Paul ryan led a discussion on inflation and Financial Technology with policy experts and industry stakeholders. They discuss to elimination of Overdraft Fees, financial regulation, and editorial practices of payday lenders and checkcashing services. From the American Enterprise institute, this is one hour. Good afternoon, everybody. Whoa, the voice of god. Good afternoon, everybody. Thank you for joining us. It is nice to see familiar faces in the audience. I am excited about this Panel Discussion we have today. It is a very timely issue. The topic i am excited about talking about here is, the issue with working families, inflation, and how we can use fintech to solve some of povertys more pressing problems. Working families are facing sustained rising inflation, energy costs, food costs, and everyday life has gotten more expensive on an increasing basis. Workers either paychecks lagged behind. Businesses face a difficult time hiring. As we enter this time of Economic Hardship we know that households will face initial hardship, we also know that reducing that hardship will require policymakers, forprofit institutions, notforprofit institutions and everyone in between come together to explore new and innovative ways to improve access to Financial Institutions. Too often when individuals fall short of money, they have either nowhere to go or the places they turn end up costing them more than they can afford. That puts them into a longrun tailspin problem. As policymakers look towards reducing cost for americans to Access Financial services, we know that new Financial Technologies can be helpful in this goal. We have Seen Technology disrupting reduce costs for consumers in a wide variety of industries. And the Financial Services industry should also be subject to this disruption. If this occurs, we also need to ensure that these technologies also have Consumer Protections that make sure individuals are not taken advantage of. This, in my opinion, will require a light, but real touch by regulators in this arena. This is why i am very excited about the panelists we have here today. We have individuals on the cuttingedge of Payment Technologies such as earn wage access, along with some of the foremost scholars and individuals thinking through these issues. I want to introduce the panelist and get into some q a, for the audience we will come to some of you as you raise your hand. First, he is a financial tech entrepreneur, someone i have known for a period of time, meeting the unique needs of those working paychecktopaycheck. He is a serial entrepreneur, an engineer. I want him to talk about what earn access is but to briefly summarize, earn in currently helps people from more than 400,000 Companies Access which is that would have otherwise been held up in the pay cycle. We are going to talk a lot about the pay cycle today. He holds an mms from the institute of technology and science and an mba from purdue universitys school of management. Next we have ida. She is Vice President of the aspen institute. She is a vp there and executive director of the aspen Financial Security program. Since joining the institute in 2015, she has combined her expertise in economic conclusion, research, and policy with her reputation as a collaborative and creative thinker to expand the effort to bring to the national forefront a solutionsfocused discussion on how america can improve Economic Growth by addressing growing levels of Health Inequality and Household Financial insecurity. It has resulted in the creation of several new cutting edge initiatives including the impact collaborative and the reconnecting work and wealth initiative, and the Aspen Leadership Forum on retirement savings. They are building a cross disciplinary community of leaders who are probing critical financial challenges facing u. S. Households and shaping markets and policy innovations that can improve the Financial Security and wellbeing of all americans. Next, came all away from the Brookings Institution next door. Senior fellow at the Brookings Institution. Senior fellow in economic studies, focused on Financial Technology and regulation, payments, macroeconomics, and infrastructure financing and policy. Prior to joining in 2016 he directed the financial reform initiative. Between 2009 and 2012, when we were at similar stents, he served as Economic Policy at the treasury department. He also helped secure passage of dodd frank wall street perform protection act of 2010. He was a banking staffer at the time. He also played a leading role in responding to the economic crises, transportation policy and native american policy. We have here a panel that is expertise in this area, i want to start with you real quick. Because you have taken a very good macro view of these things. We are here to talk about Financial Inclusion. But fundamentally we are talking about Financial Inclusion because we care about the Financial Wellbeing. What is missing from our current Financial Services marketplace that promoted you to lead the initiative to call on the treasury for a National Strategy on inclusion . Why did you do that . Thank you, it is great to have this conversation and i look forward to the q a later. The upside part of the answer is that there is probably more going right for real Financial Inclusion that leads to wellbeing that we have had in a long time in terms of Financial Service, levels of innovation and leadership in the Public Sector and private sector. The reality is that the sum is not greater than the parts. There are lots of different silo initiatives, lots of different innovations router about today. There are lots of understanding about what it takes to deliver wellbeing for