Podcast 307: Aaron Klein of the Brookings Institution

While America remains the richest economy in the world it is also the one where it is the most expensive to be poor. I have written about overdraft fees before (here and here) and that is one of the real problems with the banking system that is holding people back that live paycheck to paycheck. But it is about more than overdrafts, it is about expensive bank accounts and payments that take too long to clear.

Our next guest on the Fintech One•On•One podcast is Aaron Klein, a senior fellow in Economic Studies at the Brookings Institution. He speaks and writes frequently on topics concerning economic equality and the flaws in our banking system. He is someone I have followed and admired for years and I was delighted when he agreed to this interview.

In this podcast you will learn:

  • The deep experience Aaron has gained working on Capitol Hill.
  • Details of his recent paper on bank overdraft fees.
  • How some banks can generate the majority of their profit from overdraft fees.
  • Why regulators turn a blind eye to this kind of behavior.
  • The percentage of profits that big banks are making from overdrafts fees.
  • The small community bank that makes more in overdraft revenue than Citi.
  • What Aaron makes of the recent movement away from overdrafts by several banks.
  • His idea of universal bank accounts for unbanked households.
  • Why all banks should be required to offer these types of accounts.
  • How the payments system has become an engine for inequality.
  • Why the Federal Reserve has not adopted real time payments yet.
  • What the Federal Reserve could do tomorrow to make payments flow quicker.
  • The technologies that Aaron thinks has the most promise to reduce inequality today.

This episode of the Fintech One on One Podcast is brought to you by LendIt Fintech Nexus, an in-person event focused exclusively on face-to-face meetings happening in Miami on September 1-2.

Download a PDF of the transcription of Podcast 307 – Aaron Klein.

Welcome to the Fintech One-on-One Podcast, Episode No. 307. This is your host, Peter Renton, Chairman and Co-Founder of LendIt Fintech.


Before we start this episode, I want to tell you about a brand new event from LendIt Fintech. Fintech Nexus, the Dealmaker Summit, will be the first major in-person fintech event of the past 18 months, a hand-curated audience of venture capitalists, bankers, fintechs and debt investors will be meeting face-to-face at an event 100% focused on doing deals. It will be happening in Miami on September 1st and 2nd. You can apply to join and find out more at lendit.com

Peter Renton: Today on the show, I’m delighted to welcome Aaron Klein, he is a Senior Fellow in Economic Studies at the Brookings Institution and he is one of the real thinkers in our industry and has released a number of papers recently and also I’ve heard him speak many times over the last couple of years. He often talks about a structural inequality that’s inherent in our financial system and what could be done about it. We do delve into that in some depth in this episode, we go in-depth on overdrafts, one of my pet peeves and one of Aaron’s as well. 

He highlights some work he did recently on some banks who generate a huge amount of their profits from overdrafts, also talks about the core problem that these overdraft fees demonstrate and what can be done about that. He talks about his concept of the universal bank account and he also talks about real-time payments as a financial inclusion tool and the way to kind of really level the playing field for people who are living paycheck-to-paycheck, he really has a lot of great ideas here. It’s just a fascinating conversation, hope you enjoy the show.

Welcome to the podcast, Aaron!

Aaron Klein: It’s great to be here, thank you, Peter.

Peter: My pleasure. So, let’s get started by giving the listeners a little bit of background. I know you’ve been in Washington for some time, you’ve had some interesting jobs there, why don’t you give the listeners some of the highlights before you got to Brookings.

Aaron: Great. I’m Aaron Klein, I’m a Senior Fellow in Brookings in Economic Studies. I previously directed the Bipartisan Policy Center’s Financial Regulatory Reform initiative. I spent four years as Deputy Assistant Secretary in the United States Treasury for Economic Policy which is basically the first term in the Obama Administration. Before that, I was Chief Economist on the US Senate Banking, Housing and Urban Affairs Committee where I served for both Chairman Chris Todd and Paul Sarbanes, I had an up close and personal front row seat to the financial crisis of 2007, 2008, 2009, both in drafting the legislation known as TARP and then as implementing it when I went over to the United States Treasury.

