Making the unbanked into the banked with tax prep

I love AdventFinancial.  It isn’t just because their co-founder is a friend and one of the nicest guys I know, but they actually have a great business in a space that often doesn’t have much greatness: tax prep.

The pitch is pretty simple.  Mostly, two kinds of people get their taxes done in the US: the rich and the poor.  The poor know they are going to get a refund, so around tax time, prep offices spring up in poor urban neighborhoods (generally with dancing guys in Statue of Liberty costumes) and the poor enjoy one of the most bizarre business models that actually works.  They get their taxes done for free.  Or at least for “no money upfront”, which feels like the same thing (although of course it isn’t and there is a case to be made for the IRS to just proactively send those folks a letter and a refund check, but that’s another blog post).

Basically, because they know they are going to get a refund, tax preparers will do a poor person’s taxes for no money upfront and then take their fee out of the refund itself.  No refund, they don’t get paid (they used to do it as a “loan”, but the federal government mercifully stopped that), so incentives are aligned.  But what this creates is the need for a middleman, who takes in the refund check and parcels it out to the right folks.  Traditionally, this was done with checks; middleman gets the check, shuffles one off to the tax preparer, and then the poor person has to go back to the tax preparer’s office to get theirs.

Which sucks.  You get your taxes done and then you wait for the refund (which can arrived whenever the government decides to get to it), and the tax guy has to call you or you have to call him, and then you have to go to his office and find someone to give it to you.  Not a good process.

Which is where Advent comes in.  You come in to get your taxes done and the preparer gives you a prepaid card from Advent.  You never go back to the office; Advent just texts you when the money is on the card and how much.  And because they are reloadable prepay cards, what they actually do is a bunch of poor people a bank account.  Direct deposit, ATM, debit – its a great passive way of increasing financial capability, because now they have access to a whole world of financial systems that allow them to save and spend money without the fees associated with the standard options (check cashing, etc).

And therein lies the genius of the product to me.  An often overlooked population (the underbanked) gets increased access, entirely passively, through a system they are already using and that they want to use.  Advent found the thin chink in the system and inserted the right funnel to both make them profitable and enable them to help people.  They didn’t create a new system or make people come to them: they found them were they are.  That’s worth copying.