households to give them dignity, agency, and choice. There is still not a birdseye view about how all of the pieces connect. Peoples Financial Lives are not siloed. The payment pieces, the savings pieces, what is going on daytoday and week to week is still not connected. We ended up supporting what the treasurer called what the senator called for with the national Financial Inclusion president ial commission. We want to see how much support was out there. The Financial Wellbeing of our households and what infrastructure could deliver on that . We certainly saw that during covid, when all the payments were hung up with some of the last mile problems. To our delight, over 110 companies and civil rights organizations, every industry associated related to finance and all sectors signed on in support of the idea of a comprehensive, coordinated government quarterback to help think about Financial Inclusion as a financial peace of inclusive growth in this country. With think it is the right time. There certainly seems to be the private sector will to do this. I am happy to talk about how, in particular the components as we come into a very inflationdriven environment, will matter for households. Paul where are we on the stage in the effort . We have made a call, a growing stakeholder coalition, and youre always welcome to ask others about it. We are continuing to find support on the hill and support inside of the administration for its. It is not a done deal but there seems to be a through line to get this done. Paul i want you to tell us your origin story. We have heard it, it is really interesting. You are on the cuttingedge of Payment Technologies. Tell me, what is earned wage access and what possessed you to get into this in the first place . Sure. The way earnit started, it was quite by chance. I was running a Rather Company and my employees were getting Overdraft Fees and payday loans. It did not make sense because i was paying them well. I spoke with one of them, the problem is she needed money the next day, cannot wait until the following saturday. It was wednesday, i want to pay her for the day she already worked. The systems could not do it. So i said, that. It started off like that and i did this for a handful of my employees. For a couple of years it was always in person. I moved to the bay area and they wanted to know if i would still do it for them. I did not mind doing it, i knew how the systems worked and i could tell if they were working out. I continued to do it over messenger. That was not the most convenient way. I would keep getting messages. We had this app for people to use. I did it for them as well. What i realized is that if you give somebody access to their money when they need it, they ir lives are more simple. No more late fees, no more Overdraft Fees, no more payday loans. If i could make it into a product that would scale if for more people i would not about myself. Through the industrial revolution, people were paid everyday. That is where we started paying people in batch. It is in favor of companies, not in favor of people. As employees, if we had a choice we would rather get paid two weeks before we go into work. Instead you get paid two weeks after you work. It does not have to be that way. The technology exists. It is crazy that it comes in a two week batch. The house on the hill does a one month that, four weeks. Just imagine if google waited two weeks give you results. You would not even think of a system like that. Paul you did this for your employees at your business, you built a crude webpage. Did the concept of earned wage access exist then . Were there other people doing this . In a lot of Small Businesses managers were doing this for their employees. It was not done in a way that scaled. Paul what year was this . Probably started doing it, in person, maybe 2008, 2009. Then we made into a Company Early in 2013. Paul that is really something. Aaron, like a chore basic reaction to that, you think i want to get your basic reaction that comey think a lot about payments and workers in a unique way. What from your perspective does government need to do to make the payment function better for working class citizens, either directly or by allowing businesses in a way not currently done because of regulation. What is wrong with the system today . What is wrong with the regulations of the system today . What should be done with it . Thank you speaker ryan for hosting this. I want to start out with a fact i think everyone in this room can agree with. September 30 is going to be a friday. You do not need more analysis. What happens if you get paid friday, september 30. Do you have a check . You go to deposit in your bank and it will be there tuesday, october 4. At some point. It is not quite clear in the day when it will magically be credited. What do you do for the weekend . How you live . How do you pay rent . How do you handle all the automatic bills . 40 to 50 of the americans are living paychecktopaycheck. We designed a system that assumes you always have money and assumes you dont care when the money comes in. That assumption works great for the half of americans that have 1000 in their account, who get free checking, all of the other benefits. Who is paying for that system is the people who are living paychecktopaycheck. Overdraft fees, one out of 11 americans pay 350 a year in over draft fees. Heavy overdrafters are the ones subsidizing free checking. You ask why we have the system . Realtime payments. Bank of england did it in 2008, europe was a little complicated. They had a few legacy systems in the european union. They got it in 2019. We do not have it. Why . The Federal Reserve chose not to do it. Simple policy choice. What has been the ramifications . By my cancellations, over 100 billion of wealth transferred from People Living paychecktopaycheck to payday lenders, check cashers. 