Discoveries Made While Building A Neobank For The Formerly Incarcerated

Welcome to Money Isn’t Everything. I’m Mary Wisniewski, Cornerstone Advisors editor-at-large and host of the show that explores early-stage ideas that could, if not already, shake up financial services.

Today on the show is Keith Armstrong, who, among other things, co-founded a company called Stretch.

This is a really interesting conversation because Stretch started out as a neobank for the formerly incarcerated, and it’s made a big pivot.

We chat about lessons learned, the nuances of what transactions mean or can mean, and the importance of income opportunities rather than budgeting advice.

Here’s our conversation.

Welcome to Money Isn’t Everything.

It’s great to see you again.

Thanks for being on the show.

Likewise.

I appreciate the opportunity to talk to you.

Yeah.

Well, you have a lot of things to go over, and I have a lot of things to go over with you.

But I thought, of course, the place to begin is to give a little color on something that you co-founded, which really made a splash because you created a neobank for the formerly incarcerated.

So let’s talk about Stretch.

That was certainly where we started a few years ago.

We launched, as you said, a neobank for people who were returning home from incarceration.

We were really inspired by a Wall Street Journal article, of all things, that sort of piqued our interest.

As we went out and started meeting other people who had experienced incarceration and learned about some of the challenges that they face around opening up a bank account and getting access to, let’s call it, fair financial services, and some of the challenges with credit identities and access to things like auto loans and such, it was a really motivating mission for us.

We worked very closely with our partners at Highnote and Sutton Bank to launch a product that could be opened using a person’s state or federal prison ID.

That was really the seed of the product and the company, where we looked to start.

We’ve evolved a lot since then and happy to talk about that, but that was where we originally started.

Yeah.

And I definitely want to get into the now journey, but what a fascinating problem to latch onto.

I guess I’m really curious, in your research and creating this, what was one or two surprises that you discovered while trying to serve this audience?

Well, we saw that a lot of people who were returning home from incarceration, at least in the areas we were originally targeting, were living at a transitional home or facility.

These often carry a commercial address, which, when you try to use that address on other consumer banking sites, say Chase or something, it popped up as a red flag as being a commercial address.

So that was one interesting insight we had and had to work closely with Sutton on, allowing for cards to be mailed to a commercial facility.

Additionally, we saw several people opening up Cash App accounts.

Yeah.

That was one of the reasons that caused us to pivot, where we realized, wow, maybe this isn’t such a big problem as we originally thought and had heard from people.

A takeaway for me as a founder is, you can read a lot of academic research and even talk with people, but people were still finding ways to get access to financial products like Cash App.

That’s really interesting.

Why that account?

I mean, every state’s different, but when people, at least in Texas, are released from incarceration, broadly speaking, you’re given $50 on a paper check.

People would take this check and get it cashed at some location, whether that was a liquor store or some kind of convenience center.

They would leave with cash, and then they would give these funds to another individual who would be able to send them money electronically into their Cash App account.

So you’re seeing just a need to not have cash.

You would give it to someone, and they would hold it for you and send you those funds through your Cash App account.

That was like a microcosm of activity we were seeing, at least within the transitional home that we were working within.

Okay.

So they’re getting an account, but what did you discover, like, oh, but here are some other needs that aren’t getting met that are pressing?

What we realized is people wanted to sort of have this pocketing behavior.

So they would open an account with us.

They would open an account at Cash App.

We saw many people opening up Chime accounts eventually too.

They were keeping money in all three, and we could see in the transfer activity money going to Cash App or money being transferred to Chime.

So it was an interesting insight for us where you were just seeing people use very different accounts for many different things.

We always thought that the account for us could be a hook and that the ease of opening this account with your prison ID would allow us to offer a wider variety of services.

Particularly one of the areas we were interested in was auto lending.

Many people struggle getting access to affordable financing for a vehicle that is used to get them to and from work.

