FinTech Entrepreneur James Gutierrez On What’s Next For Inclusive Finance — Mass News
By: James Gutierrez
Tags: Interview, Technology, Finance, Legislation, Inclusion

James Gutierrez is a social entrepreneur focused on innovative financial services technologies, and inclusion within the lending industry. Through his professional ventures, James Gutierrez has leveraged his finance tech experience to provide access to liquidity for countless previously underbanked individuals.

James Gutierrez is the Founding Partner of Insikt Ventures, a $5 million venture capital fund focused on seed and Series A investments in fintech and consumer products. In 2005, he co-founded Progreso Financiero (currently known as Oportun) to provide unsecured loans to customers with limited credit histories. As a result, Oportun has provided more than $1.5 billion in loans to more than 500,000 U.S. borrowers since inception.

James Gutierrez serves on the Boards of various public-service organizations, and lends his expertise to forward several social justice initiatives. He has served on the Federal Reserve Board’s Consumer Advisory Council and the Centennial Advisory Committee. James Gutierrez serves on the Advisory Board for SEO-SF. He also serves as Vice-Chair of the Silicon Valley Leadership Group. James Gutierrez co-authored and drove the passage of federal and state laws. These laws were designed to increase the availability of affordable, safe small-dollar loans.

Accomplished VC Investor, entrepreneur, and philanthropist James Gutierrez is continuously searching for opportunities to help others. He aims to evolve the lending industry, and provide financial wellness opportunities to traditionally marginalized groups. Recently, we spoke with him about current motivations, the state of the inclusive banking industry, and what’s next for James Gutierrez.

Throughout your professional career, inclusivity and opportunity have been key themes in the mission for your companies. Will you be implementing those themes as the continued backbone of your current and future endeavors?

Absolutely. Watching the presidential debates and the discourse in the country, I still feel like both sides haven’t figured out actual solutions to addressing inequality in America. We’re watching an environment where there’s a faux recovery. In this environment, the rich (because they have assets and invest in the market) are getting richer.

On the other hand, the poor just don’t have enough to get by. They’re not building wealth. The current system is broken. It is not inclusive to “poor” people who want to even begin the process of building wealth.

As much good as Aura and Oportun have done, there needs to be bigger change. It needs to fundamentally address the systematic failures in our country, in our capitalism, in our economic systems. It takes someone who’s actually been there on the front lines to deliver products to the lower-income. Therefore, I’m looking to build new companies, invest in new companies that can bring models that can scale.

Both of your companies, Aura and Oportun, received the CDFI distinction from the Treasury Department. How has this designation changed the trajectory for those companies? What about the countless individuals who have depended on them for financial products?

For both companies, we applied for the prestigious designation by the Treasury Department to be a community development financial institution (or CDFI). Both Oportun and Aura were awarded the designation, which was great. This designation is great, but many CDFIs cannot scale. This renders them unable to handle the growth needed to serve an expanding customer base. About 80% of CDFIs in the country, who are there to empower low-income families through access to capital, are not-for-profit organizations.

We have a challenge that’s in the Hispanic community alone. There’s 40 to 50 million underbanked or unbanked people in the country. For about half of the country, a surprise $400 expense would be vastly detrimental. These individuals simply wouldn’t have enough savings to cover such an expense. They would have limited lending resources available to help them cover the expense. As a result, this is a bigger problem.

To appropriately scale a CDFI, you need technology, and you need models that can scale and serve millions. You need someone who cares. I’m passionate about public policy. I want to see if we can inject new ideas in California, in the government, and in the Biden administration.

I want to support new companies that will continue to work to tilt the scale in favor of low-income families in America. By doing so, they can have a chance to pursue the coveted “American Dream.” The James Gutierrez version of the American Dream applies to all. It doesn’t leave anyone out based on traditionally exclusions.

How can you bring these large-scale ideas to fruition? What types of tools do you think we need to generate systemic change?

It’s important to find certain people who are in the positions of power (members of Congress, State Representatives, etc), who share a passion for helping the community, and who want to propose new ideas. The cooperation and consideration of these individuals is paramount to the successful transformation of ideas into reality.

There’s this concept of ESG (Environmental Sustainability Growth) for stocks and companies. BlackRock’s CEO made an announcement that they want to have a large portion of their investing focused on companies that are sustainable, and have a social purpose. That’s an innovative idea. However, there’s currently no clear cut definition of a company that would qualify under these parameters. There’s no universal rating system, like you’d have in bond ratings. Our governments can create a definition, incentive, and direction for this type of designation.