100 billion . If we did realtime payments when the bank of england did it in 2008, there was a there was something brandnew coming out called the iphone. That technology in england, in 18 months, to realtime payments. We dont have it. The private sector has developed some alternatives. Earned weight access, some other things. But we made a critical mistake. We put the Federal Reserve in charge of regulating the nations Payment System, how fast the check clears, when that money comes into your account, but they are also in charge of operating their own system. They are the operator and regulator. If we told blockbuster you are in charge of developing streaming, would we have netflix . That is the mistake we have made. The people that have suffered are the People Living paychecktopaycheck. The people that have prospered are the banks, the check cashers, payday lenders, not the people that were not so fortunate to have a good boss that took care of you, went to somebody a little bit less reputable. It is really infuriating to me because the rest of the world is light years ahead of us in this. Paul give us something to talk about here. Give us a glass halffull. Aaron you have some companies stepping in to bridge the gap. Two, you have Financial Services, banks trying to do the right thing and move forward on the overdraft stuff, reduce punitive fees. You have early wage access, you have technology, Companies Like square, uber trying to pay their employees. You have a company like visa who has done something called push debit so they can clear things faster. And then you may have this thing called fed now. They said they are going to start operating, it has been seven years since they said they would start studying it. They had a thing called fed 2020, they said they would have it solved by 2020, that was 10 years ago. I am very skeptical of those initiatives. I think we actually made huge mistakes in our covid distribution payments. We had millions of americans waiting on paper checks that were coming to them in september and october from march 2020. One report showed over 60 million of cares act money went to check cashers. So technology and private sector folks are making progress. And they are doing workarounds and innovative hacks because there are real problems facing americans every day. Paul let me ask you then, where are the workarounds occurring . You are at the beginning of the effort to try to get this government approach on this. Where are any promising movements in government, in industry that you see . Steps in the right direction. Ida a couple of things with this. Earnin, with your personal story, with your engineering mind, you focused on a specific problem. This is what Entrepreneurial Solutions can do. You can solve specific pain points, solve for them, and prove that you can do that in a way that has a business demand, solving real problems and saving households money. The problem in the long run, is you end up with 47 different apps on your phone with 40 different slices of your Financial Life being managed. And we have not actually centered on the full, curated set of not just apps, but systems that people need. Payments need to work. Government to business payments. Government to business payments. Payroll system to work for households. And we know, in terms of Household Financial wellbeing, it is not rocket science. What we found over and over, and this is Research Bears out in the qualitative and quantitative work, his people need to experience routinely positive cash flow in their life. It can come from earned income, coming in when they need it. It can be in the way that nonearned income comes into their life. Social security payments. When your income is lumpy and your expenses are lumpy, and you can solve it through technology, the good news is government, from a regulatory perspective, it needs to understand what it can do to facilitate market innovation. And to the degree that finance is becoming a bit of a utility for households in the country to be fully participating in their Economic Life of the country, we need to solve it, not in oneoff ways, but thinking systemically. One of my colleagues often says when you are the 50 of folks who has 1000 in the bank or more, the system behaves for you. When you are not, you behave for the system. It ends up taking an awful lot of your life. And that means that you do not have enough of the mental bandwidth or plainout time to be there for your kids, to think about the next steps of education you might want to take. You are so busy managing this complicated Financial Life, and you are an exquisite manager of that. People who live on the margins have incredible ability to understand the complexity and manage it. But we can make it easier and it can be good for the economy. And i think it can lead to more innovation over time. But right now all of the innovation is not leading up to wellbeing for households in the way that it should given the level of investment going in to that space right now. Paul how have you approached this . How did you at earnin decide to do this . Since we talk about how inflation is eating away at paychecks, how does your product help workers cope with inflation . And how does that compare to the other options they have, payday loans, overdraft, high credit card fees . How does earnin and earnin wage access tackle this . Ram the individual uses this as a tool to get to a better place. Some of the data we see is our customers, they are saving about a billion