I’ve talked to many people who have to spend hours on a bus to get to employment, and that can be obviously a huge, huge time suck.

So that was sort of what we originally thought we might be able to fix for people.

It’s so interesting that you said they’re using all three apps because that’s just something that happens to consumers.

It’s like you have your main bank account and then you just download a couple of apps.

So that seems sort of like it’s still true.

Yeah.

Like I said, we thought this was a much greater problem than it was, and we just had to respond to the realities that we were seeing on the ground.

Totally.

I want to get into the pivot, but before we do that, I am curious because you mentioned to me previously, obviously you’re going to get some head turns in banking circles to say, “Hey, I’m creating that.”

To say the least.

But I feel like there are so many stereotypes.

There are always so many stereotypes.

One is just judgment on what people are buying and why they’re buying it.

I’m wondering what you’d see or what you’d feel like, either from financial services circles or from people transacting through your product.

Are there stereotypes that you’d like to break down a bit?

Maybe talk a little bit about our pivot and what we’ve done with a state DOC in collaboration with their parole team.

We originally launched that consumer program, but we’ve since launched a corporate disbursement program where we’re able to open up anonymous cards for individuals.

With the particular state organization we were working with, individuals who were randomly selected to participate in this program would receive a card.

As they achieved different milestones, funds would be released automatically onto this card.

Some of these milestones included things like, one, just activating the card, building up that muscle of digital literacy and going through that process of setting up your account.

Next was getting employment.

Another was keeping employment.

We had some other milestones where you would receive funds if you complied with electronic monitoring or were participating in these rehabilitative programs.

So as funds were released, the agency was really interested in understanding how funds were being used.

One of the first cases we had was an individual who spent about $200 on a pair of sneakers.

That raised a lot of questions internally because some people thought that was really wasteful.

How on earth could someone who was just released from prison spend that much money on a pair of shoes?

But what I found really interesting is that you have to look at that transaction within the larger context of a person’s life.

What we learned is that this individual was actually buying these sneakers for their niece, an estranged family member.

So when you have that background and that context, it doesn’t look like a wasteful expenditure.

It’s a gesture, a way to reestablish a relationship.

We had many examples of these.

Whether it was observing some expenditures at a Pep Boys or an AutoZone, this was a clue that somebody was fixing up a car so that they could have that to be able to get to and from work.

Not everything was positive either.

We saw, in some cases, people had transactions declined at a DMV.

We were like, how does this happen?

Then you see the night before there was a really large DoorDash expense that cleared.

So perhaps this is an opportunity for some kind of coaching or intervention with the individual to support them in cash flow management.

I could go on and on about that.

But it’s not just looking at how much was spent and at what merchant category.

You really have to look at the circumstances of the individual and a lot of soft factors to really get a sense for the why behind their spending.

Yeah.

I think that’s so important because you can think, oh, this is obvious, but it’s never that obvious unless you really go discovering the story.

You’re already talking about the pivot, but I know it’s more than this.

You’re expanding in different ways.

So from Stretch’s roots to where you are now, how are you seeing your technology being applied or could be applied?

Yeah.

As we talked, we started off as a neobank for people returning home from incarceration.

I have to give a shout-out to a company we integrated with in those early days, Honest Jobs.

They do some incredible work helping people who have a felony conviction get matched with employers who actually hire people with this felony conviction.

This was a very distinctive feature that we had integrated with as a means to attract people who had been recently released from incarceration.

So when we started there, we’ve since moved toward enabling organizations to launch custom financial incentive programs that reward positive behavior, whatever those behaviors are.

So you can apply this to things, whether it’s in housing and rewarding people who are making consistent rent payments.

You can apply this in small business lending, for example, and releasing different tranches of funding based on an entrepreneur making tangible progress, whether that is achieving a certain business certification or locking down a potential lease.

Really, whatever makes sense for rewarding progress.

We enable individuals to do that either through our API or as a managed service.

