Financial Inclusion

JD Vance On Innovation For Everyone

The average income in the city of Boston is around $52,000 a year. Factoring in the average incomes that surround it brings that number up to $100,000 per year. The average income in Manhattan is $66,000 per year; surrounding suburbs also bring that figure up to over $100,000. In San Francisco — the epicenter of the tech economy and the most expensive city in the United States — it’s $79,000 per year.

Once again, factor in those inner ring suburbs and the average income in the region shoots over $100,000 per year.

Most Americans do not live in Boston, New York or San Francisco — or in the suburbs that immediately surround them. And most Americans don’t even get close to bringing in $100,000 a year in income, or even $52,000 per year.

The average American household makes do on $36,000 a year or less, according to the Social Security administration. That’s $2,500 per month before taxes are taken out — and $36,000 is a household average, not an individual worker average, with the average American household comprising three people.

“Most of us living and working in our cushy, comfy bubbles in the big cities that dot the East and West Coasts — and who don’t think twice about plunking down $23 for the Organic Grade A 100% Maple Syrup to pour over the gluten-free homemade Belgian waffles topped with organic blueberries that we sit down to [eat] for breakfast on Sunday mornings — don’t have any idea what living at that income level even looks or feels like,” Karen Webster noted in a recent commentary.

J.D. Vance, however, knows exactly what it’s like to live below the $36,000 income line. As the author of this year’s nonfiction surprise hit Hillbilly Elegy, Vance wrote movingly and persuasively about what life in Rust Belt Ohio was like, as factories closed and whole regions sank into poverty or near-poverty.

Vance, through a combination of the Marines, law school, a very dedicated grandmother and a career in business, experienced what he described on stage at Innovation Project 2017 as “a kind of Horatio Alger story about upward mobility in America.”

The problem, he said — and Walmart’s Daniel Eckert echoed — is that those types of stories are too rare in America today. Most people born into families that earned less than $36,000 a year will go on to raise a family of their own on less than $36,000 a year.

That’s the not-so-great news. But according to Vance and Eckert, there is a silver lining: innovators in payments, commerce, retail and financial services can do an awful lot with the tools at their disposal to give working class people here — and everywhere — a better shot at a better outcome. But for that to occur, two things will have to happen first.

Seeing The Opportunity
Silicon Valley, Karen Webster notes, is the innovation epicenter for “cool stuff,” some of which is practical (although, admittedly, some isn’t). But these innovations are largely geared toward the demographic of people who invented them, most of whom live in the nation’s tech centers.

“I ask myself that sometimes … why is it the case that … so many of these technologies that are or could [be] life-changing innovations aren’t making it to the middle parts of the country?” Vance said.

Oftentimes, the problem is that the product just isn’t relevant to middle America. Many ideas that work profitably in urban areas are just completely unsuited to rural economies with low population density. Sometimes there is a hard disconnect between Silicon Valley and America’s working class as to what innovations are actually “good” news.

“Innovations that make it to the mainstream … aren’t necessarily looked at as positive change[s] for people who live in neglected parts of the country,” Vance explained to the IP audience. “My favorite easy example is lots of folks in the valley are rightfully very excited by driverless cars. But if you are one of the three million Americans who … [do their own] driving, that news can actually be kind of alarming.”

Which isn’t an argument against driverless cars, Vance noted, but it does signal that there is a demographical gap that needs to be bridged. It isn’t an impossible distance. People in neglected parts of the country have also been the beneficiaries of things like smartphones: “the cultural disconnect is probably not quite as wide as people would expect.”

But to bridge the gap that exists requires really dialing into the needs of that consumer base, Eckert noted.

“There are many conversation[s] I have that are very focused on the next whiz-bang thing, or look what this deep learning model can do to improve the speed of you-name-it. And I’m sitting there going, ‘My customer just wants to save five minutes by not waiting in line and filling out a form in triplicate. Can you help me with that?’”

Five minutes is a short amount of time and a lot of cognitive load saved, Eckert said, and Walmart has targeted its innovations around really studying the customer: what they do, what they avoid doing and how they can broaden the set of activities by looking at all those friction points — and doing their best to remove them.

There is opportunity there — Walmart became the biggest retailer on earth by tapping into rural communities and giving them access to goods and services they’ve never had access to before – but it requires a lot of focus.

Yet, Vance noted, if one is looking for a future of innovation that will actually connect working class consumers to the opportunities of the digital age, it will largely be driven by using technology to reduce cognitive load for those consumers.

“We can make administrative processes easier for poor Americans and that can make it easier for them to access goods, services and opportunities. The questions are, what are the stresses going on in people’s lives and [through] technology and the way we conduct our businesses, can we make people’s lives easier?” Vance said. “Because it is the case that if you can even cut a few minutes off a form someone has to fill out, you actually encourage them to do something they might otherwise avoid.”

But, both noted, it’s not enough to build the capacity — it’s also about building trust.

Building Bridges To Consumers
Vance noted that when he went to buy his first car, he very nearly paid over 20 percent interest because he had no experience as to whether or not that was a high rate to pay. It was only because he happened to be a Marine — and his CO happened to force him to go to a credit union instead — that he got a more reasonable rate.

The problem, he noted, wasn’t that he didn’t know that he didn’t want to be overcharged, it was that he had no context for what being overcharged looked like. So an opportunistic auto dealer used the fact that he was already on the lot and looking to buy and tried to take advantage of him.

But that kind of context understanding isn’t something that came naturally to Vance, since in rural communities, loans are more often carried out between friends and family than between people and banks. Interest rates were a less relevant consideration, and if the first experience most working class consumers have with formal lending is an auto loan with 20 percent interest — they don’t have much motivation to go back.

This problem persists, but better financial services, which exist at credit unions and big banks nation-wide, could help working class and impoverished Americans, despite their wariness.

“There … also should be a recognition that these financial institutions are not going after these customers.

The simple fact is there is money to be made in some of these communities in providing services that you might provide to any other customer,” Vance noted. “What surprises me is how few institutional players there are. Whether it is just a question of going in to access these customers or even trying to use technology, advertising and marketing technology, which is a pretty big sector of what Silicon Valley is interested in. Even just using those technologies to access those consumers is really powerful, because a lot of these customer[s] don’t know these services are out there until somebody tells them.”

These questions, both Eckert and Vance agreed, will not get easier. And for American families living on less than $36,000 a year, the questions are already hard. The answers aren’t easy or straightforward either.

But there are solutions — and hundreds and possibly thousands of technological innovations that could be leveraged in a thousand ways against the problem. The question innovators have to answer going forward isn’t an “if” question — that has already been answered in the affirmative.

The question for innovators now is “how.” How to connect those innovations to the other half of America — not to mention the rest of the world’s poor and working class — so that hillbillies need fewer elegies going forward.

It’s a big job. But then, capitalizing on a big opportunity usually is.



The PYMNTS Cross-Border Merchant Friction Index analyzes the key friction points experienced by consumers browsing, shopping and paying for purchases on international eCommerce sites. PYMNTS examined the checkout processes of 266 B2B and B2C eCommerce sites across 12 industries and operating from locations across Europe and the United States to provide a comprehensive overview of their checkout offerings.

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