It’s a set of statistics that all of us have heard many times before: In the U.S., nearly half of the population doesn’t have $400 on hand in the event of sudden need, over a quarter of American households are un- or underbanked and 55 percent of American households are in some form of financial distress. Domestically, that adds up to about 70 million adults living at or near the margin of mainstream financial services. Worldwide, those figures swell to the 2 billion range.
That exclusion is costly and can be measured in dollars. Low income households pay roughly 10 percent of their disposable income on fees and interest payments. They also spend a lot of time managing their finances. Consumers without easy access to digital financial services channel spend a lot of time physically managing their financial lives.
No one thinks this is an ideal, or even something we should even tolerate. There’s almost no one out there who argues against the merits of serving the underserved — and the high cost of poverty doesn’t have many vocal advocates. That there should be more and better solutions to serve the currently underserved is not a controversial point.
Finding ways to do that — with a business model that delivers a return to those services providers — is another matter entirely. Low income consumers are low income — meaning it is hard to charge them directly (without running the risk of being exploitative) because individually they have very limited buying power.
But Propel, a Brooklyn-based startup that helps food stamp recipients manage their benefits through a mobile app, thinks that they may have found the start of a solution that is both publicly minded and commercially viable.
“What’s really amazing about Propel and its Fresh EBT product is they’ve identified a sustainable commercial model that puts generating value for the user at the center of it,” said Sarah Morgenstern, principal on the Financial Inclusion team at Omidyar Networks.
Omidyar recently participated in Propel’s $4 million seed funding round. Other investors included high-profile names like Andreessen Horowitz, NBA player Kevin Durant’s The Durant Company and Max Levchin’s SciFi VC. Previous investors Jay Borenstein, WinWin and the Financial Solutions Lab at the Center for Financial Services Innovation also participated.
“I think what is exciting about Propel for us is we really got to see the potential of applying the customer centric mindset of Steve Jobs or Jeff Bezos to under-looked consumers,” Morgenstern told Karen Webster in a recent conversation about Omidyar’s investment in Propel.
Morgenstern said that her enthusiasm for Fresh EBT is that it is aligned with Omidyar’s focus: the 55 percent of Americans who struggle to achieve financial health. Morgenstern said that the market is huge at $140 billion, and it was satisfying for she and her colleagues to see Propel so invested in serving this enormous user base with a business model that is sensitive to the interests of all parties.
Serving the Hard to Serve
Propel’s been around for a little over a year, Morgenstern told Webster, and in that relatively short time — with almost no advertising or marketing — they’ve built a user base of 250,000 weekly active users. Their value proposition is rooted in a single, yet powerful observation: finding out what one’s food stamp balance is shouldn’t be a major stress point for a population who doesn’t need another stress point to manage.
In the pre-Propel world, getting that answer wasn’t easy. Supplemental Nutritional Assistance Program users had one of two bad options: They could hold onto their grocery receipts and add them up, or or they could call a number, punch through a phone queue and hope they’d get the answer 10 or 15 minutes later — multiple times a week.
Small things, Morgenstern noted, because for most consumers, checking a balance is something they can do through their bank’s mobile app.
“Fresh EBT connects with consumers because it solves a huge friction for them. User reviews say things like ‘Makes my difficult life a little bit easier,’ which is an emphatic, effusive emotional connection with what Propel is delivering for its users.”
At the same time that it’s unlocking friction for its users, it’s unlocking value for the ecosystem and Propel.
As a user community, the 45 million consumers who participate in the SNAP program spend roughly $1 billion in aggregated grocery spend a year — which creates value for the thousands of EBT merchants around the country that serve them.
More than just creating a method by which SNAP users can better access the social safety net, Morgenstern noted, Propel has created a mobile digital channel that gives grocers and other brands access to a pool of tough-to-reach consumers.
Through its mapping feature — which allows users to see what stores in the vicinity accept SNAP benefits — Fresh EBT becomes a customer acquisition tool for grocers. And those merchants are coming around to the value-add for them and have started running pilot partnerships with grocery stores who are using the app to market their weekly specials.
Morgenstern told Webster that even though Propel spends some money advertising their services through traditional channels, most of the growth the program has experienced has been user generated.
“This is what you really want to see, pure virality — this is growing organically through word-of-mouth — a very large portion of the user base comes in through family recommendations.”
The firm has also started pairing with FinTech organizations to help users access better financial services, including a partnership with EARN to expand access to their matched savings programs.
“What Propel has built is a first step in creating a more user-friendly safety net, and that creates a chance to expand on the momentum they’ve established vis-à-vis the SNAP program.”
The goal for both Propel and Omidyar is direct but complex: creating financial health for vulnerable households. That isn’t easy work and will likely get more challenging before it gets easier — as American income streams are becoming increasingly volatile — but it’s necessary work and, done right, profitable work as well.
“Public private sector collaborations to have wins for everyone involved,” said Morgenstern.