I’m kind of curious, and I know it would depend on what slice we’re focused on here, but who’s determining what are these positive behaviors?

I feel like that’s really hard.

Sometimes it’s easy to know, but sometimes it might be quite hard.

I feel like it could be quite an art.

Give me an example of what that might look like.

Yeah.

So we really leave that up to the partner to define.

It’s whatever milestone you want to set up that there’s a financial value associated with that.

Once that’s been released and verified in whichever form may make sense for that agency, you can simply make an API call and funds get pushed onto a card.

But with respect to the program that we did with the state agency on parole, one of the key things we were looking at was the ability to participate in rehabilitative programming and incentivizing people to complete and participate in those.

Compliance with electronic monitoring, and of course securing employment and maintaining that employment as well.

These are broadly considered pro-social activities that are forward momentum for an individual who is reintegrating into society after being away for, in some cases, 15, 20 years.

Gosh.

Yes.

You are a serial fintech entrepreneur, and I guess I’m just kind of curious about that journey.

What makes you latch onto a specific thing?

I know you were at Abe and now Stretch, but what draws you?

I guess for me personally, I originally started working in housing microfinance in South Africa.

So I’ve just always been really curious where money and society, particularly vulnerable individuals, sort of intersect with one another.

When we read about people released from incarceration and some of the challenges they faced, not being able to open up a bank account, call it naive, but we just thought that was a problem we could fix.

You just start walking that entrepreneurial journey, and it takes you in many different directions, some of which you anticipated, much of which you did not.

You really just have to enjoy it and not get too upset when things aren’t going well and not get too excited when things are working.

Just having a curiosity mindset and having fun building stuff with great people.

I think that answers your question.

Yeah, it does answer my question.

Is there anything you do differently now that you have the lens of time?

For sure.

Particularly in this product, I think we weren’t honest enough with ourselves about the time it would take for people coming home from incarceration to find employment.

I was really excited to do the integration with Honest Jobs, and we did see people able to find employment.

But it’s still a tremendous problem and challenge that people have to overcome.

When we would have these accounts stood up, in some cases it would be months before we would see a new deposit hit.

So I don’t think we were sober enough about the challenges there.

I really wish I had not relied so much on some of the academic literature that talked about the challenges people have getting access to banking.

People who want it find a way, as we saw with Cash App.

There was some uniqueness there in that it’s very easy to open a Cash App.

In some cases, you didn’t even need to provide your full Social Security number.

So people were finding ways to get these, at least limited, accounts open.

My belief is you can kind of research something to death, but at least for me, I’ve always been a hands-on learner.

You just kind of have to jump in and do it, in ways where you can survive that risk to continue exploring.

I think we’ve done a good job at Stretch of rapidly learning and sniffing out new opportunities.

Yeah.

I think that’s really cool.

Certainly, the lesson learned, if I brought it up, is needing income, right?

I think a lot of personal financial management apps discover, you can be so quote-unquote helpful to someone, move it here, or it will move the money for you to make a quote-unquote good decision, but there are still quite a bit of income challenges.

An app can never solve for lack of money.

That’s a great point.

I remember some early conversations we had with individuals.

This one gentleman in particular, Ronnie, was sharing that after 12 years of incarceration, he was given $50 and a bus ticket.

I thought I misheard him.

The challenges people have to go through and kind of bounce back from those types of circumstances is really, really tough, to say the least.

But your point is exactly right.

There’s just a lack of income.

There’s a lot of great advocacy and work going on right now within the reentry space of finding ways to get people direct financial assistance upon their release from incarceration through different legislative initiatives.

I personally am supportive of that in ways that are responsible, with transparency and more supportive bumpers around that different type of programming.

But ultimately, people just need to find ways to make more money.

You can only do so much financial optimization and trickery.

But at the end of the day, many people just need to earn more.

Keith, there’s one segment on the show that I say, “That’s What You Said.”

