Financial services leaders discuss 3 ways traditional banks can team up with fintechs to drive equity for historically marginalized communities.
The realities of America’s wealth gap are sobering and persistent. A 2021 survey by the Federal Reserve found that on average Black and Latinx households earn about half as much as the average white household and own only about 15 to 20 percent as much net wealth.
There are many factors to blame: Race-based disparities of interest rates for loans. The redlining of minority neighborhoods. The continuing gender pay gap. These are just a few of the many culprits contributing to the difficulties marginalized communities face in accumulating generational wealth.
I was the host of a recent panel conversation focused on what can be done to narrow the wealth gap. Panel members included Shundrawn Thomas, President and Chief Executive of Northern Trust Asset Management; Hill Harper, Founder and CEO of The Black Wall Street; and Paul Williamson, Head of Revenue and Partnerships at Plaid.
As Hill Harper aptly put it: “We cannot have social justice without economic justice.” To achieve that economic justice, fintechs and traditional banks will have to rally around these three critical pillars.
Pillar #1: Accessibility
Creating cumulative, generational wealth starts with access to financial products and services that secure and grow your money. Yet, according to a study by the FDIC, people of color in the U.S. are 6.5 times more likely to be unbanked than white Americans.
One way systemic disadvantage plays out is accessibility, even at a physical level—bank branches are scarcer in low-income communities and communities of color. If you live in a “banking desert,” you’re more likely to have to utilize predatory alternatives such as check cashing services, which can skim as much as 24% off your paycheck as a service fee.
With the rise of digital and mobile platforms, no one should live in a finance desert any more.
In the digital space, it’s important to pay attention to accessibility barriers that affect people with disabilities, elders who might benefit from digital solutions but feel intimidated by the technology, young people entering the financial system for the first time, and people with thorny social issues, such as a history of incarceration.
Hill Harper noted that digitization and education can work together to improve access for underbanked populations. The Black Wall Street’s initial offering has been a cryptocurrency wallet, and along with it, a push to educate users on how crypto works. As Paul Williamson added, the pandemic highlighted the reality that banking customers no longer have to interface with brick-and-mortar banks. And with the rise of digital and mobile platforms, no one with access to a mobile phone has to live in a finance desert any more.
Pillar #2: Representation
For traditional banks and fintech entities alike, the imperative for diverse representation at all levels cannot be overstated. As Paul Williamson plainly said: “We have to do something different to create change.”
To that end, Plaid built the Finrise program to mentor up-and-coming BIPOC entrepreneurs—a move he sees as a value proposition. The result can be seen in businesses like Guidefi, a company that connects women and people of color with a culturally competent financial advisor. If a wealth management company’s advisors are from communities of color, they’re going to be better able to understand the needs of those clients and offer more successful products and advice.
Another piece of the representation puzzle is the importance of including women and BIPOC employees at every level of product development, design, and marketing teams. This diversity of thought and perspective will help eliminate biases that can be unwittingly built into digital tools from the get-go, instead ensuring that the experience serves the needs of people of all backgrounds.
Pillar #3: Trust
Trust is inextricably linked to the pillars of accessibility and representation.
Hill Harper described a recent tour of the 20 poorest ZIP codes in the United States, where The Black Wall Street provided financial literacy training. “They were astounded that we were even there,” he said.
When people are acculturated to predatory institutional practices or systemic disempowerment (because of race, gender, disability, sexual orientation, or any other factor), it takes empathetic education and strategic evangelizing to persuade those people they truly have a place in the system.
We’ve had the capacity to create a more equitable financial system for some time. What we’ve lacked is the will.
It’s crucial for incumbent banking systems to work to eliminate inherent, systemic bias from the top down—and for fintechs to avoid wiring those ancient biases into novel technologies. Credit risk assessment has historically been riddled with biases which, in plenty of cases, deny opportunity to people who are extremely worthy of those opportunities. Part of Plaid’s purpose, for example, is to allow openness and portability of data: this can redefine credit assessment standards in a more inclusive way.
This is where a “by us, for us” mindset can be transformative. Harper offered the example of a formerly incarcerated person who has defied the odds and escaped recidivism. “If you had a formerly incarcerated person writing the algorithm, that person would know, hey, this guy is a high achiever who beat the odds,” where others might only see a sparse credit record.
Innovate with awareness
Shundrawn Thomas pointed out in our discussion that we’ve had the capacity to create a more equitable financial system for some time. “What we’ve lacked,” he said, “is the will.”
So what can financial leaders do? Three things:
- Financial leaders can work to cultivate opportunity, literacy, and trust in communities where it has historically not existed. This extends to exerting influence over public policy (historically, as Shundrawn Thomas pointed out, the government has been a perpetuator of many of the systemic barriers affecting us today).
- Incumbent systems need to address representational imbalances by reevaluating their models with an eye on practices that contribute to the wealth gap. By partnering with niche-specific fintechs (designed for women, for BIPOC, for LGBTQ+ communities), traditional financial institutions can adopt great insights on how to better connect with communities they might have excluded in the past.
- In the digital space, it’s incumbent on us to ensure broad, diverse representation from inception to delivery, so that we can avoid duplicating historical biases and inequities in new platforms.
Expansive, more equitable participation in the financial system benefits all involved. The financial industry is in a position to innovate with awareness. And with the proliferation of new technologies, new financial products, and new ways of delivering them, we can ensure that at long last everyone has a seat at the table.
Want to learn more? View the entire “From Financial Inclusion to Empowerment: Transformational Conversations in Financial Services” roundtable here.