The Federal Banking Supervisory Agency wants banks to help those who don’t have a bank account

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Reaching and serving people without bank accounts has been a persistent challenge for federal agencies. But with the suspicion that the banks themselves could help the so-called unbanked, the Federal Deposit Insurance Corporation has launched a technology sprint to find what it describes as technologies and techniques to do just that. For more information, Federal Drive with Tom Temin turned to FDIC Chief Innovation Officer Sultan Meghji.

Tom Temin: Mr. Meghji, it’s a pleasure to have you on.

Sultan Meghji: Thanks for hosting me, Tom. It’s great to be here.

Tom Temin: Tell us about the sprint, are you looking for ways the banks themselves could help people without bank accounts – it sounds a bit ironic.

Sultan Meghji: Sounds a bit ironic. But I’d say it’s open to more than just banks. Our vision is through the FinTech ecosystem, through the banks, among the community groups, there are many people who understand the population that currently does not have a bank account. We want to hear from all of them. Our view is that a tech sprint is the easiest way for us to listen to these communities, hear the great ideas that are out there, hear what has already been successful, find new ways and then support it in the system, because they still are. too many Americans who don’t have excellent bank accounts.

Tom Temin: And people who generally don’t have bank accounts, are they able to communicate in any other way? That is to say, do they have computer accounts or e-mail accounts? Or do they tend to be people who stretch to the homeless, too, I guess?

Sultan Meghji: Yes. We have a survey of non-bank households and it still shows that many millions of families and many tens of millions of Americans have no bank accounts. And it’s in all walks of life, it’s hard to simply say there’s a category or geography or racial group that doesn’t. It is a very broad spectrum. And so for us, we predict – and that’s why we designed the tech sprint as we did – that there would be more ideas that would impact different communities in different ways. And we really want to emphasize that this is a broad-based challenge across the country.

Tom Temin: And is it one of the assumptions behind this, that the definition of a bank itself is changing? In many ways, in the first place, it is becoming a purely digital entity.

Sultan Meghji: Absolutely. We have seen more technical changes in the banking sector in the past 18-24 months than in the past decades. And that’s it, from mobile-first banking environments where all you need to do is download an app and then sign up for a bank account, to the pandemic challenges we’re still going through with branches not necessarily being open. And the last thing we want to happen is for there to be more haves than have-nots in the banking system. Because while digital technologies will always augment the normal version of what we call a bank, we need to make sure we don’t create a banking system for just a few, that we are in fact creating a banking system for all Americans.

Tom Temin: And just out of curiosity, does the FDIC insure accounts in non-corporeal banks, ie digital entity types of banks?

Sultan Meghji: Well, we only insure bank accounts in banks. Now, there are banks that provide this service to non-bank entities. And of course, we work there. But fundamentally, the FDIC’s mission is to secure bank accounts, not non-bank ones.

Tom Temin: Right, so a bank doesn’t have to have buildings nowadays to qualify as a bank, does it?

Sultan Meghji: No. I mean, in general, you see a couple where they might have a building that might be a branch or something, but that’s not necessary. We have a variety of institutions that are banks that are charter institutions with FDIC insurance, which are not your traditional branches.

Tom Temin: But you have a way to go in and make a resolution if necessary.

Sultan Meghji: If necessary, our examination processes are pretty solid and also allow for variability because even before this digital environment, you would see very, very small bags – maybe 10 employees in a small town, somewhere far out of here in DC where we are talking about. But then you would also see some of the largest banks in the country that we review. And we have the robust exam system that fits all of these.

Tom Temin: We are talking to Sultan Meghji, he is the chief innovation officer of the FDIC. And back to the tech sprint, what are you looking for who you hope to get it from?

Sultan Meghji: We are really excited that almost all organizations are submitting an application and coming to talk to us about it. We see a variety of different games on the market right now. And we are incredibly excited for this community to show up and help us understand how to bridge this last mile gap, as we call it, how to get all these amazing banking and market products and services out of all of these, and how to get them into the hands of the average American.

Tom Temin: Okay, so could it be the banks themselves that went into this or could it be academics, I guess?

