October 28, 2019.

It’s expensive to participate in the mainstream financial system if you’re poor. Overdraft penalties and banking fees prevent billions of people from accessing the most basic financial tools like savings accounts and lines of credit.

This has created the greatest market opportunity in fintech—low-cost, high-tech financial services for the underbanked, said Angela Strange, a general partner at Andreessen Horowitz, during a panel at the Forbes Under 30 Summit in Detroit on Monday.

Written by Will Yakowicz - Originally published at this link.

“This opportunity [to serve the underbanked] is massive. Depending on which numbers you believe there are anywhere from 2 to 3 billion people worldwide,” said Strange.

Historically, traditional banking institutions have done a bad job serving these customers with an affordable product, which has created two totally separate financial services landscapes in the U.S., said Strange. One landscape includes institutions like Chase, Wells Fargo, Master Card. The other includes payday loan companies and other predatory services that largely service the lower socioeconomic class.

“More than 50% of Americans who live paycheck to paycheck live in this world, and it’s replete with a ton of problems like unpredictable fees,” said Strange. “Until recently there hasn’t been much startup opportunity. The opportunity is now.”

Thanks to the wide adoption of smartphones across demographics and technological advances in banking infrastructure, the barriers and costs to create financial services products have fallen dramatically. These forces have given rise to startups and services for this underserved customer base that’s been long ignored, or punished, by the mainstream financial services industry.

“There’s a new crop of entrepreneurs who grew up during the financial crisis, or grew up in a different socioeconomic background compared to the people on Sand Hill Road, and they deeply understand the problems from a consumer point of view,” said Strange.

Companies like Propel, which provides budgeting and banking services for people on food stamps; Branch, which offers microloans to people without credit histories in countries like Kenya; and Chime, which offers no-fee bank accounts, are growing and acquiring customers quickly.

A simple banking product for the underserved can scale like “a rocket,” said Strange. While incumbents still rely on old standby revenue drivers that punish people with low bank balances, startups are helping to solve these long-standing pain points.