Peter: I’d love to talk for hours about that, but we’re not going to. I want to get into the paper you did on overdrafts. It’s super interesting to me, I think you did research that I’d never seen before, why don’t you describe the recent paper. I think it was in March of this year that you published on overdrafts and those banks that are making, shall we say, a killing on overdrafts.

Aaron: Peter, it’s interesting, there was some research a few years ago by the Consumer Financial Protection Bureau. They found that 8% of Americans are responsible for almost 80% of the overdrafts so there’s this small group of people, one out of twelve families, depends on how much you think about as small or not, go spend over $350 a year on this overdraft product. They’re called the “heavy overdrafters” and I started thinking this group of people who all have bank accounts by definition, a much larger share of the population, by the way, than the unbanked, are very profitable customers for banks because these overdraft fees is pure profit, right. There’s even a famous bank CEO who named his yacht “Overdraft.” 

And I started wondering, I said it’s a small group of people that do a lot of overdrafts and are there some banks that are targeting and trying to reach these customers, smaller banks? And it turns out there are. I found in my research six or seven banks who generally…….more than 50% of their profit each and every year, I looked at multiple years, with just one fee, overdrafts. In fact, there are three banks, they have for more than two consecutive years generated over 100% of their profits on overdrafts. That is they lost money doing everything else a bank does, making loans, having investments, interest margin fees spread, but they made enough money on overdrafts to more than compensate and that seemed to be their entire business model. 

Now, I would say that there may be more than this, there are about 5,000/6,000 banks in America and almost same number of credit unions, but the only banks that have to report their overdraft revenue are banks over $2 Billion in assets and no credit unions even though a credit union is $10/20/100 Million in assets. No credit unions have to report this data so there may be many more of these institutions hiding in plain sight than the handful I was able to discover.

Peter: Well, let’s hope there’s not many credit unions because they are supposed to be non-profit for their members, but there’s probably a lot of small banks, I’m guessing. But I think it was staggering that some banks generate more than 100% of their profits from overdrafts. You point out in your research that they’re not operating really as banks, more like check cashing institutions, why do you think regulators have turned a blind eye to these kinds of things?

Aaron: It’s difficult to answer because it’s very infuriating to me. It’s infuriating to me that a federal bank regulator goes in and looks at the safety and soundness of an institution and deems an institution safe and sound for their earnings, right. A bank regulator, not to get too weedy here, but to give the listeners a peer-in. When a bank regulator goes they do an exam called the “CAMELS,” which is short for the acronym, C is for Capital, A is for Asset, M is for Management, E is for Earnings and they decided that this earnings model is passable and they have decided, the regulators have decided, this management of these institutions is passable, and to me, I find that revolting. 

These are not banks, they’re not making loans, they’re just charging high fees, higher than a check casher, check casher is $20 and only charge once per check. These are $35, generally per overdrafts. Some of these institutions charge overdrafts four/eight times a day as a maximum. Why are the bank regulators……it is very hard for me to answer that question because I can’t believe. Many of them are regulated by the Comptroller of the Currency some of them are regulated by the Federal Reserve and some of them are multiple sister banks. Actually, I found two academy and armed forces who are sister banks of the same bank holding company so this is like a coordinated message from the top, right. There are multiple banks owned by the same ownership who are all engaging in the same business practice and the Federal Reserve who’s supposed to regulate the bank holding company is asleep at a switch. 

I don’t really like to speculate about motive, but I do like to answer questions. I think two things, one is bank regulators have, historically, done a poor job of protecting consumers. It’s one reason why we created the Consumer Financial Protection Bureau as part of Dodd-Frank to pull out this authority out of bank regulators. What they would argue is a tension between the bank needs to make money to stay sound and the bank shouldn’t be ripping off consumers, but to me, this highlights that the bank regulators really just prioritize earnings and they don’t care where it comes from because if they truly care, right, we have to have a sustainable earnings model. They will not allow these banks to exist on overdraft fees. 