Sultan Meghji: Absolutely, we have opened the application period for about a week. And we already have nearly 30 candidates, which is way more than we expected to get. And it’s from everyone from small banks to large banks to small tech companies, large tech companies, payment processors, and a variety of nonprofits. So we expect a rather solid and heterogeneous community of participants.

Tom Temin: And will you award, what, challenge grants to proceed with the best ideas or how does it work?

Sultan Meghji: Yeah, so basically, Phase One is the tech sprint they go into, they prove something. We have had these great demo days, we have a chance to be cheerleader. And then, downstream, we are building on other businesses that we have already established. So, last year, we created something called Rapid Phase Prototyping Program that allows us to quickly move organizations through the traditionally not-so-fast federal procurement process. We were also working on setting standards and partnering with nonprofits and other organizations to create this as a first step in a multi-stage program to ensure these capabilities hit the market.

Tom Temin: And so those who are selected in this first round then get money to develop the idea further, is that how it works?

Sultan Meghji: So there is no money in the tech sprint, this is something we wanted to avoid in the first part. But part two, and then downstream, there are a variety of different ways we can encourage what makes this program possible.

Tom Temin: Got it. And only in your mind, when you imagine it without trying to guide anyone through the technological sprint who may not have sent something. But what if – I guess I’ve been to the Appalachians recently, and you see where the poverty is in the US, and there might be people there who don’t have bank accounts. What do you imagine for such people so that they can participate in banking activities? And how would the banks be useful to them, the unbanked?

Sultan Meghji: That’s a good question, Tom. I am from a small town in the middle of Illinois, about 500 people. So I didn’t grow up in some big New York City metropolis or anything like that. And I can tell you that the decline in the number of banks over the past 30 years – we had about 35,000 in the 1980s, now it’s down to less than 5,000 across the country. That’s a pretty big drop. And we see a lot of banking deserts. So we see many places, not only in certain urban areas, but also in many rural areas where in the county they live in, there might be a bank, or a branch, and in traditionally farming communities where perhaps there isn’t as much family farming and more. industrial agriculture. There is a definite wobble in that universe. I don’t want to lead anyone, but I can say that I am equally if not more interested in learning how this program can help rural Americans like any other community, because we have tens of millions of Americans in this country with no bank accounts, and many of them. they are found in very rural areas.

Tom Temin: And it seems that one of the big challenges, therefore, is not the services themselves, but encouraging the banks to be there, otherwise there would be.

Sultan Meghji: As a federal government employee, I would hesitate to use the word incentive. I would say, encourage instead. But I think it’s very clear that, you know, banks are for-profit entities and there are a lot of things they do to maximize their profits. But there were ways to reach these amazing customers that some of them may not have thought through. And so we hope that, if nothing else, we can help them think about how to reach these amazing customers and show that there are people who should be in their bank and should work through this program to work themselves through the system. At first, it is a deposit account which is possibly a home loan or credit card. There are a variety of different downstream applications that we think are invaluable to people in order to find that American dream.

Tom Temin: Because in the telephony industry the Universal Service Fund has existed for decades and decades and decades to make sure everyone has access to a phone, there is no such mechanism in banks. But maybe –

Sultan Meghji: So it’s interesting, we have a program called GetBanked which we think is a step in that direction. And there has been a great press about it, your listeners can watch it. But the idea is that every bank in this country should offer a bank account with zero to zero fees, it shouldn’t be a burden for someone to use it instead of using alternative financial services that probably end up costing more and don’t necessarily encourage behavior. correct in terms of how to operate in the financial system.

Tom Temin: Got it. And so back, once again, to the tech sprint, what are some of the deadlines here? And what is the timeline we are looking at?

Sultan Meghji: Absolutely. So the questions close on the 20th, which will arrive here next week. And we are very excited about it. Once the cycle is complete, there will be a series of multi-week programs as people move forward, formalize their questions, and then towards Labor Day, we have a demonstration day where the chosen parties can show what they are doing and what is its value and how to quantify it. And then there will be other activities downstream, but we have not announced it.

Tom Temin: Okay. Sultan Meghji is the head of innovation at the FDIC. Thank you so much for joining me.

Sultan Meghji: Thank you.

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