If companies achieve a higher rating under these proverbial conditions, they can benefit from a lower tax rate, as well as a lower tax rate for their investors. This creates an incentive for participation in such a monumental project. If you are producing products that damage the environment, for example, and you get a D rating, or a C rating, then your tax rate is a lot higher, because of the externalities you’re creating.

Those are progressive ideas. What type of cooperation needs to exist to enact these ideas?

Those are some of the ideas that we can create with the cooperation of government bodies, and singular entities. California is the leader when it comes to emissions. The Air Resources Board has been working hard, and is a great example of systemic change sparked by cooperative action.

California just passed AB-979, which dictates that public companies need to have minority representatives on their boards. Over 600 companies in California in the next few years are going to have to comply with that law. If we can pass a law like this in California, it can be a model for the rest of the country to follow, particularly with a Biden administration.

Minority inclusion in the C-Suite is probably my first focus. I’d like to see the creation of a reporting scheme, where all companies will self-report anonymously. The aggregate results would become public. As a result, companies could see where they fall on the spectrum. If they want a tax benefit, then their rating would be public. Their investors, who buy that stock or invest in that company as a private company, would pay a lower percent tax rate if there are capital gains.

Why would this elicit change on a corporate level?

I believe that it’s the stockholders who influence the companies to change. It’s not the company’s tax rate itself. It’s the people who buy the stock. So, people buy stock and get a lower tax rate. I think they will influence that company. The conversation from potential investors would incite questions, such as; “Hey, what do you need next year to go from a single A to triple-A?” “I need to have more minorities on my board, I need to have more people of color and women in the management team. I need to fix my environmental plan, so that it’s better for the environment.”

If companies were rated based on those factors, there would be a true measurement for companies that are ESG compliant. Now, there’s a carrot and a stick. Policy should always have carrots, and not just sticks. Unfortunately, for both sides, it’s either all carrot or all stick. Ideally, it needs to be a combination.

That’s an example of an idea that could be beneficial to entire industries, as we think about tax policy in America and in California. We have to remember that private companies employ most people in this country. Thus, we need to work through corporations to seek change, and I think this would be a way to do that.

Can you tell us about what’s next for you? Are you developing a new company? What new tactics are you employing for your existing companies?

I yearn to continue to be part of an organization that makes a big impact in leveling the playing field. I spent the last 15 years working on FinTech that serves primarily the Latino community. There, I focused on the problems of underbanked people. There’s been a change that we didn’t fully maximize through the last two companies. Thus, I want to create a more comprehensive experience for similar individuals.

Progreso had storefronts, and met with customers face-to-face. With Aura, we kind of created virtual storefronts. Throughout the previous two years, we created a test brand that people didn’t know about, called Luna. We tested the power of digital marketing, full digital experiences, and digitizing the entire process of applying for loans. I saw about two times the volume of applications via Luna than we did in all of our 900+ virtual stores with the Aura model.

What caused this change?

We deduced that our customers and communities have evolved. While our consumers were comfortable with communicating via their phone even 10 years ago, I felt that the adoption rate for searching for the best insurance product, or the best investment product, would still be a preferred in-person experience. They wanted a face-to-face interaction of trust that they could build with someone.

In the last two years, however, we saw the shift. I have an innovative idea that would be an entirely digital effort to go after this community with a new set of products. Insurance would be a big part of it, auto insurance, life insurance. While some other digital banks exist, there really hasn’t been a digital bank created for this population.

I’m thinking about putting together a new brand, and trying to create a brand that’s a proverbial one-stop-shop for a myriad of financial services, trusted insight, tracking tools, and everything else an individual may need for long-term financial wealth creation and growth. It would foster a connection and feeling of trust, and a relationship, but will exist 100% digitally.

I’ve spent 15 years in the lending space. I have seen the evolution of federal lending, private lending, and non-traditional lending.. I’ve done all of the experiments, and have seen what’s worked, and what hasn’t worked. A lot of these experiments were done inside the companies, instead of in proverbial terms. If I look at the areas of the highest growth, it’s all in digital products.

Many of your previous experiences are culminating into a vision that you have for what seems like a very comprehensive one-stop-shop for financial products. To build customer engagement, what type of factors will be important to include in moving forward with these ideas?

There is no one-stop-shop brand that you go to, you trust, and you get these expansive financial wellness products. At Oportun and Aura, we never expanded outside of lending, so there’s still so much more that our customers need, and can benefit from. We never integrated a product and customer experience, where it was a long-term financial wellness journey.