I guarantee you, there aren’t banks that are doing this on commercial real estate, that’s like a textbook red flag for bank concentration in profits for problematic banks. Commercial real estate was the cause of a lot of prior bank failures in the 70’s and 80’s and even 90’s in American history. But, it shows to me that the bank regulators still, even after the financial crisis, right, even after subprime mortgages teetered the entire global financial system, they’re still willing to turn a blind eye to a business model that’s completely predicated on charging high fees to families that are living on the financial edge to line bank executive profits, it’s disgusting.

Peter: It is. I completely, completely agree. It’s interesting that you had the big bank CEOs dragged before Washington recently and they were……Elizabeth Warren was challenging them on overdrafts. You look at some of the biggest ones like Chase, I mean, obviously few banks of this size, they make a massive amount of revenue from overdrafts, but percentage-wise pretty small, right?

Aaron: Percentage-wise, none of the big banks are making really more than 10% of their profit on a sustained annual basis on this one single fee. You can see annual….there can be little fluctuations with large companies, they can take pluses or minuses in different parts of their earnings. There are a couple of ways that I’ve looked at overdraft fees that I find very useful. 

One is this percentage of profit because it highlights that there is a structural business model behind here, right. For the big banks, overdraft is a nice little bonus to their bottom line, for a few of these small, little banks it is the entire business model. In bank regulations there is a tendency to focus on the biggest folks who’ve gotten much bigger over time and from the majority of assets of the financial system in a handful to largest banks. But, my research showed that a small bank called Woodforest, which would be considered a community bank, makes more money in overdraft fees than Citibank.

Peter: Not percentage-wise, you’re talking absolute dollars, right?

Aaron: Absolute total revenue dollars.

Peter: Wow!

Aaron: Where’s Woodforest, you might ask? They branch heavily in Walmarts. This goes back to my hypothesis of my research question which is are there banks targeting this 8% sliver of heavy overdraft customers. And if I were to say, Peter, if you were a bank and you wanted to have a business model to find and capture customers that were likely to overdraft, where would you set up a branch?

Peter: Well, you set it up where the socio economic profile matches their type of customer and Walmart is a good one.

Aaron: Right, Woodforest does Walmart. Armed Forces Bank goes right on military bases where you find enlisted personnel frequently struggling with financial cash management, particularly with the stress of deployment and other things, that’s another bank. So, a different way to look at overdrafts is in this total dollar amounts or percent of profits because you can say, well, different banks make more or less money… Let’s look at it is dollars per account, right, how many bank accounts you have and how much overdraft revenue do you have and so what’s your average. 

Well, on this one, Citibank averages around $5 per account in overdraft revenue, Wells Fargo is around $20, JP Morgan was around $35, this is some of the tension you flag at center. One said, how is JP Morgan’s customer base that different from Wells or Citibank that they’re generating more. On this, you are probably finding some differences in how the bank structures their bank account products, Citibank does a lot of non-overdraft accounts, right, into these things where you find Woodforest Bank generates $135 in overdraft fee per account.

Peter: Wow!

Aaron: Armed Forces Bank is over $150 in overdraft fees per account, 30 times what Citibank is generating, I’m quoting 2019 numbers, by the way, because the pandemic kind of changed things a little bit. So, here you’re finding……this is more of an…these banks are targeting this sliver of customers. You mentioned that there shouldn’t be credit unions, you’d think that. I’m not so sure, I would test that question to database. 

MOVES did a big in-depth research and they found that credit unions are about 20% of overdraft revenue which is roughly equal to their amount of deposits. Morning Consult did a recent survey and they asked people, what’s your primary bank account, bank, credit union and then have you been charged an overdraft fee. No difference, it seemed at first glance between banks and credit unions on the likelihood of charging overdraft fees. I’m a believer in the credit union movement, my primary account is still with the credit union Senate Federal Credit Union, I’ve been a member there for 20 years. I would like to see the data on this because I’m not sure that the theory matches the facts.

Peter: That’s quite possible. I mean, you see movements, just really since your paper came out and I don’t know if it’s a coincidence, but there has been a movement, some banks are definitely trying to distance themselves. We’ve had PNC, I see their ads all the time now on TV about their low cash mode, where they’re giving customers 24 hours to put money in. There’s others like Ally Bank that have said no overdrafts and Huntington is another bank that’s creating a different product. 

