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Why should so many in Chicago be left behind?

Crain's Chicago Business

Wednesday, September 21, 2022  |  Column  |  richard Wallace

To bring about social change, we need to leverage new financial technology and include people who rely on the informal economy, writes the executive director of Equity and Transformation.

For many in Chicago, the formal economy is inaccessible. For a variety of reasons, some areas offer too few jobs and business opportunities, and many residents in those areas are ineligible for formal employment, making the goal of finding work even harder.

As a consequence, workers often turn to the informal economy—ride-share driving, providing child care, auto mechanics, movers, even bucket boys. While these jobs are economic lifelines for those who have them, they are informal insofar as they do not involve W-9 taxpayer identification forms, for example. Indeed, many informal workers might not have other typical forms of identification, such as a driver license, and often do not have stable housing, making proof of residency difficult to demonstrate as well.

These factors also make it more difficult to access the financial products workers need to conduct their economic affairs. For example, banking institutions often require proof of ID under rigid guidelines or might require proof of employment. Unable to meet these requirements, informal workers are often denied traditional products to safekeep their earnings or engage in cashless transactions. This makes it more difficult to save those earnings and places these workers at greater risk of losing their assets.

I am the founder and executive director of Equity and Transformation (EAT), a nonprofit, community-led organization founded for and by workers of the informal economy. We work directly with neighborhoods on Chicago's South and West sides: Austin, Englewood and West Garfield Park.

Each of these communities faces barriers to the formal economy. The per-capita income in these neighborhoods is nearly $20,000 less than the per-capita income of Chicago as a whole. Nearly 80% of Black men ages 17-34 are unemployed in West Garfield Park, and the poverty rate is four times higher than in Lakeview.

Barriers to the formal economy often lead to barriers to traditional financial products in these communities, compelling residents to use higher-priced banking alternatives, such as money orders, check-cashing services, pawn shop loans, auto title loans and payday loans. Higher fees embedded in these products make it more difficult to accumulate savings and build wealth.

EAT has several programs to bring about social change and promote personal and financial wellness for Chicagoans. EAT has partnered with the city of Chicago and cryptocurrency exchange FTX to launch the Chicago Future Fund FTX, a program that provides $500 per month for one year, no-fee bank services, a debit card and financial education to 100 informal workers in Austin, Englewood and West Garfield Park.

Individuals receive dollars, not crypto, through a mobile app that will enable these workers to more easily transact in a cashless manner. Leveraging technology created by FTX, this mobile-phone platform is designed with a more inclusive verification and onboarding process that allows people to create an account when traditional institutions might not.

This program allows informal workers to meet their most urgent needs through a financial product that eliminates unnecessary fees and costs. The debit card connected to the worker's account allows participants to move assets in their account to anyone who accepts debit-card payments, providing convenience and security. Indeed, many merchants and service providers do not accept cash, so this program also expands the informal worker's access to the local economy. This enables program participants to more easily provide for their families and focus on their work and careers.

The program also provides opportunity for participants to send remittances to family outside the United States nearly instantaneously and without fees.

Innovations pioneered by the digital-asset industry make this program possible and provide the on-ramp to the program's mobile-phone platform that facilitates and expands program participants' access to important financial products. These products allow informal workers to safekeep and transact with their assets in a safe and sound manner, providing a greater opportunity to achieve economic security and potentially offering a pathway for greater financial inclusion.

Richard Wallace is founder and executive director of Equity and Transformation, a Chicago-based group that works with formerly incarcerated citizens.