With this new idea, could put people on a financial-fitness plan. It would clearly provide an end goal, and showcase the best ways to achieve that end result, breaking down each step along the way. We could do a client assessment to determine feasibility. We’d be tailor-making the solutions for what customers really need. In a way, that’s going to help you build wealth and advance.

That type of comprehensive leadership doesn’t exist online fully for this community, and doesn’t exist in Spanish. Even if you look at a lot of the Neo-banks in the US, they’re still mostly all English language offerings. There’s a hole in the market, and given all of my experience and our experience in providing products to the Hispanic community, I think we can fill this void. I’m passionate about the next act in this space.

How would you pivot this venture differently in terms of marketing and product placement for the community? Someone could potentially go to a financial advisor and get the same breadth of information, although they couldn’t actually access those services. In making this one-stop-shop, how would you position the product to people as an educational and lifestyle support tool for financial wellness on a long term basis?

We’d be almost entirely mobile. We’d have easier access points, educational videos, and testimonials. We would create really easy-to-use interfaces by leveraging technology, so that people could access services without feeling overwhelmed.

Often, users get inundated with all different types of products, most of which have many features. Sometimes, they get kind of lost in the void of wondering if a feature is more important than another feature. Do they need more of this, or less of that? We could simplify things, rendering the entire process as seamless as possible. For example, you could customize your dashboard to feature only facets that are pertinent to your bespoke goals, needs, and desires. That customization doesn’t really exist for the underserved community, the underbanked community and the Hispanic community in the US.

In addition to your vast business ventures, you’ve made significant impacts on policy. Will you continue to be a proponent for inclusivity, fair banking, and other social justice issues?

In terms of the future, I would like to have an impact on policy. I gave you some ideas about what I think could change in terms of corporate behavior. This idea started when I spoke to an assembly member, David Chiu, who’s the assembly member from San Francisco. I told him, “Hey, what frustrates me is that I support the minimum wage being raised to $15. However, I don’t think it goes far enough to really solve poverty in America, or in California.”

For many corporate boards, their compensation strategies focus on the top 10 individuals in the company. Their stock options are tailored to benefit these high-level C-suite members. At my old company, Oportun, we had a lot of people working in storefronts. We had over 100 people. There wasn’t really a focus on making sure that everybody got stock options.

For these employees, however, stock options could have the propensity to change their lives. If they received a little bit of stock after working for a successful company for a few years, they could walk away with the ability to buy a home. That was very important to me, but I felt that it didn’t really matter to the people who serve on corporate Boards, and the investors.

How can you make it matter to all parties involved?

I told David Chiu, “My concern in Silicon Valley is, if you’re not giving equity to everybody, these companies could go public and create big market caps. However, many people working at the companies don’t really feel the impact of that. It’s only the top Execs.” That bothered me. So I said, “What if you had a disclosure law that required companies to fill out a survey about their different salary bands, and what percent of the company’s total equity that it issues is within each band?” You could start to show that it’s very top-heavy.

In this proverbial law, another portion could dictate that if you gave stock to any Executive, you would have to give stock to every single employee in the company, even if it’s just one stock. This would teach the value of ownership to immigrant communities or poor communities, where you don’t really get taught the value of accruing equity.

From that idea, I started thinking about all of these social issues that are important to us; equal pay, gender and minority representation and diversity at the executive level on boards, environmental, protecting the environment. We could probably come up with some sort of questionnaire that would cover a lot of these social responsibility areas. First, we could have companies fill those out on an opt-in basis. Secondly, if they score high across some composite way of scoring these things that the states would set up, then they could get a higher ranking and a lower tax rate. For me, that’s a really big idea.

From a legislative standpoint, change is a very long-winded process that requires a lot of collaboration with local representatives. Is that something that you see in your future? For example, could we see James Gutierrez in a political appointment?

I’ve influenced, I’ve testified at multiple hearings, I’ve helped to write laws that have been passed. I’ve passed about four or five laws in California, and have passed a section of Dodd-Frank. I understand the process. I have a balance of experience in the private sector, and as an entrepreneur. Through my professional ventures, I’ve harnessed the experience of creating jobs and creating economic opportunities for those that have been left behind. I think I could bring those innovative ideas to the public in the future. Candidly, I have some aspirations in future. I would like to make an impact and help my community.

For more musings from James Gutierrez, check out his Medium page.