Obviously, the fintechs…there’s like Dave and Chime and SoFi and many others have never charged overdraft fees. In fact, Dave really built their business on no overdraft fees and giving their customers an advance. It’s a long way to go, but do you think we’re seeing the beginning of the end of overdrafts? I’d love to get your take on that.

Aaron: So, a couple of things. I think industry, particularly the more responsible players, are trying to wean themselves off of these overdrafts, but the large institutions that started as a small fee that’s kind of ballooned over time and it simply generates profit, right……overdraft has very, very little loss. If you think about the fee, there aren’t so many accounts that rack up a bunch of overdrafts and run away, it’s not like making a loan where you default, these are almost all paid back and they’re most paid back incredibly quickly. 

If you try to calculate an APR interest rate on a $35 fee that gets paid back in 24 or 48 hours, it would be mind boggling how many zeros fall behind that. So I give the banks that are trying to wean themselves off of this a lot of credit because it’s going to hit their earnings per share number pretty quickly and what they’re doing is the right thing by their customer, but I’m not sure how much it’s going to attract more customers. These customers are sticky, right. 

Woodforest and Armed Services, the DBA First Convenience, all these small banks that I found, they keep their customers for a long time. When was the last time you changed your bank account, I’d like to ask this question. If you think about somebody, they have a physical address, you have a financial address, which did you change more recently?

Peter: (laughs) My physical address, for sure.

Aaron: Bank accounts are sticky. I give these institutions a lot of credit for trying to do the right thing for their customers and moving faster than the regulators. It’s my hope that the new financial regulators put in place here start to crack down on this product as a business model and start to put in some sensible regulations here. 

The last point I want to make is when you talk about how these institutions are giving customers the chance to avoid overdrafts, a lot of it is time and a lot of what I found in my research is one of the drivers of overdrafts is this delay between when your account gets credited a deposit and when it gets credited a debit. If you were to send me money into my bank account, there’s a gap between when you send it, when I receive it and between when I receive it frankly and when it’s credited into my account. 

Deposit a check on your phone and you’ll get an email, your deposit has been approved, that doesn’t mean the money is there, it’s still quite a while until the money’s actually there. Meanwhile, go try to spend against that and the money gets debited immediately. This delay in our payment system, which is another topic I hope we get a chance to talk about, drives a lot of overdrafts and correspondingly, when you see banks say we’ll float you the first $100 when you have a direct deposit, we’ll give you time, but all they’ll give you is 24 hours, 48 hours to rectify this. It shows to me that there’s a huge time variability here and the value of time to people who are living paycheck-to-paycheck and that’s driving a lot of the overdrafts which is our slow payment system.

Peter: Right. I do want to get to that, but before we do, I want to talk about another concept that I read about that you were researching the idea of universal bank accounts. You talk about…there’s still a lot of unbanked households and you say, some of them choose to remain unbanked. So, tell us a little bit of what you’ve learned there?

Aaron: It’s simple. There are about 5 to 6% of American households that are unbanked, according to the latest research by the FDIC which was pre-pandemic and when you ask them why are you unbanked, the number one answer cited by about half is simple, bank accounts are too expensive for me. This dwarfs the share of people that talk about branch locations and hours. Combined branch locations and hours are cited by less than one in 20 unbanked people is the main reason why they’re unbanked. Yet  you see many of the attempts to address unbanked people focusing on branch locations and hours and somehow we’re going to have the post office because they close and open longer and able to run banking systems as a solution, when you actually ask them they say, the account fees are too much overdrafts, high minimums. 

The cost is too darn high, as the expression used to be and so what’s the solution when things are too expensive, make them cheaper. My solution and I’ve advocated this with several others, every bank is chartered by the federal or state government, a charter is different than a license. A license is you have a permission to do something passing a basic level of conmpetency and if you screwed up, we reserve the right to revoke your license. A charter is the granting to perform a role of government in perpetuity by the government subject to strict regulations. A bank is chartered and they have an obligation to serve their community. To me, one of those obligations involve including a low cost bank account available to everyone. Low cost doesn’t mean free, you can charge a couple of dollars a month as a maintenance fee, but it means no overdrafts, no surprise costs, everything transparent. 

