Earlier this fall, the San Francisco Fed published a new issue of Community Development Innovation Review. “Fintech, Racial Equity, and an Inclusive Financial System” examines the ways technology can close the gaps in access to the financial system among low- and moderate-income (LMI) communities and people of color, who have been previously excluded.
Technological changes may enable increased inclusion in the financial system; this is timely given the ways the pandemic has surfaced gaps in accessing financial assistance like small business loans, unemployment insurance, and stimulus checks. At the issue’s launch event, speakers highlighted the opportunities technology can create to support economic inclusion and address racial inequities. Here’s what we heard.
Economic resilience and financial inclusion, what’s at stake?
“We find ourselves with a different kind of weakness, a different kind of risk,” said Mary Daly, president and chief executive officer of the SF Fed. “That is the risk that the plumbing, the basic financial infrastructure, the pipes that connect people, they’re just not available to everyone.”
President Daly added that the current economy is based on people and their ability to spend, get jobs, and keep their businesses open. “That’s the resiliency of the whole economy.”
Ida Rademacher, vice president and executive director of the Aspen Institute Financial Security Program, noted that one aspect of the “people” angle to the economy is that not all people are viewed the same by market actors.
“There’s another piece of this to call out about the disproportionate impact on households and communities of color, both in terms of the pandemic and the economic recession, and how the pipes aren’t just pipes. There’s a systemic bias built in sometimes to how those pipes work or don’t work in certain communities.”
Use this opportunity to help ensure a full economic recovery for all
Kelly Thompson Cochran, deputy director at the nonprofit FinRegLab, spoke about how the pandemic has catalyzed the conversation about the necessity of equal access to the financial system to ensure a full economic recovery for everyone.
“I think what’s changed the most is the intensity of the discussions that we’re having, in two ways. One is a negative way because the pandemic and all of the change that we’ve seen in the last 18 months has made many of these historical problems harder. The pandemic has hit communities of color so hard in terms of the economics and the health impacts,” said Thompson Cochran. “At the same time, there are also opportunities because I think we’re seeing so much attention on these questions and a greater appreciation of how they are affecting the entire economy. We’re seeing the need to be smart and effective in this moment to make sure that the recovery is stronger and broader than after the last financial crisis.”
Partner with underserved communities to understand their needs
President Daly called out the importance of ensuring that technology-based financial service innovations be rooted in the needs of LMI communities and communities of color rather than being relevant only to a small slice of the population that is already included in the broader financial system.
“I actually think the time is right for fintechs to partner with community banks and others in the community to say, ‘We’re here for you, not because it’s part of our philanthropic effort, but because it’s a profitable business line.’”
Design fintech products that drive impact for equitable access
Kabir Kumar, director at Flourish Ventures, a venture capital firm that backs organizations like FinRegLab, said he sees digital environments as the spaces to help historically underserved communities achieve equal access to financial tools.
“This is about the underlying infrastructure, how money moves, how we identify people, how data works, how credit works—and we believe those gaps contribute to the racial wealth gap, and we strongly believe they need to be addressed,” he said.
Julieta Cuéllar, policy research and communications manager at Propel, which aims to help low-income Americans improve their financial health, said her company’s products are built to help people solve problems—to help them get through an experience that could be inhibiting their participation in accessing a benefit or taking advantage of some support.
Leverage the creativity and processes within fintech to include and empower LMI communities and communities of color
President and COO of the Skoll Foundation, Marla Blow, said fintech firms’ ability to rise up and hyper focus on one slice of a community helps them quickly learn about what works for LMI communities.
“The nice thing about fintechs is you can choose a population, you can choose a platform, you can run a small experiment and see how that goes and then build on that,” Blow said. “I do think that there is a real opportunity for that same creativity to be unleashed with incremental empowerment of voices that typically don’t gain access. There is tremendous potential in letting some new voices demonstrate their knowledge and understanding and ultimately put in place some options that otherwise may not be a part of how the traditional banking system thinks about accumulating capital and making that capital available.”
Cuéllar noted, “We really see a dearth of technology companies that address the challenges of low-income people. And there are many people at the company who have had those experiences, but we obviously don’t live them anymore, even if we grew up that way. And so, we are really committed to users being a key part of everything that we do.”
For example, Cuéllar shared, Propel has a staff member who incorporates users in everything the company builds. Propel also runs surveys and user research before and after product and feature launches to ensure tools are relevant.
Fintech as a problem-solver
Overall, the speakers and panelists emphasized the need to ensure community participation and feedback for any fintech tool to be successful. In other words, no tool operates in a vacuum. President Daly summed up her thoughts in saying that any future successful fintech operation needs to understand its customers and give them what they want.
“Ultimately, if I could design this myself, I’d say, ‘What do people really need in these communities? They need one-stop shopping. They need a place where they can go and be offered an array of services that allow them to participate in their lives so that ultimately this fades into the background for them. And they can get to the real work of managing their economy, their lives, their financial future.”