his organization's name, The Center for Financial Services Innovation (CFSI), says it all, but there's so much more to the story. Behind the name is a multi-faceted mission and hybrid business model for a group that's not completely non-profit and both pro-business and pro-consumer. Don't try to pigeonhole this organization either; it takes a few minutes of discussion to provide a full picture of everything it does.

Chicago-based CFSI is only about a year old but is already proving, through unexpected successes, that it's possible to implement new approaches to forging partnerships and opening markets in banking.

CFSI wants to show that with a little creativity, there is an opportunity for innovation in financial services, a traditionally conservative industry. And serving low-income markets, as long as the right pieces fall into the right places at the right times, can be profitable.

CFSI is an experiment on a variety of levels, and an entirely new idea on how to work within the business community to develop sound business cases for enacting social policy.

This is not your standard financial organization. CFSI's mission, relying on serendipitous opportunities as well as carefully formulated strategies, is to facilitate all of that.

The Long Road to Overcoming Economic Hurdles

Its purpose, simply put, is to open avenues for those members of our population, known as the unbanked or underbanked, in order for them to participate in financial services and gain the tools to build assets and credit.

CFSI was founded in March 2004 as the result of discussions between ShoreBank, (headquartered in Chicago, it has assets of $1.5 billion and is the country's oldest and largest community development bank), and the Ford Foundation (founded by Henry Ford in 1936, it is dedicated to funding projects around the world that improve human existence).

Sharing related visions of helping people overcome obstacles, whether political, social or economic, a ShoreBank advisory unit formed CFSI with enough seed money from the Foundation to cover the first three years of operation. Jennifer Tescher was hired as Executive Director to make the vision a reality.

The premise for forming CFSI, according to Associate Director Arjan Schütte, was simply to help bank the unbanked. The Center's founders came up with the idea to implement solutions through an organization focused both on the supply side as well as on the demand side.

"The purpose of the Center is to focus on the unbanked and underbanked segments, to offer retail financial services for those outside the system," Schütte said. "There is also the goal of moving them into asset development, of giving them access to services that are not exploitative specifically for providing them access to financial services and asset development.

"It's not just a way for them to inexpensively cash their checks, but to get them to start saving money in a reasonable way, and even developing credit histories," he said.

"It's a long spectrum from being able to have transactional involvement, to having a savings involvement, to being a borrower, to building a credit history, to being an asset owner. We're interested in that entire path, and in moving people along it as far as we can."

At issue are the estimated 20 million people in the United States who don't have established checking or savings accounts through banks or credit unions; these people are likely to be low-income and either don't trust the traditional financial services industry or are unable to open accounts.

It's a vicious cycle, though: The lack of participation in traditional banking methods means the un- and underbanked are probably not saving money, and they're definitely not building credit or assets. They can't get ahead.

Forging Mutually Profitable Partnerships

Despite the size of this untapped market, few financial institutions currently see the value in serving it. Part of the problem, from the financial institutions' perspective, is that working in this market is a completely different way to make money and brings with it unfamiliar complexities.

One challenge for CFSI involves convincing the financial services community that serving this segment can be worthwhile. CFSI addresses this particular issue by fostering connections between providers for positive outcomes.

Since its inception, CFSI has made it a top priority to establish formal and informal partnerships with a range of companies and associations throughout the industry. But that becomes a challenge in and of itself; the financial services industry often views CFSI with a bit of skepticism.

People in the industry have a hard time grasping that CFSI is pro-business, and that it doesn't want to rail at financial companies because they're profit-oriented. The Center's structure is a little confusing, too, because of its affiliation with ShoreBank.

"We're not really non-profit, not really for-profit," Schütte said. "Technically we're part of a for-profit, but what we do is kind of non-profity, but then we are very interested in the for-profit industry. We're a very unusual combination.

"We're an unorthodox entity, and people don't know how to relate to us. Most people expect that when you talk about the unbanked, you're purely an advocate for them, and they wonder why [major financial corporations] would want to talk with us, but that's precisely who we are talking to," he said.

"We're communicating a fairly unorthodox idea. We believe there are mutually profitable relationships to be established through serving the low-income, unbanked segment of the population.

"This is not necessarily an issue that for-profit companies take all that seriously, so there is a very specific mission issue of how to talk to them in ways they understand so that they don't just tune us out. We have to work with the market and industry at large."

The fact remains that "the unbanked still have financial lives," as Schütte said. "They interface with financial institutions that are not banks or credit unions. Increasingly, there are organizations that look a lot like banks but are not; very often these are check cashers, payday lenders or bill payment services."

Unbanked consumers might pay hefty fees to cash checks, but they don't really have many options. Additionally, these non-regulated businesses don't offer the means, such as savings plans, to promote financial stability that will eventually help move consumers up the ladder.

Combining Existing Solutions for New Outcomes

A major area of interest for CFSI is the stored-value card (SVC) and its potential to offer a number of savings- and credit-building functions to unbanked consumers, and how SVCs will further the Center's causes.