dollars a year in Overdraft Fees. So there is a lot of cost avoidance happening. Just our customers are saving a billion dollars a year in overdraft these. I think there is a Ripple Effect because of that. You are now seeing banks, who used to do Overdraft Fees, are no longer really effective. It is helping everyone because Overdraft Fees are coming down. Paul what is the typical Overdraft Fee . Ram 35. The average transaction is 42. It is usually paid back within a few days with the paycheck. And i think one in 12 are these streaming services transactions, one in eight leads to an Overdraft Fee. So just think of it. For hulu, for every 100 they make, the bank makes 40, which is amazing on the overdraft side. There are less late fees on bills. Interestingly, we see an income effect as well. We see wages go up when someone starts using our product. That happens in a couple of different ways. Our customers typically cannot block 100 in the gas tank. If something unexpected happens, they dont have money to buy gas and they miss work. But with our app, they can get the previous day earnings and then they can get gas. We are seeing the average hours of work go up by two to three hours a week, so their income goes up. There are also lots of other interesting ways where we see wages going up. A customer working in retail, and the different types of jobs, some of them are tied to a branch. There is a step up where you get to manage that department, in multiple branches. You get higher pay for that. She was offered that. She couldnt do that because she had to front the gas money. Paul she denied herself the opportunity because she couldnt front the gas money . Ram next when she had the offer, she took it. Because she knew she could manage it. We see things like that where we see income go up, when someone has access to their wages. Paul walk me through how this disrupts payday lenders. Because before in the old days, or just 10 years ago, if somebody is really strapped, they need to get their car fixed to get to work, they did not foresee this, and it is either lose the job or fix the car. I am going to the payday guy on the corner and i am going to get this loan and i am going to pay these interest rates, if i break the term. What is that doing to this industry . This industry sees it as a disruption coming to them. Walk me through that. Ram if you look at the median bank balance for our customer, its 125. If that is how much money you have, you are just try to get to payday. You dont worry about how expensive it is. That is why they take the Overdraft Fees. Overdraft fees are not happening by mistake. People are using it as a tool to get by. And so you have 135 in your bank account. 645 is the median accrued in unpaid wages. And so when we give someone the ability to see how much money they have in total, the way you make decisions is different. You are not making decisions to get to payday. You can buy things at the right point in time, you can pay your bills on time. You can kind of make people act like they are a step up and make better decisions. Paul what are some of the things that banks can do to eliminate Overdraft Fees . Will low income consumers keep paying for those Overdraft Fees . Are we pushing on a balloon . Aaron it depends how it is done. You have seen some banks completely eliminate overdraft. Those are also give you early access to your direct deposit. Notice the similarity, the timing of the access to the money. The more they can hold it, the more profit they make. When they give up the overdraft profits, it does not make sense to hold the money for so long. The Federal Reserve could put a regulation out tomorrow requiring you to have the first 5000 of every check that you deposit when you walk out the door. They have that legal authority, they have had it since 1987. But they are never going to do it because their own system could not process payments that quickly. So you are seeing the banks that and these are predominantly larger banks. A lot of larger banks have cut their Overdraft Fees and change their policies, giving people up to 50 or 100. There is a Smaller Group for which the Overdraft Fees is the entire model. Ever hear of the bank wood forest . 9 billion bank. It has made more than citibank the last seven years. They are a branch in walmarts. They are in a couple of states. There are a few in maryland. Often in the southeast. They made over 100 of profit on Overdraft Fees in the last seven years. They have lost money in Everything Else they do. There is another bank, armed forces bank. Want to guess who they serve on military bases . You want to talk about people who are living paychecktopaycheck . Think about our enlisted personnel, a lot of whom are overseas and deployed, all kinds of financial hardships. There is a group of institutions that have targeted this overdraft customer. Every single payday loan goes to a person with a bank account. Why do i know this . The only way to get a payday loan is to hand a postdated check. My research has shown that 70 of customers at a checkcashing store have a bank account. There is a big misconception that these are problem of the unbanked. Wrong. These are problems of the underbanked. They have a bank account but they are going to an alternative financial provider, 15 to 20 of americans fall under this category according to the fdic. And they are going there because services are not services that work for them. To some degree and i commend the banks who are lowering their Overdraft Fees. Bank of america just went from 35 to 10. It doesnt cost them 35 for them to give you an overdraft. It is a putative amount specifically designed to encourage you not to do it. Now, some