After a devastating year, Christmas came early for 4,000 financially hurting residents of Honolulu. Early last December, they received personalized Mastercard debit cards emblazoned with the city’s iconic beach and high-rises and, more importantly, loaded with $500 to be used for food purchases at grocery and convenience stores.
Despite rollout glitches (some residents complaining of activation problems), these refillable cards represented another successful milestone for Wole C. Coaxum, a 51-year-old fintech and social entrepreneur sitting in New York, some 5,000 miles away. Back in 2015, he left a job at JPMorgan Chase as head of sales to found MoCaFi—short for “Mobility Capital Finance”—a mobile-first banking startup that aims to address the racial financial inclusion and wealth gaps.
After some research, Coaxum reached a surprising conclusion: the best way to reach those with the least access to traditional financial services would be to do it by partnering with local governments and nonprofits. His idea was to create a unified no fee account that could deliver government benefits and local discounts as well as digital banking services such as direct payroll deposit, check scanning, a debit card (allowing ATM withdrawals as well as purchases), bill payment, credit history building, financial coaching and eventually, loans.
Helping Honolulu to get Covid relief dollars quickly to families hit hard by the pandemic seemed like a perfect case study. “It was a game changer for lots of people,” Coaxum says. “These cards are now in the hands of these folks, so additional money can be distributed to them through this platform. So that’s a success.”
It’s one Coaxum wants to replicate in every major city across the U.S. According to the FDIC’s latest survey, 13.8% of Black households and 12.2% of Hispanic households had no bank accounts in 2019, compared to just 2.5% of white households that were “unbanked.” City residents are more than twice as likely as suburban ones to have no bank accounts. Americans without bank accounts frequently cite high balance requirements and a distrust of banks and bank fees as a deterrent, but they can end up paying even higher fees for check cashing services, money orders and payday loans.
With bank branches closing in even more affluent neighborhoods, Coaxum figured the future for serving the unbanked would have to involve digital delivery. Yet he didn’t believe the big, venture capital-backed digital banks that have been sprouting up to serve Millennials and Gen Z would be able, by themselves, to close the financial inclusion gap.
Coaxum isn’t naive. He understood going into this—and has had reinforced by experience—that cutting deals with local governments can be a slow, frustrating process that involves not only bureaucratic red tape, but also dealing with multiple interest groups. It goes against Silicon Valley’s “move fast and break things” startup ethic. But he believes that going slow and building alliances ultimately holds the most potential to increase financial inclusion.
“Selling into cities is fraught with challenges,” Coaxum says. “I think you have to have a real strong stomach for this kind of stuff.” Five years after its founding, MoCaFi has forged relationships with eight cities including Los Angeles, Newark, New Orleans and San Francisco, as well as Honolulu. After entering 2021 with only 25,000 customers, Coaxum expects more than 100,000 users by year end. In February MoCaFi raised an additional $12 million from fintech investor Tom Hutton, Mastercard and the Citi Impact Fund, among others, after getting by with just $7 million of capital in the previous years. The startup is now valued at $37 million and a member of Forbes’ Fintech 50 for 2021.
America’s Unbanked Divide
The percentage of U.S. households who are unbanked—meaning no one in a family had a checking or savings account—has been falling, but still differs dramatically by demographic group.
Using entrepreneurialism to tackle barriers facing the Black community is part of Coaxum’s family heritage. From his basement in New Rochelle, he proudly displays on a Zoom call a framed, black-and-white photo of his great-grandfather, Anderson Hunt (A.H.) Brown. In the 1920s, Brown rented real estate to Black entrepreneurs in Charleston, West Virginia, and later used his influence to integrate the local swimming pool, library and lunch counter. His son Willard L. Brown (Coaxum’s great-uncle) became the first Black judge in West Virginia, and represented the West Virginia NAACP in a state case that became part of the consolidated U.S. Supreme Court case, Brown v. Board of Education of Topeka, which led to the landmark 1954 ruling that racial segregation in public schools is unconstitutional.
One dream A.H. Brown never realized before his death in 1974, at the age of 94: opening a bank to serve the Black community. That history stuck with Coaxum as he grew up in Cleveland, Ohio. In 1988, after graduating from Phillips Exeter Academy, New Hampshire’s prestigious private high school, Coaxum got his first taste of the banking world when an Exeter alum hired him to work as an intern at JPMorgan. He ended up back there full time after stints with Citigroup and degrees from Williams College and NYU’s Stern School of Business.
