Q&A: George Hofheimer, Filene Research Institute

  • Innovations in consumer financial services and developing products for underserved communities

Philadelphia, PA, April 22, 2015 (CDFI Connect)—George Hofheimer, chief knowledge officer at Filene Research Institute spoke with CDFI Connect about the latest research and programs at Filene’s in the field of consumer finance.

Tell me a little about Filene Research Institute and your relationship with CDFIs.

Filene Research Institute is a think tank for the credit union industry. We do public policy research, operational research, consumer research, and product research. We also develop innovative products around insights that we research.

Among credit unions there is a burgeoning interest to better understand what CDFI certification is and how to get certified. We are looking for ways to bridge the gap in understanding what exactly CDFI certification is and is not. In fact, we are in the middle of a research project that we expect will provide a generic perspective comparing the advantages of being a CDFI certified credit union to non-credit union.

With the focus of so much of your research in consumer financing, what would you say are some of the biggest gaps?

The most obvious one is the underserved consumer. If you look at the percentage, it's millions of households, and they are underserved for a variety of reasons. One of the major factors is that traditional products are not relevant for many of the people in the US, and it is exacerbated by recent economic developments creating a widening gap between the “haves” and “have nots.”  

On the small business side, there is the issue of where small business owners (and would-be owners) are getting their working capital. What is available is usually pretty expensive. That’s another failure of the market. What is offered now isn’t meeting the needs of entrepreneurs. Credit unions aren’t currently heavily involved in the small business lending market, but this is where CDFI Certification is a real positive.

Tell me about the landscape for consumers. What are the biggest threats?

Affording life, the necessities of life—food, shelter, etc.—is very expensive. And if you want to get ahead, and you add educations expenses into that, you end up with outstanding student debt. There is debt from so many angles.

One of our research fellows, NYU’s Jonathan Murdock, did some great research in the day-to-day financial experience of low- and moderate-income families, which was published as the U.S. Financial Diaries. This research demonstrates a clear picture that many are not living a predictable lifestyle in terms of income. A paycheck doesn’t come in every two weeks at the same amount every time. As a result, many financial service products out there don’t meet their needs. These families experience variation and flux that is not served.

What insights can you share about how to work directly with consumers and what products seem to be the most effective in low-income communities?

One product we are excited about is employer sponsored small dollar loans. This is a payday loan replacement. The program is offered to employees of select employer groups in partnership with credit unions during this test phase. Loan payments are auto-deducted from direct deposited checks. With this program, repayment is structured over a longer time frame, and for a limit of $1,500 at any one time. The consumer pays back the loan through their employer withholdings in small manageable chunks. After the loan is paid off these payments continue into a savings account. Seventy percent of consumers in this loan program are using that auto savings component because it is easy, convenient, and they realize they can live without that small percentage.

Another idea is Save to Win, which is a lottery linked savings account. It makes savings fun. For every $25 increment you save, you get a chance to win a small prize on a weekly, monthly, and an annual basis. This is currently in play in a handful of states, and President Obama signed a piece of legislation to legalize this on the federal level.

What both of these products tap into is behavioral intervention. Understanding what existing behaviors are, and creating a product around those specific behaviors. For instance, people play the lottery and like to win—rather than tell them it’s a bad idea, you create a product that emulates that.

Our ultimate goal as a nonprofit is to better serve consumers. We develop these products with the hope that these models can be replicated in other financial institutions.

If there was one report that you could recommend that Filene has produced, what would it be and why?

Choosing Relevance: How Credit Unions Can Harness Transparency and Show Impact. It’s an excellent primer to illustrate that credit unions and CDFIs share the same challenges. It also provides strong considerations as you formulate your strategic plan.

What are some innovations that you see on the horizon?

From a research side, we are doing a lot of work on the future of mobile in financial services. Also the future of marketing within financial services. These are two mid-term projects that we are really excited about. Marketing is another angle that we are exploring. Our upcoming New York meeting May 19 will take an in-depth look at marketing in our industry, and how we can use new technology to interpret data and succeed in reaching consumers by understanding the trends and tools out there.

How can CDFIs connect with Filene?

The best way is directly. We are a small organization and always interested in working together. As the number of credit unions grow there will be a much more natural discussion and conversation. We welcome any organization to contact us directly. 

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