Federal banking oversight agency wants banks to help the un-banked

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

Interview transcript:

Tom Temin: Mr. Meghji, good to have you on.

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

Tom Temin: Tell us about the sprint, you’re looking for ways that banks themselves could help the people without bank accounts – little bit ironic sounding.

Sultan Meghji: That does sound a little ironic. But I would say that it’s open to more than just banks. Our view is across the FinTech ecosystem, across banks, amongst community groups, there are a lot of people who understand the population that currently doesn’t 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’s already been successful, find new ways, and then to champion that in the system, because there are still far too many Americans who don’t have great bank accounts.

Tom Temin: And do the people that generally don’t have bank accounts, are they able to otherwise communicate? That is to say, do they have computer accounts or email accounts? Or does it tend to be people that extends down to the homeless, even I imagine?

Sultan Meghji: It does. We have a survey of unbanked households, and it still shows that many millions of households and many tens of millions of Americans don’t have bank accounts. And it’s across all walks of life, it’s hard to just say there’s one category or one geography or one racial group that doesn’t. It’s a very broad spectrum. And so for us, we anticipate – and this is why we designed the tech sprint the way we did – is that there would be multiple ideas that would impact different communities in different ways. And we really do want to highlight that it’s a broad spectrum challenge across this country.

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

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

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Tom Temin: And just out of curiosity, the FDIC does insure accounts in noncorporeal banks, that is digital entity types of banks?

Sultan Meghji: Well, we only insure bank accounts in banks. Now, there are banks that provide that service to nonbanked entities. And obviously, we do some work there. But fundamentally, the FDIC’s mission is to ensure bank accounts, not nonbanks.

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

Sultan Meghji: It does not. I mean, in general, you see a couple where they might have one building that might be one branch or something like that, but they don’t have to. We have a variety of institutions that are banks that are chartered institutions with FDIC insurance, that are not your traditional branch banks.

Tom Temin: But you do have a way of going in and doing a resolution, if that’s required.

Sultan Meghji: If it’s required, our examination processes are pretty robust, and also allow for the variability because even before this digital environment, you would see very, very small bags – maybe 10 employees in a small town, somewhere far outside of here in D.C. where we’re speaking. But then you would see some of the largest banks in the country that we examine as well. And we have the robust examination system that fits all of those.

Tom Temin: We’re speaking with Sultan Meghji, he is the chief innovation officer at the FDIC. And getting back to the tech sprint, what is it you’re looking for who you’re hoping to get it from?

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Sultan Meghji: We’re really excited for almost any organization to submit an application and to come talk to us about it. We see a variety of different plays out there in the market right now. And we’re incredibly excited for this community to show up and help us understand how to close this last mile gap, as we call it, how to get from all these amazing banking products and services and market and how to get it into the hands of the average American.

Tom Temin: Alright, so that could be banks themselves could enter this or it could be academics, I imagine?

Sultan Meghji: Absolutely, we’ve had the application period open for about a week. And we have nearly 30 applicants already, which is far more than we actually expected to get. And it’s from everyone from small banks to big banks to small tech companies, to big tech companies, to payments processors and at a variety of nonprofits. So we expect a pretty robust and heterogeneous community of participants.

Tom Temin: And you will be awarding, 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 where they come in, they demonstrate something. We had these great demo days, get a chance to cheerlead. And then downstream of that we’re building on other activities that we’ve already established. So last year, we created something called a rapid phase prototyping program that allows us to move organizations rapidly through the traditionally not very rapid federal procurement process. We also were working on standards setting and working with nonprofits and other organizations to create this as a first step into a multi step program to ensure that these capabilities get out into the market.

Tom Temin: And so the ones that are winnowed down in this first round, then, they get money to develop the idea further, is that how it works?

Sultan Meghji: So there’s no money in the tech sprint, that’s one thing that we wanted to avoid in part one. But parts two, and then downstream, there are a variety of different ways where we can encourage that that enable this program.

Tom Temin: Got it. And just in your own mind, when you envision it without trying to lead anyone through the tech sprint that may not have sent in something. But if – I imagine having recently been through Appalachia, and you see where poverty is in the United States, and there could be people there that do not have bank accounts. What do you envision for people like that such that they can participate in banking? And in what ways would banking be useful to them, the unbanked?

Sultan Meghji: It’s a great question, Tom. I’m from a small town in the middle of Illinois, about 500 people. So I didn’t grow up in some major New York City metropolis or something like that. And I can tell you that the decrease in the number of banks over the last 30 years – we had roughly 35,000 in the 1980s, now, we’re down to under 5,000 across the entire country. That’s a pretty big decrease. And we see a lot of banking deserts. So we see a lot of places, not just in certain urban areas, but also in many rural areas where in the county they live in, there might be one bank, or one branch, and in traditionally farming communities where maybe there isn’t as much family farming and more industrial farming. There’s a definite swing in that universe. I don’t want to lead anyone but I can say that I’m equally if not more interested in learning to see how this program can help rural Americans as it is any other community, because we have tens of millions of Americans across this country without bank accounts, and a lot of them are in very rural areas.

Tom Temin: And it seems like one of the big challenges, then, is not the services themselves, but incentivizing banks to be there otherwise, they would be there.

Sultan Meghji: As an employee of the federal government, I would hesitate to use the word incentivize. I would say, encourage instead. But I think it is very clear that, you know, banks are for-profit entities and there are a lot of things they do to kind of maximize their bottom line. But there were ways to get to these amazing customers that some of them might not have just thought all the way through. And so hopefully, if nothing else, we can help them think through how to reach these great customers and show that there are people that should be in their bank and should be working through this program to work themselves through the system. At first, it’s a depository account that maybe it’s a home mortgage or credit card. There are a variety of different downstream applications that we think are valuable for people in order to find that American dream.

Tom Temin: Because, in the telephone industry there has been the Universal Service Fund for decades and decades and decades to make sure that everyone has access to a telephone, no mechanism like that exists in banking. But maybe –

Sultan Meghji: So it’s interesting, we have a program called GetBanked that we think is a step in that direction. And there’s been some great press about it, your listeners can look at it. But the idea is, is that every bank in this country should be offering a bank account that is zero-to-no fees, it should not be a burden for someone to use that instead of using alternative financial services that probably end up costing more and don’t necessarily encourage the right behavior in terms of how to operate in the financial system.

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

Sultan Meghji: Absolutely. So applications close on the 20th, which is just coming up here next week. And we’re very excited for that. Once that cycle through, there’ll be a series of multi-week programs as people go through, formalize their applications, and then towards right around Labor Day, we have a demo day where the chosen parties get to show off what they’re done and what the value of it is and how to quantify it. And then downstream of that there gonna be some other activities, but we haven’t announced that.

Tom Temin: Alright. Sultan Meghji is the chief innovation officer at the FDIC. Thanks so much for joining me.

Sultan Meghji: Thank you.

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