Coaxum says the 2014 police shooting of Michael Brown in Ferguson, Missouri prompted him to revive his grandfather’s dream. “[I wanted to] see if I could go out and be a part of the conversation that might put some economic solutions in place that complemented the social justice agenda,” he says. “The moment seemed right.”
“Selling into cities is fraught with challenges,” Coaxum says. “I think you have to have a real strong stomach for this kind of stuff.”
So he got to work creating the framework of MoCaFi, mapping out on giant Post-it notes on his basement walls his ambitious plan to integrate a digital bank into the life and services of cities. In 2016, he launched the mobile app, offering check scanning, bill payment and a Mastercard debit card, all connected to an FDIC insured bank account at Sunrise Banks (which bills itself as a socially responsible bank). The app also offers financial coaching and helps users build their credit histories by reporting any rent payments made from their accounts to the credit bureaus, payments which otherwise generally aren’t reported. (Rent reporting is a big deal; according to the Consumer Financial Protection Bureau, a far higher percentage of Black and Hispanic adults than of whites are either “invisible” to the credit bureaus or have such thin credit bureau files that they can’t be assigned a credit score—a necessity to get a conventional bank credit card or mortgage or loan.)
Truth is, signing up the cities took longer than even Coaxum had expected. New York City was his first target. He dreamed of integrating MoCaFi with the city’s municipal identification card—an innovation of current Mayor Bill de Blasio which gives undocumented immigrants, among others, access to city services. The idea was to give these residents a way to tap into financial services too. But some community groups worried that combining the ID with a debit card (putting both on the same physical piece of plastic) might put immigrants at risk of being identified by the feds and deported. When Covid hit New York City last year, talks with the city paused.
So Coaxum ramped up his efforts to make a deal with other cites. In the summer of 2019, he had shared his vision at the U.S. Conference of Mayors meeting in Honolulu, and had left with a list of contacts in dozens of cities that might be interested. “That enabled us to take the idea that was going through a political process in New York and talk to other cities about it, and develop a reputation for being able to deliver,” he says.
Last November, MoCaFi struck a partnership with Los Angeles; it will soon be offering residents of the second-largest U.S. city a prepaid debit card (called the Angeleno card) funded by the city as a way to distribute rent relief and potentially other subsidies. Newark, N.J. recently inked a deal to use MoCaFi’s card for a pilot universal basic income program.
Coaxum isn’t the first to attempt the city-as-partner strategy. In 2013, Venice, California-based SF Global tried to do something similar in Oakland, California, attempting to integrate its debit card with the city’s municipal ID. The initiative failed, Coaxum says, because SF Global didn’t have the funding to tough out the lengthy municipal process.
“For a startup, time and money are like oxygen, and without it, you’re dead,” Coaxum observes. “So if you’re working with a municipality and timelines get extended or budgets get cut, which inevitably they do, you can jeopardize your business.”
It’s a risk that Pitchbook fintech analyst Robert Le thinks also exists for MoCaFi, especially with fintech neobank competitors Greenwood and First Boulevard hot on its heels. Similarly backed by Mastercard and aimed at Black and Latino individuals and businesses, Greenwood rounds up the spare change every time a user swipes its debit card and donates the excess to historically Black colleges and universities (HBCUs) or the NAACP. First Boulevard supports the Black community through incentive-based financial education and offers users cash back for shopping at select Black-owned businesses. But neither Greenwood nor First Boulevard currently partner with local governments
All three startups have had successful funding rounds over the past year, due, in-part, to the venture capital industry’s response to the murder of George Floyd, Le says. “My analogy is if you watch a horse race, you don’t know which horse is going to win in the first 15 seconds, because they’re all really close to each other. Only over time will there be a separation,” he says. “Right now, we’re still kind of early in this space.”
Coaxum figures there’s room for multiple players to succeed—certainly there’s enough need out there. While partnering with government and local non-profits will help him reach those who have had the least access to traditional financial services, Coaxum says, “we don’t want it to be the poor person’s card. We want it to be something everybody wants.” That goal, he believes, can be met by integrating the card into the life of each city, giving users perks like discounts for shopping locally, free access to cultural sites and cheaper rides on public transit, bikes and scooters. All of which means negotiating with not only local governments, but not-for-profits and businesses, too.
“Yes, this is going through a lot of hoops. But if we don’t, that’s part of the reason why I decided to jump into this in the first place,” Coaxum says. “We don’t claim to have all the answers. But we do think that we have put forth a model that represents the best thinking that I’m aware of at the moment, to address this issue, because if we let the natural big players and the tide carry us forward, we won’t make any progress.”