institutions reorder your debits and credits from the largest to smallest because that maximizes their fee. We are not yet in a realtime Payment System. There is competi. Fintech companies doing this. Some general good perspective of this. And some recognition that the system will work. Ultimately, we will not get to a workable solution without a regime that puts people first and reorders. We have a Financial System where the less money you have the more it costs you to access your money. Paul let me go to an entrepreneur about this. Policy people, do you see people, you think differently. You look at this from different angles. Ram, what from your opinion, should government do to make this disruption nationwide . What can we do to get these kinds of innovations through a regulatory structure into the hands of working americans . Ram one is to recognize how innovation and tech can be a force for good. The things that we already see with our own product, incomes are going up. We also see a lot of nonfinancial benefits. People are celebrating anniversaries and birthdays on the right days. Recognizing that innovation can be part of the solution. I think the second thing, the data also shows that. The other piece is to be receptive to paradigm changes. One of the things we have done, we have made the employee to be at the center of payroll. That is an unusual paradigm, but it works. It has led us to form smarter companies. No way to do that without technology. We have 100,000 companies that have less than 20 employees using our product. If you had to do with the way the prior generation did, partnership with the company paul how many people at earnin . Ram several million. Paul you must see data constantly and continuously. Ram yes, we have a really good pulse on what is happening with the customer base. Some of the data has been aggregated anonymously to help form some of the policy responses like what what is happening with covid. How to think of technology for policymakers, i think it is willing to question why things work the way they do. For all of you that are here, you been working this morning, so you have earned some money. When you open up your bank account, why is it not there . It is in a different system. That is the most trivial thing to do with technology, moving data from one system to another. It is not because of technology. There can be a policy approach to make sure that you are getting your money every second that you work. It will eventually happen. All of these things, who benefits from having a twoweek pay cycle . Not the employee. Ida could i ask something . What you said about centering on households, how your Business Model is listening, that is one of the best advances that not just for fintech 1. 0, even where a block chain can take us to figure out what is really needed by consumers. The Banking Systems that we have, the regulatory systems that have grown up around them, are all about managing the risk of the system for the system. The realities is that we all experienced during covid, one of the risks to that system that we dont account for in any Regulatory Regime is the underlying stability of the Household Level when payments stop, when jobs come to a halt for a little while and you need a government payment to kick in, or when you are reversing back out of that. The idea that we can fundamentally manage risk at both the regulatory and Financial Service level for the household and the economy, simultaneously, because Technology Allows us to. That also calls for the curiosity and leadership at the regulatory level, to prioritize that simultaneous solving of problems. It is not just earned wage access. We have billions of dollars that we take out of Retirement Funds every time somebody changes jobs because of the way that system works and it is not portable. The same Technology Helps with automatic portability of retirement savings. The same kind of Technology Helps us understand how we can understand more about peoples risks, pool risk for new insurance products. The reason we are calling for a National Approach is to think about the entire toolbox being reinvented with the kinds of products and services that really help people focus on living productive lives, as producers, not just consumers and the economy. Aaron you said something earlier about the challenges of people. You hear all the time, i needed shortterm money. I had a car breakdown. It is often a problem with income. My kid was sick, so i missed work for a few days. I know a lot of people dont have paid sick leave. So you say the gig economy will solve that. Your rent is due on friday. Ida made the point about financial planning. People that do the paychecktopaycheck do the most budgeting and planning. People that live comfortably do far less. That is why Financial Literacy and giving somebody a brochure on budgeting is an ineffective solution. They are budgeting more than most families. What do you do . I will drive that extra uber, do something in the gig economy. But if that money is not in your account and accessible to use the time the payment is due, what good has it done . It doesnt surprise me that uber is one of the First Companies to start same day pay. I heard that was more popular than when they started allowing tips. That corresponds with other data coming in that shows People Living paychecktopaycheck, for stability, would you rather be more certain in your weekly wages or get a 5 wage let me more variable . They will take the certainty, not because they dont want more money. This is america, after all. But they know with certainty they can reduce their expenses. One of the things that early wage access does, it solves for this