Veteran Twin Cities businessman Mike Harris is a honcho in a new venture capital firm created to help working poor and moderate-income households gain access to economical financial services.

Harris is a Minneapolis-based principal in Core Innovation Capital, which recently closed on a $45 million private equity fund formed to invest in "innovative and socially responsible companies committed to improving the financial security of underbanked consumers."

The goal is to invest in financial technology companies that will develop and provide low-cost financial services to the swelling ranks of those with little access to mainstream banks. These folks often end up paying high fees to bankers, check-cashing outfits and payday lenders.

"The fund is unique because we're focused on America's 'emerging middle class,'" Harris said. "Many of them don't have or can't afford bank accounts. They use check-cashing alternatives, payday lenders. You have one in four American adults, according to the Federal Deposit Insurance Corp. study, relying on alternative financial services and paying $45 billion annually in fees and interest alone for these services."

The Core Innovation fund was created by the Chicago-based Center for Financial Services Innovation, a several-year-old offshoot of a community-development bank that researches the issues and tries to cajole the traditional financial services industry to embrace lower-cost ways to meet the demand for services from the working poor and unbanked.

The investors in Core Innovation Capital's inaugural fund have not been fully disclosed. But Harris said they include Wall Street investment giant Goldman Sachs and other financial institutions, the Ford Foundation and affluent individuals.

The fund's first two investments went to:

• SavvyMoney, a California-based, do-it-yourself online tool for debt reduction. The website is for people who aren't totally underwater, but who recognize they've borrowed too much and can use free tools to understand their financial situation and start tackling the problem.

• Plastyc, a New York-based provider of Internet-based banking services that claims it provides low-cost, easy-to-use services, from bill payment to money-management, for anybody "who would rather not drive to a bank."

On Monday, Core Innovation plans to announce its third investment, in L2C, a New York-based consumer scoring and analytics company that says it uses alternative payment and asset data to create new predictive credit, collection and marketing scores for millions of Americans.

Harris said one focus for investment may be integrating specific applications on a mobile telephone, for example, that will permit a worker to have his paycheck deposited electronically and pay bills and store savings a lot cheaper than a traditional bank account or check-cashing operation.

Harris is partnered with New York-based Arjan Schutte, a private equity veteran focused on financial technology and the other principal in the Core Innovation Capital fund. Schutte is also is a senior adviser to the nonprofit Center for Financial Services Innovation.

"There is an urgent need to help people cut costs and make consumers more upwardly mobile," Schutte said.

Roots with state, UnitedHealth

Harris, 50, began as a state employee, doing cost analysis of Medicaid and Medicare programs in the 1980s. He spent 15 years working for UnitedHealth Group Inc. as an analyst, integrating mergers, involved in venture investments and running a UnitedHealth subsidiary.

Harris and Schutte, in addition to scouring potential investments, are gearing up for the center's Underbanked Financial Services Forum in San Francisco in June for executives from financial services, retail technology, regulators, nonprofits and others. The forum is designed to "challenge the financial services industry to do better" and will include $10,000 competition for the most-innovative product serving the unbanked and underbanked, as chosen by attendees who will get live demonstrations from product developers.

Market-based returns

Harris said Core Innovation expects to achieve market-based returns for investors. The fund will get a standard 2 percent management fee, typical of venture capital funds. However, the amount of the portfolio's profit and gain that the general partners get to keep, typically 20 percent, will depend also on an "impact assessment" designed to measure how many targeted consumers benefit from the success of the portfolio companies, based on a formula and a special audit committee review.

Jennifer Tescher, the CEO of Center for Financial Services Innovation, said recently that fewer and fewer "paycheck-to-paycheck" Americans can afford traditional checking accounts and related banking services. She praised some bankers for offering more ''pay-as-you-go transactions" and reasonable upfront fees, in a recent New York Times blog.

"As banks seek to reinvent themselves in the face of new economic and regulatory realities, they need to do more than simply tweak and reprice their checking accounts if they expect to regain the trust of the American public," she wrote.

Neal St. Anthony • 612-673-7144 •