And actually, you said this to me in a story I had written for Bankrate.

It’s about the audience.

I think it was my kicker quote.

“One thing we’ve learned about the demographic is they are very entrepreneurial and very ambitious. A lot of people just end up selling the wrong product.”

I just wanted to dial back into that because I forget when I did that story.

Does that quote stand up over time?

Oh yeah.

Oh yeah.

The entrepreneurial ambition that exists within many people who have been incarcerated is tremendous.

I stole that quote a little bit from a friend of mine, Aaron Smith, who runs Escaping the Odds podcast.

He’s doing some great work now in terms of helping people launch businesses within box trucking.

There’s just a tremendous level of entrepreneurship within that community, and I would love to see more people tap into that.

Of course, I wouldn’t advise everybody to run out and be an entrepreneur.

You do need to get some footing to be able to take those risks.

But still to this day, I get text messages from people we’ve worked with showing me pictures of the box truck that they’ve been able to purchase now.

So it’s always fun to see that.

I would love to see more initiatives that support entrepreneurship for people who are making that tough transition back from incarceration.

That’s really cool.

Anything else you want to see, either through fintech or more broadly from your position of financial inclusion needs?

Anything else you think is super underserved and needs attention?

I wish I had something intelligent to say, but not really.

I’ve just been focused on this new ability to enable organizations to reward what we call progress.

So anytime someone does something that is progress, how can we make it easy to move money to them in responsible ways?

I think this is a really, really interesting area with a really large market and a variety of use cases, whether that’s serving the reentry community or serving small business lenders or serving executives of trusts who want to include different milestone-based payouts to beneficiaries.

There are a lot of different use cases where we can move money to people once progress is made.

One broad question before I take you almost to our conclusion.

I’m kind of curious on your take of banking-as-a-service model in a post-Synapse crisis.

I know it’s a little bit out of your...

There’s a giggle.

But I am kind of curious.

What’s the scuttlebutt here?

Are we going to see less and less of that?

What’s your take there?

Well, I think it’s always been known, the challenges of building a business on interchange.

I understood that risk, but always thought there were pathways for us to generate revenue in other ways.

I think a lot of entrepreneurs are getting really creative these days around rewards for spending in different types of categories.

I know you’ve had the founder from Fasten Rewards on, and we’ve met recently with Frida Leibowitz of Debbie.

I think entrepreneurs are really smart in finding creative ways to do things around points.

So I think there’s a lot of interesting stuff there.

I think we’re going to see more of these middleware providers offer not just issuing services, but also acquiring.

I’ve always been super impressed with the team at Highnote and what they’ve been able to accomplish.

Seeing them now get into the acquiring side, I think it’s going to help them serve, obviously, more use cases, but put them in a position where they’ll be very durable and will be sticking around for some time, as opposed to some of these other businesses we’ve seen.

I have experience working with several BaaS providers, a couple of which are no longer in business.

So it’s really tough.

I’d just counsel any entrepreneur to really do your diligence on who you are marrying up to in terms of the product capabilities you seek to offer.

Well, Keith, if someone wants to reach out to you to work with you or just get inside of your brain, what’s the best way to reach you?

Just say Keith@StretchFinance.com.

All right, cool.

Well, Keith, last question.

What is the image on your phone’s lock screen?

It is of my beautiful wife, Yassie, wearing her cowboy hat.

Ah, that’s so sweet.

Well, Keith, thanks so much for being on Money Isn’t Everything.

Really appreciate you sharing and being so candid with me.

So thanks for being on the show.

Thanks a lot.

It’s been fun.

Okay.

So one thing that really struck me is how academic research definitely has its limits, and the formerly incarcerated were already finding places to plop their money, like signing up for Cash App accounts.

I hope to see you two weeks from now because I’ll be talking to a founder of a fintech that recently helped get funds to people affected by the LA fires.

See you then.