Mississippi Payday Loan Problem Inspires Startups

Inside Subprime: Dec 14, 2018

By Lindsay Frankel 

In Mississippi, the nation’s poorest state, the number of households lacking a bank account is on the rise, according to a survey from the Federal Deposit Insurance Corporation. The rate of unbanked households in Mississippi rose to 15.8 percent in 2017, more than twice the country’s average. It’s no wonder Mississippi is packed with payday loan firms; low-income families who don’t have access to loans from a bank branch may believe they have few alternatives for borrowing money.

But as innovative technology enters the banking sphere, better options are becoming available. A number of startups have been part of the neo-banking movement, bringing digital and mobile banking solutions to consumers. These new startups don’t depend on bank branches and are able to offer services with lower fees.

Every year, Americans spend $9 billion on payday loan fees. The sky-high interest rates trap desperate borrowers in debt, causing financial strain that makes it even more difficult for low-income consumers to cover their expenses. Though these predatory lenders cause more harm than good, underbanked families need financial services, and payday lenders meet the demand.

The need expands beyond rural areas in Mississippi, as one tech entrepreneur realized. After a year of traveling and research, Mississippi-born Sheena Allen, co-founder of CapWay, recognized that communities across the country are underserved by banks, particularly communities of color. She said CapWay could be “the first introduction to banking for a lot of those people. Our go-to market strategy is to work with schools, community organizations and cities and expose them to neo-banking,” she said.

CapWay provides customized advice based on current spending behaviors. Allen also hopes to offer users plenty of content focused on financial literacy, with curriculum paid for by school and community partners.

Many other apps also provide digital banking alternatives, some community banks have introduced digital platforms intended for underserved communities, and PayPal has even developed products targeted at unbanked consumers. But Allen says CapWay has a unique perspective: “The majority of us are from areas that we’re looking to serve. We know our audience. There are a lot of factors — from loans with higher interest to redlining — of why minorities don’t use banks,” she said. “Understanding that and coming from those communities makes my perspective way different that someone from a multi-billion dollar company.”

For more information on payday loans, scams, cash advances, and title loans, check out our state and city financial guides including Mississippi and Jackson.

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