The universal low cost bank account, I think, addresses the core reason why people don’t have bank accounts which is the cost and it would be my proposal that every bank be required to prominently offer these accounts. I know that Citibank offers them, one out of five new Citibank accounts is this type of account certified by a non-profit called BankOn. Many other banks offer these accounts, sometimes they’re prominently offered, other times they are in the way, way back corner, kind of secret, double handshake you have to ask, that doesn’t really cut it in my business. These should be the accounts offered to everybody to give everybody a low cost financial address. You solve homelessness by giving people places to live, you saw financial homelessness by giving them places to bank.

Peter: What you’re saying is banks are aware of this and they have products, they’re either not promoting it or promoting it only a little bit to this population. Is that what you’re saying?

Aaron: Not all the banks have these accounts,

Peter: Okay.

Aaron: Many do, many don’t. All banks, in my position, should be required to have this account, it’s just the basic function of being a chartered bank. You have to provide low cost accounts to people that don’t have much money. Maybe that account will be cross-subsidized a little bit, but the system we have right now is the heavy overdrafters are cross-subsidizing the free checking of the people who are wealthy.

Peter: Right.

Aaron: What we have is  reverse Robin Hood, a reverse cross-subsidization. So, people talk about subsidies and policy and distribution and they act as…oh, you’re going to require banks to offer these accounts, you’re going to lose a little bit of money on that, where’s that money going to come from. I’m telling you, the opposite is true today. Today, people living paycheck-to-paycheck spend $300/400 a year on overdrafts and that then subsidizes the bank to say, look, if you have more than a thousand bucks a month in your account, you can qualify for free this and free that.

Peter: Right.

Aaron: Do we want a society where the poor subsidize the rich?

Peter: (laughs) Totally, that makes perfect sense. Fintech has been trying to address this, but, obviously fintech is relatively small compared to the traditional banks and, hopefully, they will get the message, but I do want to move on to real-time payments. I’ve heard you speak multiple times on this topic and you touched on it earlier, how real-time payments can be a financial inclusion tool. Maybe you can explain how the payment system itself has become this engine for inequality.

Aaron: So, let’s divide America into two groups. Half of Americans always have money in their bank account, they don’t really care when their deposits clear, if they clear on a Thursday, a Friday, a Monday, it doesn’t matter, right. There’s some long term budgeting going on, but the speed at which your payments get put in your account or taken out is largely irrelevant because you go a long life with a buffer.

Then there’s the other half of Americans who live paycheck-to-paycheck, who approach the zero lower balance of their bank account, who are constantly managing for whom this week Friday will be July 2, many people get paid on Fridays, right, but July 1 is when lots of expenses are due. For that group of Americans that mismatch of timing is incredibly determinative because once you start to run out of money, things become extremely expensive. Short term amounts, we talked about overdraft fees and all these other aspects, late payment charges, etc. and so the people who live paycheck-to-paycheck are a growing share of the American public. 

Real-time access to their money becomes incredibly valuable. To set up the thing you have, wealthy people for whom the timing, whether it’s zero hours or 48 hours, largely irrelevant and for low-income people or the other half of Americans, I shouldn’t even call lower-income, people living paycheck-to-paycheck, this time is real money into the payment system, developed in the 50’s and 60’s and 70’s when we were applying and clearing checks, you know, America had 16,000 banks in 1980 settling and cross-settling paper checks. We had this very complicated system working on 1950’s and 1960’s technology, to cross-settle banks, the kind of move….like think about a washing machine, you load up the washing machine, you hit go, it takes a while and then all the clothes come out equally clean, called the batch. 

That’s how the payment system clears and as technology improved, we figured out a way. Instead of saving everybody’s payments and running the machine together, you could actually clear the payments in real-time directly between the different corresponding institutions. This real-time payment system, as opposed to a batch, was just a flow. Think about Netflix streams something to your house whereas in Blockbuster you have to drive there and look through all the tapes, get one, drive it back. So, the rest of the world starts implementing this technology, Switzerland in 1998, Mexico in 2004, Brazil in 2005, the Bank of England goes live in 2008. 

