AEO has a new initiative Project CUE: How CDFIs Imagine Their Industry 5 Years Ahead
FROM AEO:
Wayne Gretzky often attributes his great accomplishments in pro hockey to the fact that he always skated “to where the puck is going to be, not where it has been.”In order to develop an innovative solution for CDFIs to help expand credit to underserved entrepreneurs, the Project CUE team needed answers to a very important question: Where will the proverbial puck be for CDFIs and small business owners 5 years from now?
Why is answering this question even relevant to our project? In our previous blog post, we explained how we’re using design thinking as the framework to develop the solution that will bridge the gap between small business owners denied credit by a traditional lender and the efficient introduction of CDFIs as possible sources of funding.
Design thinking is an approach to innovation that focuses very much on stakeholders, which in Project CUE’s case are CDFIs, banking partners (as referrers), and small business owners. Tim Brown, the CEO of renowned design consultancy, IDEO,sums it up nicely: “design thinking is a human-centered approach to innovation that draws from the designer’s toolkit to integrate the needs of people, the possibilities of technology, and the requirements for business success.”
One of the leading principles of design thinking is empathy for stakeholders/users. As stated above, Project CUE has multiple stakeholders, with a key stakeholder being the participating CDFIs. So, inviting a CDFI representative to share how she sees her industry five years from now can empower her to daydream aloud about her professional ambitions and provide additional perspective into how our solution might help her achieve her goals. Moreover, it gives us insight into what CDFIs see as the opportunities and possibilities of technology.
Over the course of a recent two-day brainstorming session for Project CUE, representatives from four leading CDFIs (ACE, Intersect Fund, JustinePETERSEN, and Lift Fund) responded to a series of futuristic questions ranging from How will loans be decided? to How will technology impact the CDFI space? And we got some very interesting answers.
The year 2021 looks quite promising when our CDFI colleagues imagine the future. They foresee an industry and economy heavily transformed by technology. Predictions specific to CDFIs point to an increase in market share, surge in internal adoption of cloud-based services, more robust technology offerings to clients, and a more consolidated industry. These predictions certainly shed light on how the CDFI sector might evolve in the near-future so that Project CUE’s solution will be in step with those developments.
One thing that our project team observed is the lack of a singular prediction common among all four CDFI reps. “The CDFI reps did not have a uniform view of what the future of their industry looks like. They did recognize the need for change. Change, however, meant something different for all of them. In the end, they all agreed that their industry has to change if they want to continue to be relevant,” says Keith Catanzano, Project CUE’s product design and development lead.
Take a look at some of their predictions:
- For applicants:
- The lending process (as delivered by either banks or CDFIs) will be close to fully automated. This could mean no underwriters, no credit report checks, and a departure from issuing physical checks. This could also include more efficient message delivery and loan applications being executed via fingerprints (also known as biometrics).
- Improved security on smartphones will mean increased use of mobile devices to apply for credit. However, they don’t see a desktop-free future: access to a desktop PC will still be a part of the process.
- There will be changes to the credit score system that make it more dynamic with the economy. For example, an overall increased business emphasis on sustainability could mean that a company’s citizenship, sustainability, or social impact metrics might one day influence their business credit score.
- For lenders/CDFIs:
- CDFIs will grow to 10% of the credit market.
- Merger activity will increase amongst CDFIs, meaning fewer CDFIs in the future.
- CDFIs will use more cloud-based services for operations, making them more efficient.
- CDFIs will be able to refer their clients to cloud-based business management services like accounting, back-office, payroll, etc. because online business hubs will grow in availability and reliability.
Can you imagine using just your thumb to apply for a loan?
Our next steps will be to take these ideas to Main Street. Over the next few weeks we will continue to talk with small business owners and banking partners to hear their view on the future of small business lending.
However, we were intrigued by the idea that our CDFI reps thought that despite all these changes and the widespread adoption of smartphones, desktop PCs would still be a part of the loan application equation. Curious, we asked Sheri Flanigan-Vazquez, the Chief Operating Officer of JustinePETERSEN, a St. Louis-based CDFI which focuses on the needs of low- and moderate-income families, to understand more. She advised us that “even though our customers use more online apps, when it comes to accessing finances, there’s a digital divide” between customers that use smartphones and those that primarily use desktop PCs. Clearly, this divide is something to explore further and consider for our solution, especially since Project CUE targets entrepreneurs in low-wealth communities.
The Project CUE team and CDFI stakeholders found this exercise in innovation helpful as a way to be forward-thinking, but also empathetic. “We want to make sure we’re not over-engineering the solution and in the end aim to create engageable technology — this solution must meet the needs of business owners, CDFIs and referral partners. Sometimes those needs are in tension,” says Tammy Halevy, Project CUE’s Leader.
What are your predictions for the year 2021 and how will they change how we conduct business? Submit a comment below or find us on Twitter.