October 4, 2023 in Fintech, Financial health

Innovative Pathways to Economic Mobility: Trends & Opportunities

To many in the United States, words like underwriting, balloon payments, and APR are like a foreign language. Unfortunately, for the 42 million native Spanish speakers in the country, these words and all those associated with getting access to credit are a foreign language. Accessing credit is difficult enough; adding in a language barrier to an already-opaque process only exacerbates the challenge.

Thankfully, Carmen and Eduardo are stepping up to the challenge by creating a Spanish-first lending platform, Dollarito. As immigrants from Mexico, they understand the challenges of adapting to a new context, and they have felt firsthand the struggles of not having a FICO score. Their digital lending platform is designed to be an easier on-ramp to credit for Spanish speakers.

Carmen and Eduardo are two of the entrepreneurs we interviewed for a project with the Bill & Melinda Gates Foundation, to research the impact and needs of startup founders building innovation for economic mobility.

The research focused on innovation for people in the United States who make less than 200% of the federal poverty line. We searched for startup founders building tools and services that enable life’s economic mobility moments – the meaningful “aha” moments in a person’s life when they discover a new pathway to economic opportunity, like finding affordable access to childcare, getting a well-paying job, or figuring out how to navigate a hard-to-understand government service.

Through more than 20 interviews with startup founders, investors, philanthropy leaders and other ecosystem players, we gained a number of core insights, but all of them tied back to one big theme: the power of lived experience and community engagement at every stage in a founder’s journey.

The startups we spoke with stand out from other ventures in one big way: they are all deeply rooted in the communities they serve, and their founders have a personal connection to the problem they’re solving. We found that that lived experience drives the founders personally, and translates into the way they do business, how they choose their partners, and how they interact with customers and stakeholders.

Here’s what that looks like:

Human-centered design is more important than ever

Human-centered design is especially important when serving a low-income population. Data on end users, whether that is health data, transit information, benefit usage, or some transactional data, is often impossible to access, or presented in unusable formats by government agencies. Instead of relying on data sets, founders often need to rely on deep knowledge of their community to develop products, and they find that the success or failure of a concept is tied to a nuanced understanding of their user.

For instance, we heard from several founders that they stress simplistic design that mirrors existing forms of communication or engagement, like texting and phone calls – or creating an app that does not require constant logging in. Other engagement techniques we heard included coordinating with case managers, providing extensive notification of payments, and offering financial incentives for activity.

Another human design tip from the founders was to design a product that remains encouraging and positive, despite sometimes needing to provide bad news like rejections. As one founder told us, it is important to treat end users with humanity.

Scaling the business requires partnership

Another key theme in our research is the ability of impact startups to scale their solution to reach many low-income end users. This includes topics like distribution strategies, scaling partners, and business model elements.

Enterprise sales remain a challenge for founders, especially when it comes to finding the right person to talk to, but can help with connecting to low-wage employees Partnerships with local trusted entities, like community-based organizations or nonprofits, can also help greatly. This can be as simple as sharing end users with a community organization, or as integrated as embedding a fintech solution.

Credit unions in particular were noted as a great opportunity to help scale solutions to end users. As VilCap Investments Co-Founder Victoria Fram has written, credit unions can serve as a valuable distribution partner for fintechs that are looking to reach low-income consumers. With greater access and connectivity to underserved communities, credit unions offer a path to customers who are best positioned to benefit from financial health products. 

Impact measurement

We spent time during our conversations to specifically discuss founders’ thoughts on impact, its measurement, and its proof. Many of the founders we spoke with spend significant time recording impact metrics, for funders and for their own internal quality controls.

The lack of standard impact measurement and metrics across impact objectives creates complexity for founders. Also, sustainable impact won't necessarily show up in a single entity's metrics, considering that a series of interventions is likely necessary for end users. 

That said, partnerships with universities can help startups level up their impact-tracking capabilities. Universities have significant resources and there is often synergy and shared interests in tracking end user data on communities that can lighten the load on stretched startup teams.

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One big takeaway from our research was the importance of collaboration. We all have a role to play in making economic mobility moments a reality for more people in the US. 

Are you a startup founder who is developing a solution that leads to economic mobility for low-income populations? Apply to one of our programs here.

Are you an investor or ecosystem player who’s interested in supporting these founders? Join our Mentor Network so you can meet startups at our next relevant investment-readiness program.

Are you a funder interested in supporting Village Capital’s mission to reinvent the system backing entrepreneurs of the future? We are dedicated to supporting diverse entrepreneurs building emergent solutions for environmental, social, and economic challenges around the world. Contact Kelly Bryan, US Regional Director to learn more.

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