of a Catch 22.” For Garvey and Cooper, the value of their businesses comes from the same consumer protection mindset of CFPB regulators.
When Molly Killian, 32, started using Self Lender she had already been working to rebuild her credit for years. Like many people, she didn’t have a solid understanding of credit when she was younger. “People my age seemed to have missed an opportunity,” Killian says. “People’s parents were old fashioned and didn’t want to discuss their financial situation and so kids were left looking for financial advisors.” Kyle Dickinson, 24, started using Self Lender in September and describes himself as a “self-taught finance geek.” He uses sites like Credit Karma and Credit Destiny to stay informed and wants to start a blog about building credit. “My friends have to tell me to shut up about credit cards at the bar,” Dickinson says.
Fintech firms continue to innovate in the traditional financial arena. "The past few years have brought a huge number of new businesses iterating on aspects of banking, savings, investments, lending, and reporting, and more,” Perret says. “We’ve seen startups like Venmo, Square, Coinbase, Gusto, Acorns, and hundreds more emerge and give power and functionality to consumers and businesses alike."
Cooper believes that financial education is on the rise. “It’s never been easier for a consumer to educate themselves irrespective of where they are in the U.S. or their socioeconomic background,” he says. “If you go back 30 or 40 years, consumers really had to rely on their personal network to figure out what type of financial choices they should make in communities that didn’t have the same level of access to that kind of information.” Cooper believes that fintech levels the playing field for consumers. “We’re not interested in helping the richest consumers get richer,” he says. “We want to help average Americans get better.” One example of this is the availability of services that will give you your credit score for free. Budgeting and transferring money is made easier through tools that any American can download.
Getting those customers to sign onto and trust financial applications is the other side of the fintech coin. There is an “emotional and practical” cost to switching applications. “You’re not signing up for Netflix,” Cooper says. “You’re signing up for a loan that you intend to keep for the next 10 years or for a bank account … these are harder choices for the consumer that we hope can be made easier with our products.”