volatility problem the way that same day pay or other solutions would have. Otherwise, we have a mismatch between possible solutions, and the reality of actually getting that money into your account and accessible. Paul we have a supply side entrepreneur who has offered this service, but you government thinkers, reformers i mean that in the nicest way. Other than health care, i dont know that there is a more regulated industry out there. What does the Regulatory Framework look like so that we can have our cake and eat it, too . Have the necessary Consumer Protections but have the open space to allow Entrepreneurial Solutions to the working poor, the underbanked and unbanked, what does it look like, how do we create this Regulatory Framework . It was not just havie sandbox, it was having the regulators signal they were open to hearing about what your product was, what you are trying to solve for. There is a learning curve. Regulators whose job it is to manage Systemic Risk. Part of this is the mindset. When i think about the end goal, we have a very brittle and stratified set of regulators for every kind of insurance, banking product. Some at the state level. Ask why the u. K. Has done something and we havent. We have such a complex system. If youre going to make an omelette, you have to break some eggs. At some point we have to figure out not just another layer of regulatory complexity but a fundamental disruption about how we think about that. At the heart of that is consumer protection, what will happen to folks, but it is hard to say the end goal right now because it requires a conversation among people who dont agree with each other. That is where the leadership opportunity is right now. Paul we were talking about tarp. It was not a pretty time and american Financial Services, the economy. I remember talking to regulators frequently those days. Regulators dont get burned if they stop innovation. They get burned if something falls apart under their watch. Everything is a nail, they have a hammer. How do you allow for this kind of innovation . Aaron i will give you a great example. 5000 banks, even more credit unions, let this diversity go. The regulator needs to stop looking at overdraft as a source of profit for banks that make them less likely to fail and ask the question, are you a bank . I would have a regulation that no bank can make 50 of net profit on Overdraft Fees. Simple concentration of risk. Six or seven banks in america do that. Some of them make 200 of their profit. Those are not banks, those are check cashers with a bank charter. Everybody is banked. You cannot make your life based on Overdraft Fees. That is not your Business Model. Paul i get how that stops bad behavior but how do you encourage risktaking, entrepreneurship . Aaron i have been a big proponent that sometimes banks need to fail. The first time in American History we didnt have a single bank failure, 2005. 2006 was the second time. I remember the regulators saying we did such a great job, no one failed. Look at how wellregulated the system is. If you came to washington every year and every restaurant was the same, nobody failed. Now, you dont want systemic failure. We have lived through that experience. But there is a distinction between blind for innovation and competition, changing overdraft practices, lets provide some different services. Paul you have to give space for fintech. They dont all have to become banks. Aaron but if you make deposits and loans, you are a bank. We need to understand that there is a difference between providing a service, Financial Services is two words. If you take deposits and make loans, thats a different set of regulatory structure. The other point i want to make, we have a problem at the Federal Reserve. Its been given a lot of responsibility. Should you be operating and regulating a Payment System . Do you have a structural conflict of interest when america ask you to regulate the system but also operate your own . That is a structural conflict. Until we resolve that culturally by referencing the regulatory side or legally divorcing the two, youll have a structure where they dont do their job as regulator until they fix their job as operator. Our operating system is so antiquated. It is not streaming or blockbuster, it is like real to real. Ida the whole vision for a commission is that there is an ongoing, not until the end of time, but where is a measure to structured supposed to have this conversation with rigor, in with data, and come out with the answers to your question. So much is coming. We cannot fix Financial Inclusion unless we know what is the finance system 10 years from now, what does this disruption mean for households . Lets add the systems. I dont mean to imply that managing Systemic Risk is not a piece of it, but if that is at odds with how the finance system facilitates peopless Financial Lives, then we are not doing our jobs. Paul what you described is a bank. That is not what you are, what wage access is. You saw a hole in the economy that needed to be filled, a need that needed to be addressed. You are addressing it right now. What presently stands in your way of supplying this further . And address the question a regulator would think about when they see this new product risk. Where is the risk to the regulator . Ram the way i see it from my side, we have a product that helps consumers. It was never contemplated with the previous set of regulations. Most people try to fit it inside of an existing box. Is it this or this . If it is not, then it is suspicious. Because of that there are so many consumer means that are not being met. Supportability concept. If you could take your account number and