KANSAS CITY, Mo. -- A tech startup is getting a $1-million dollar grant to try to put pay day lenders out of business.
Onward Financial helps workers save money and get reasonable credit.
Community groups claim there are more pay day loan shops in Missouri than the number of McDonalds restaurants and Starbucks coffee houses combined.
That's why Ronnie Washington decided to launch his Onward Financial app in Kansas City.
He says triple digit interest rates of 400 percent or more charged by pay day lenders, trap people in poverty and a seemingly never ending cycle of debt.
A Grandview, Mo., employer with less than a hundred workers offered Washington's smartphone app to its employees.
The plumbing supplier has seen those workers stash away $145,000 in emergency savings accounts.
And if that's not enough, after saving money for three months, the app also provides workers short term loans at interest rates between 3 percent and 18 percent, based on their savings history.
"I thought by offering an app, you are essentially providing a financial cushion in the palm of someone’s hand," said Washington, a Stanford MBA graduate. "So instead of panicking and running to a pay day lender, you can pull out your app, if you need to use your savings you can use your savings. You can use the financial knowledge we offer. Or you can use a loan we provide as an alternative to the pay day loan you would take out."
The Rockefeller Foundation and Chan Zuckerberg Initiative today awarded Washington's Onward Financial program a $1-million grant to expand its financial literacy and short-term savings programs to more employers beyond Kansas City.
School districts, construction companies, even health care firms are interested in offering the app as an employee benefit.
A Kansas City credit union provided some of the initial loans, which are repaid through automatic deductions from a worker's paycheck.
This technology seeks to help change a grim statistic reported by the Federal Reserve: Nearly half of all Americans cannot come up with $400 to pay an emergency expense.