Magazine article American Banker

Think outside the Box to Solve Americans' Cash Flow Problems

Magazine article American Banker

Think outside the Box to Solve Americans' Cash Flow Problems

Article excerpt

Byline: Sarah Gordon and Janis Bowdler

A bill is due before your next paycheck, and you don't have the money to cover it. Many Americans have personal experience with this scenario: roughly one-third of the U.S. population have little or no liquid wealth, according to an estimate by the Brookings Institute.

The problem of coming up short before your next paycheck is not always caused by insolvency or poverty. It can also be a challenge of timing and cash flow. But for Americans who lack an extra savings cushion or access to reliable credit, there are few affordable solutions. Nearly a third of borrowers use short-term loans to cover regular expenses in order to make it to payday, according to the Center for Financial Services Innovation's 2013 report on small-dollar credit. Many of these products, such as payday loans and check cashing, carry significant costs. In 2013, consumers with cash flow challenges spent an estimated $7.5 billion dollars on short-term loan products.

This constant juggle creates inconvenience, stress, and costly fees and interest rates. To tackle these challenges, research shows that consumers need financial products and services designed to meet their needs and meet them where they are. Technology provides an opportunity to enhance products designed to address these day-to-day financial management challenges with lower costs and more convenience.

In fact, a number of companies across the U.S. are already harnessing technology to solve Americans' cash flow challenges. The Palo Alto, Calif.-based ActiveHours makes an app that allows hourly workers to access their earnings before payday. Users upload photos of their electronic time sheets to their smartphones and choose the amount of money they'd like to withdraw for the hours they've already worked. Rather than charging fees for the service, ActiveHours asks users to leave discretionary tips. …

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