To be successful, entrepreneurs need customers. And to be customers, people have to be able to pay for products or services.
Therein lies the problem. Not only is poverty a significant issue in New Orleans and across the country, there are astounding numbers of people — even many of reasonable means — who are so disconnected from basic financial systems that their purchasing ability is extremely limited.
According to studies by the Federal Deposit Insurance Corporation (FDIC), and others, 7 percent of the U.S. population has no bank account at all. In Louisiana, that number doubles, and among African-Americans, it may be as high as 23 percent.
There are also 70 million financially underserved Americans — those that do not have both checking and savings accounts or credit and debit cards. Yet, surprisingly, 32 percent of these financially underserved own their own home.
Bringing an entrepreneurial solution to this problem are Sheena Allen and Tim Lampkin, co-founders of CapWay, a startup dedicated to bringing the underserved into the financial mainstream and to financial health. Launched at the beginning of last year, CapWay was among the finalists at this year’s New Orleans Entrepreneur Week.
Before launching, Allen and Lampkin spent a year researching the problem, including employing focus groups with unbanked and underserved individuals. According to Lampkin, “one of the biggest problems is distrust in financial institutions. There is resentment from years of intentional discrimination. There is a lack of transparency regarding banking fees and how services work. Banks need to train their employees on how to explain things like APR and overdraft fees.”
Compounding these problems is the fact that 93 percent of bank branch closings in the last five years have occurred in economically disadvantaged neighborhoods.
“It’s easier to go to Walmart or payday lenders,” notes Lampkin.
However, the huge fees associated with many of these sources further erode financial capacity.
Recognizing that the scope of the problem is far beyond any single approach, CapWay is focusing on the next generation of earners and spenders, specifically high school and college students in low-income areas.
“Looking at the education system across the country, most don’t require any financial literacy classes,” Lampkin laments. “Even if you get a $60,000-a-year job coming out of college, you are going to struggle if you can’t balance your own budget. We are trying to change that behavior early on, to get people interested and excited about personal finances.”
CapWay’s first offering is a mobile phone app. The idea is that most people today have a smartphone, and phones are increasingly being used for purchases. Once people connect to CapWay through their phones (iPhones only at this time), they have access to plain-language articles and videos about basic financial concepts and can take a financial literacy test.
CapWay is also working with colleges and universities, as well as employers and financial institutions, to expand access to both financial information and financial services. All of these entities have vested interests in having their communities be financially well served and sound. Additionally, the firm is working with community organizations and nonprofits to connect to more members of their target population.
Once participants have developed a grasp of the financial basics, CapWay’s next step is to provide pre-paid debit cards, which offer more practical, experiential learning. Soon they hope to move on to regular bank-issued debit cards, ideally tailored to individuals who are still developing their financial literacy levels.
Eventually, Allen and Lampkin want to move the conversation toward wealth creation, especially in communities of color.
“How do we change that conversation, where money is not necessarily something you get frustrated about,” Lampkin says. “We want to help people maximize the resources they do have, to get them truly financially healthy.”
For more information about partnership opportunities with CapWay, visit Capway.co.
Keith Twitchell spent 16 years running his own business before becoming president of the Committee for a Better New Orleans. He has observed, supported and participated in entrepreneurial ventures at the street, neighborhood, nonprofit, micro- and macro-business levels.
