In a Washington Post story, entitled ‘Unbanked,’ but No Longer Ignored, last week, industry advocates argue “that innovation — not legislation — is the key to reform. And the private sector has been quick to step in with other solutions.”  Yes and no.  As far as I can see, the establishment players – mainstream banks on one side and the alternative financial services (AFS) players on the other side – are doing relatively little in the way of stepping in with solutions.  Where we see the innovation is with the new guys, the Progreso Financiero’s of the world.  Or Prosper Marketplace.  Or Smarty Pig.  Or Wonga.

What the new guys – the Phoenix Gang, because they literally are emerging from the ashes of the financial services industry – are doing, by and large, is going back to the basics, with a high-tech twist.  Progreso is helping “unassimilated” Latinos build credit by underwriting the old-fashioned way: a real person looks you in the eye and asks you a lot of questions to learn if you’re good for it.  Prosper is going back even further, to a time before banks, when people would lend to one another directly.  Smarty Pig is helping people save for the future.  Imagine that.  Wonga, based in the UK, may be quite expensive, still, but is the most transparent short-term lender I have seen.

What is the AFS industry doing?  Sure there are some pilots here and there, but it looks to me like they are mostly waiting to be regulated, save throwing a lot of money at a counter-lobby effort.  At least they can’t complain that they, alone, are victims of scrutiny, as they have been for so long: at last banks are getting called out for their rampant overdraft practices.

Now, if only the regulators would step in.