Southern Bancorp Using Fintech to Help the Poor

by Lara Farrar

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Here’s a surprising fact: Mississippi has more payday loan shops than it has McDonald’s, Starbucks and Burger Kings combined. That’s according to Darrin Williams, CEO of Southern Bancorp Inc., a community development financial institution that’s focused on underserved, impoverished populations primarily in Arkansas and Mississippi.

Williams highlighted this during a keynote address he made at the 2023 VenCent Fintech Summit, organized last month by The Venture Center of Little Rock. I was leaving the event when Williams began presenting, and what he had to say about how financial technology can help those living in poverty caught my attention.

Nearly 6 million households were unbanked in the U.S. in 2021, Federal Desposit Insurance Corp. data indicate. More than 18 million were underbanked, which means no access to credit cards or loans. Both of these groups turn to predatory banking businesses, like payday loans, pawnshops or check cashing services, all of which charge exorbitant fees, further exacerbating the cycle of poverty.

The loans these groups usually need aren’t big. About 50% of Southern Bancorp loans are less than $10,000, Williams said. In 2022, the bank issued almost 2,000 loans for less than $1,000. But the challenge with smaller loans is that they’re costly for banks to approve, so banks can’t make a return. “When a banker touches a $500 loan, no matter what interest rate is charged, you’re going to lose money,” Williams explained to me during a recent call.

Southern Bancorp, which has its own digital division with developers who design fintech concepts, recently launched its Money on Demand app, which aims to bridge this gap in loan services for the poor.

The beta test targeted Clarksdale, Mississippi, where Williams said they hoped to find about 100 test users. Within a month, the app was downloaded 63,000 times across the U.S.

Users initially receive a $25 loan, and if they repay it, they’re eligible for larger amounts. Not every user paid back the initial loan. Using behavioral economics, Southern Bancorp is studying how the app was used and how it could help grow the bank’s geographic footprint without opening more brick-and-mortar locations, enabling it to expand its mission of reducing financial exclusion and promoting wealth generation.

Such small cash sums may seem insignificant, but access to this capital, and, in turn, access to the official banking system, offers a path out of poverty.

Take, for example, the Grameen Foundation of Washington, D.C., a nonprofit providing microfinancing and financial education primarily to women and girls in poor countries. Grameen has helped tens of thousands of entrepreneurs start successful businesses while creating greater financial gender equity, which reduces the repression and abuse of women. (Southern Bancorp has worked with Grameen to learn about its poverty alleviation programs.)

“There are many wonderful apps out there that are a solution in search of a problem,” Williams told me. “We are trying to find people who have a problem and ask them to come in and work with us to find solutions.”

Southern Bancorp has also developed a money-saving app called Envie. Another app, called Elevault, offers financial planning tools.

“We are always testing, always trying to come up with ideas and always prototyping them,” Williams said. “Our focus on digital products is really not the current customer base. It’s trying to reach our mission and serve underserved people, underbanked folks through these apps and expanding our geographic footprint through technology.”