The use of SVCs is expanding exponentially across many segments of financial services, and CFSI has worked on several projects involving SVC providers and companies that add savings and even credit components to them. (See "Prepaid Cards: Not Just for Gifts Anymore," The Green Sheet, March 14, 2005, issue 05:03:01.)

SVCs have helped change the roles of retailers as financial institutions, and vice versa, which affects the unbanked. "Stored-value cards allow you to have money sitting somewhere," Schütte said. "They allow you to get money from ATMs or to buy groceries at a store.

"When they start to also have savings features, they begin to look and feel much more like complex financial products rather than a hyped-up gift card."

Another important aspect of CFSI's mission is to serve as a sort of clearinghouse for information on various topics that affect its mission. CFSI analysts research issues and companies with exciting, promising programs, and publish papers on their findings; they also review and comment on public policy.

Funding Innovation, Capitalizing the Tools

Sch�tte said that CFSI's relationships with banks, credit unions and other providers of financial products and services is one of the most unusual aspects of the Center's programs. The successful outcomes of those relationships will help determine CFSI's future at the end of the initial three-year funding period.

Successful relationships will also include those with recipients of CFSI's monetary grants and investments, and with companies the Center fosters in other ways.

The investment component is a critical part of CFSI's mission, and complements its two other principle activities: research and relationship brokering. The premise behind the monetary awards is to recognize companies and organizations that are working on solutions that will have an impact on the un- and under-banked population.

Last year when CFSI announced its request for proposals (RFPs) for monetary awards, it had been in existence only about a month; still, it received 400 RFPs and 45 submitted proposals; CFSI made four investments. Schütte said everyone at CFSI was amazed at the response.

This year will mark the second round of investments, which the Ford Foundation funds. CFSI will place a total of $750,000 to $1 million, splitting the investments between eight organizations; four non-profit groups will receive $50,000 to $150,000, four for-profit enterprises will receive up to $200,000 or $300,000. Within the first two weeks of the current RFP period, Schütte said the Center had received more than 600 requests, and countless e-mail and phone calls.

(Interested companies can download RFPs and learn more about the investments on CFSI's Web site, www.cfsinnovation.com . The deadline to submit proposals for non-profits is May 16, 2005. For-profit proposals are accepted on an on-going basis, Schütte said, in order for CFSI to best meet their funding needs.)

CFSI factors a number of criteria into the award decisions. "We will look at a model's sustainability, profitability, the level of innovation in products or services, and its ability to make an impact on these consumers, or the financial value to the unbanked," he said. "We will also look at whether it is scalable and replicable."

CFSI wants to place the investments in companies whose work reflects the Center's interests. Selected non-profits and businesses should embody CFSI's focus on developing partnerships between banks and non-banks; use the workplace, or payroll, as a distribution tool; use such self-service delivery mechanisms as ATMs, kiosks, the Internet, or hybrid systems like telephony; include remittances that tie into asset and credit building; or help consumers get into the credit system to build a credit score.

One key deciding factor in the investments is also the extent to which the organizations enable CFSI to carry out its own research and relationship brokering functions.

"If we can create success stories from these or help connect entities through our investments to create greater opportunities, those are certainly investment criteria," Schütte said.

While the investment amounts are not huge, he said the money has many other benefits attached; these are mostly "soft" benefits, such as matchmaking between companies, and prestige. And even when CFSI declines requests for funding it supports companies in which it sees value in other ways.

For instance, an alternative credit bureau did not receive an investment award. Instead, CFSI took the company to the BAI Retail Delivery Conference and Expo last November, subsidizing the cost of the exhibit booth at the largest banking industry conference in the country.

"There are informal but important ways we give exposure to little-known innovators, and put our wing over organizations," Schütte said. "These are not officially parts of the funding arm, but are not an insignificant source of financial support."

Schütte said he is particularly interested in solutions that use wired and mobile telephony systems as payments and financial tools. "This population is connected to their home phones, and to their cell phones," he said. "It's a great tool, but right now there is no mobile payment company looking at the unbanked.

"I can imagine us putting a mobile payment company with someone who offers SVCs. We've done a fair amount of this opportunistic type of work already. We say 'there's a huge market here, we think there's an interesting set of opportunities,' and we'll pull people together and say 'see what you can do.'"

Welcoming the Innovative

As word of CFSI's work spreads, awareness within the industry grows and enables the Center to expand its relationship base as well as its projects. Large banking and financial services corporations are expressing "surprisingly high levels of interest, at very high levels," Schütte said.

As testament to this, Tescher will contribute a regular column to "American Banker" magazine. This is a major step in realizing part of CFSI's strategy to communicate its message and interact with the industry.

With the awards of this year's investments, CFSI will begin an experimental round of a different sort. The emphasis on the for-profit placements is a new direction, but working with businesses is an essential move.

"We see capitalizing organizations that will provide new tools as an important aspect of what we do, an aspect that we will continue to have a hand in," Schütte said.