The Federal Reserve chooses not to do it, they don’t care, this is not a priority of theirs, but in America, we live in a weird system. The Federal Reserve runs the largest of the settlement houses, but not the only one, but it’s also charged by Congress with regulating all of the payment systems under different legislations, including the Expedited Funds Availability Act, and the law says the Fed has to regulate the speed of deposits for consumers as fast as technology allows and it’s not a may, it’s actually the law says shall, the Feds shall move payments available to consumers as fast as technology allows. Whose technology? The law doesn’t say. The Fed has chosen to interpret this as their technology.

Peter: Right.

Aaron: And so, it’s kind of like you put Blockbuster in charge of streaming, do you think we’d enjoy Netflix today?

Peter: (laughs)

Aaron: Even though banks take emails of checks and send them around and can move them a lot faster, I actually helped write that law called the Check 21 Act when I was in Congress. It was actually passed because of 9/11, we were afraid that we were going to have to not rely in flying paper around not because it was inefficient, but because air traffic was threatened after 9/11. But, the Fed, while promoting that legislation, never went the second step to actually make the money move faster into people’s accounts and the result has been hundreds of billions of dollars lost in overdrafts, check cashers, payday lenders. 

That’s another way people turn to how do I handle this July 1st/July 2nd mismatch and hundreds of billions of dollars and it really disturbs me, Peter. I’ll close with this, you can hear people in the Federal Reserve frequently say, the Feds bemoans the rise of income and equality, but we only have this one-hand tool of monetary policy and we can’t do anything about it which I say, yeah, you can. Tomorrow, the Federal Reserve could require, under the Expedited Funds Availability Act, the first $5,000 of every check to be immediately available to every consumer who had their bank account for six months or longer. They could do that tomorrow, if they wanted. My research will indicate the giant decline in bank overdraft fees, a giant decline in check cashing. The majority of checks cashed in America are cashed by people with bank accounts, right, late fees and all the rest and they just don’t do it.

Peter: I don’t really want to get into the politics of the situation. It’s frustrating, but I’m from Australia originally, I mean, I don’t know when Australia exactly got real-time payments, but it was, at least, 20 years ago. You could go online to the bank account, send money to different banks and it shows up within 30 seconds. That’s been going on for a couple of decades in Australia. The fact that the US hasn’t is a travesty, I completely agree, but I want to talk about…FedNow is on the table, they’re saying 2023/2024, I mean, it would have been great if they’d started that 15 years ago, but they didn’t. What’s your sense that FedNow will actually address these problems?

Aaron: So, I don’t like dealing in hypotheticals and, Peter, let me ask you this. The Bank of England built their real-time payments system in 18 months, in 2007 and 2008 back when this iPhone was the iPhone one.

Peter: Right

Aaron: Now, there’s an iPhone 12, there’s a lot of things a lot faster than an iPhone one. Why did it take the Bank of England 18 months to build their system using technology more than a decade old. But, the Federal Reserve is telling the world that it takes four to five years for them to build the same system using technology a decade later. So, I think one of the travesties of this “Fed Now to be built later” has been up to scaling the reality that we could have real-time payments today in America. 

The Clearing House, one of the private entities I mentioned, also does payments built a real-time payment platform. The Fed did the regulation that I proposed and sent this the Fed in a comment letter sent in the 20-teens. Last decade, they asked for comments on this and I sent it to them. Had they done what I did, banks would have two choices. One, make your payment available, settle through ACH the Fed system , the automated Clearing House and take the settlement time risk or two, move to the real-time payment system and solve the problem. Why is the Fed not doing this, why are they not solving the problem today? They could solve the problem today by regulation, they don’t need to wait till 2023. 

The reason they’re not doing it today is they don’t want to lose the market share of their own payment provider, the Automated Clearing House system and help the competitor. It’s why Blockbuster, if they were in charge of regulation, wouldn’t have required streaming, and as a result millions of Americans are suffering. Children are going hungry at night because their parents are having to choose between high fees to get money or waiting an extra day for their payment to settle. 