move it to any bank, you didnt have to worry about direct deposits or anything, imagine how competitive the banks could be . We have that with phones. Aaron the new vice chair of the Federal Reserve, talked about bank portability accounts, when he was at the university of michigan. Imagine how noncompetitive it would be if switching your phone mental losing your number. Totally different Market Competition unlocked by a government regulation. Otherwise we would say we are not going to poach each others stuff. Perfect example. Ram trying to develop solutions, it is top if it does not fit in an existing box. Even if there is a clear consumer benefit, it has to fit inside of a box. Overdraft, it is ok to do it, even though it is bad for consumers. The constant between some things are permitted for people, some things are good for people but not permitted. Paul that is a part of your effort. Ida the one thing i would say about the cautionary note, you are solving for the person who is illiquid. They need the money, they dont have the money. That is different from the other data that says, not just 40 of americans living paychecktopaycheck, but at the end of the year they are insolvent. You cannot fix all of that with tech. To the degree that you can make households affordable, there are things that you can do to drive down the cost in the entrepreneurial space, you need to have routine cash flow. Benefits innovation is a huge thing for innovations. We need to help family to more than just manage scarcity. The whole point is that people have durable wealth to decide for themselves how to live their lives and pass on opportunity. You cannot talk about the future of wealth on this you grapple with the fact that increasing number of americans live in net debt. And it is not because i have a mortgage, it is unpaid bills, fines, fees. People can often get a bad credit score before they even get access to credit because of what we said before. Aaron without opening into the bleeding heart, what is really infuriating, there are a group of people who are illiquid for whom the cost of addressing their liquidity becomes so great in the cycle of debt, payday lending traps and all the rest, the actual cost of the system tips them into insolvency. That part is so frustrating. Paul that is something that he is trying to solve with earned wages. Aaron america was set up to allow for bankruptcy, to allow those who are insolvent to have a Second Chance. Bankruptcy is in the constitution. We were set up to allow the truly insolvent to have a Second Chance for another pass at life. What is infuriating is when the system drives the liquid into the insolvent. Ram maybe i would share one story, but we see with consumers on overdraft. We have seen a number of consumers who will, instead of paying bills on their card, because they get overdrafts, they get one overdraft to take out cash. They take the cash and go to a sameday bill place where it is about 10. They didnt want three Overdraft Fees. They take one fee and they make the reexpress bill payment fees. They understand how the system works and they figured out a way to get around it. Paul and the marginal tax rate on an extra dollar is mind blowing. Let me open up to the audience. On the sandbox issue, you have the tunisians who are doing centralbank Digital Currency using block chain, which beats the bad players, western union. Shouldnt we have our companies do this in africa and developing world before coming here . You see these mistakes with fintech, Brian Monahan and jamie dimon are spending billions on stuff that doesnt work. Should it be africa first . You have the brainpower to do this. Do it now rather than doing it at home . We still have payday lenders. We may as well have the post office do banking at this point. Aaron i would be careful on that. A group of people in new york in the 1960s wanted to figure out a better way than going to the bank and getting cash to go out to the restaurant over the weekend. The invented something called a diners club, which today we call debit and credit cards. Plastic magnetic strip cards invented in america. Visa, mastercard, american express. These are Global Companies headquartered in america. Take your approach. Trying to figure it out with alipay, wechat pay, because in china the merchants refuse to take the cards and the fees associated with it, and they have digitized their way out of the banking system. That led to a whole set of china, developing the cbd, not because theyre trying to take over the view of the dollar. Paul they were not surveilling. Aaron control is a much bigger issue there. The Financial Services sector is one of our great exports, one of our great economic strengths. We should be at the forefront of innovation, not the back of it, because we are so afraid of what could possibly go wrong. Paul other questions . Im a Research Assistant with a few people here at brookings. Based on the last point you made, it seems like a point who need realtime payments the most needed because they dont have roughly two weeks of liquid cash. Realtime payments may save 350 on Overdraft Fees. While that is a lot for most households, it is not two weeks of liquid cash. Is there evidence that people that have access to realtime payments bill longterm savings so they dont perpetually live paychecktopaycheck . Paul ram, you see the evidence. What is your take on it . Ram we see people come two ways when there is an earned income crisis. When we look at their financial profile six months down the road, it is much better. It is difficult to see what is happening. Is it a timing issue . We see there are fewer Overdraft Fees, bills being paid on time, incomes