This doesn’t impact anybody who lives on that other half, who always has four digits or more in their bank account and it’s simply a policy choice. There is no reason and this idea that well, Fed Now, in three to four years, who knows what technology is going to look like in two to three to four years. There is no reason for us to wait and I think part of the change in the conversation by trying to create this is to obfuscate the fact that their solutions right now, just the Fed, hasn’t built those solutions.

Peter: It is a travesty and is causing real pain. We’re going overtime, but I want to just end with the last question here. I would love to get your take on….aside from what the Federal Reserve is doing, just looking at the technology itself that’s out there today, what are the technologies that you think had the most promise to help reduce inequality right now?

Aaron: I think whether it’s the real-time payment, I work at the Clearing House, whether it’s Visa Push Debit, we can think about ways in which you can get money directly in the hands of people trying, for example, move the stimulus payments on Friday when they got the information as opposed to waiting until the following Wednesday when the funds were sent. I also think real-time information…..part of the problem people have on lower income basis is they don’t know when their earnings are coming and so when you talk about financial education or literacy which frustrates me because I’ve never seen anybody be able to eat a pamphlet (Peter laughs), right. If I have to come up with money to feed my kids over the weekend, right, the answer here is in a pamphlet on how to budget isn’t going to help me. If you say, whoa, if you’d only budgeted better. 

Okay, suppose I’m living paycheck-to-paycheck and I find out from my employer today that Friday is going to be half day so I’ve lost four hours of my work. Alright, one, I’m going to go because I’m industrious and I am going to work an extra shift. I’m going to Uber at night, I’m on-demand something, Task grab it myself…when is that money from when I work going to get into my account? When is that information going to be available to me that I know the money is in my account and I think folks that can solve the combination of providing information and money to people so I know how much is in my account, when it’s coming, when I can order my debits, when I can order my credits is going to provide real value to that other half who are living paycheck-to-paycheck helping them reduce how expensive it is to be poor in America and how much of that expense to be poor is driven by fees and cost in money. The more money you have, the cheaper it is to use your money and we haven’t even touched about credit card rewards.

Peter: (laughs) I know it’s another pet topic of yours. We don’t have time for that today, but we’ll have to leave it there Aaron, it really was an eye-opening conversation, fascinating work you’re doing there. Thank you so much for coming on the show.

Aaron: Enjoyed it, thank you for having me.

Peter: Interesting idea at the end there that Aaron put forward about people want not just quick access to their money. but they want information about that. I think there are several fintech companies that are attacking this problem, we certainly got Chime and Dave, SoFi, MoneyLion, they’re all really providing quicker access to money and information about it. I think we still have a long way to go, but they really are working on this problem. 

Just like with overdrafts, we’ve seen fintechs lead the way, banks I don’t think would have made changes to their overdrafts policies but for the fact that some of the aforementioned companies have millions of customers now, pretty much exclusively none of them are charging overdraft fees so there’s a huge segment of the population that used to be paying overdraft fees that are not anymore and I think we are going to see these fintech companies, they are very focused on customer experience. 

They are really getting to the heart of what customers want and need and I think as time goes on, we’re going to see more and more of them get into this kind of information game where they provide insights into, not just where a person’s finances are right now or where they’re going to be in two or three days, two or three months and eventually, two or three years.

Anyway on that note, I will sign off. I very much appreciate you listening and I’ll catch you next time. Bye.

Before we go, I want to tell you about a brand new event from LendIt Fintech. Fintech Nexus, the Dealmaker Summit, will be the first major in-person fintech event of the past 18 months, a hand-curated audience of venture capitalists, bankers, fintechs and debt investors will be meeting face-to-face at an event 100% focused on doing deals. It will be happening in Miami on September 1st and 2nd. You can apply to join and find out more at lendit.com.[/expand]

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  • Peter Renton

    Peter Renton is the chairman and co-founder of Fintech Nexus, the world’s largest digital media company focused on fintech. Peter has been writing about fintech since 2010 and he is the author and creator of the Fintech One-on-One Podcast, the first and longest-running fintech interview series.