going up. Does that get them to a place where they are comfortable or not . Tough to tell. Also it is not a oneoff. You are in a tough spot, and then you recover. Your car breaks down again, a child becomes sick. You need to be able to get back on your feet. Paul anybody else . In the green. Michael, atu. The underlying problem is people dont have enough money to begin with. If you are on a paychecktopaycheck balance, you lose your job, you have an illness in the family, you have a crisis, you are in trouble. Until you create enough of a safety net, minimum wage for people to live reasonably, you are not going to solve this problem. They dont have enough income at the beginning to solve their problems. Paul that is a much bigger policy conundrum. But the point being here is fintech can solve a lot of the problems that are not being solved right now. Aaron there is a jewish prayer that says not to reject Incremental Solutions that make things better because they dont get you the whole way. We didnt solve the whole problem, so its not good enough. Celebrate each little bit of solution. I am very sympathetic to your point on living wages, sympathetic to a lot of things in the Income Distribution that have gone wrong in this country that have a lot of policy solutions. But one of the things that we have observed, overdraft was not anything 30 years ago. There was a banker who figured out to reorder your credits and debits to maximize Overdraft Fees and got a giant bonus. There is a ceo of a Banking Company in minneapolis that named his yacht overdraft. You know the Financial Institutions in the midwest. You have an exploitable population at a moment of necessity, and a system that is not designed for them, that was built to serve a very different system in the 1950s, 1960s, different workers with Different Technology that has not been modernized. There are more payday lenders in america than mcdonalds. Paul what is interesting about fintech, it is not tied to a geography. Before these Fintech Solutions emerged, you got what where you lived. If your town has nothing but payday lenders or banks with Overdraft Fees, that is where you went. This is providing geographical freedom for people to get out of these culdesacs and get their continuous pay. Ida to your point, with technology, things are going to be disruptive. In the cycle of technology, inclusion to the wnd the better wellbeing has been a nice to have historically. Until the forces of disruption align around that being and objective. Fintech should be at the table along with the overall question of how much do people make, where it is routinely positive cash will come from . Technology should be at the table. A lot of the problem solvers are there. But it will not happen by accident. Inclusion doesnt happen by accident. This doesnt happen unless we take a leadership position on that. And that is not a partisan position. That is one for every constituent. Paul i am watching the clock, let me ask you this. Aaron you asked for a solution. Every bank should be required to offer a free account. 20 of new accounts. Thousands of banks offer these kinds of services. Having a bank is a privilege, a charter, not a legal license. If you have a bank charter, you should be required to offer this kind of account. They are profitable accounts, it is not free, it can have a small monthly fee, and that can be a service offered. There are answers out there if you put having a working system as your goal. If you are maximizing bank profitability, you will derive a different system that is much more difficult for illiquid people. Paul ram, take us home. It is 3 15. In the house, we stay on time, not like those guys in the senate. Give us your final thoughts on this. Ram i think it is interesting, me being more on the technology side. The government side trying to make stuff into things that already exist. If we want inclusion, by definition we want some event does not exist. We cannot want inclusion but also keeping everything the way that it is. Accepting that the status quo is not acceptable. Aggressively try to find ways to get to a better place in the future. Paul i spent 25 years on capitol hill. Almost every day having an newer newer come in from somewhere over the country and say, i have a solution to a problem in society, but these laws and regulations do not let me do it. I could do so much more if this alphabet soup agency let me do this. It is always fun to watch an entrepreneur come to washington and listen to policy people talk. What is exciting about this moment we are in, the pace of change in Financial Technology, in fintech, web3. 0, ai, quantum, everything that is happening right now, it is so rapid, government is so behind on this stuff. But what you are showing us is there is a glimpse into solving a lot of problems out there and that we can solve without creating that tarp day like we had in 2008, so we dont have massive Systemic Risk. I want to conclude on the note that there are Amazing Things happening out there in the country. Amazing entrepreneurial creations, engineer designs that are really solving societies most stubborn problems. Fintech services, if youre looking at a country facing inflation, how many people are living paychecktopaycheck you said 45 to 50 Serious Problems that require lots of different answers and solutions. But one of those things that is a real glimmer of hope are the Financial Services are being developed to fix a lot of these problems. Please join me in thanking these panelists for sharing their insights today. Thank you very much. [applause] only one minute over. Thank you, everybody. Appreciate it
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