Hi all, Jillian here.

In June of 2020, there was a national awakening with regard to many of the injustices that the Black community face. Much of the discussion and outcry was rightfully centered on the systemic oppression that has led to unjust policing, which has targeted the Black community. However, this also fueled the conversation around how systemic oppression has impacted other facets of life for Black people in America, including in our financial system.

The Backstory

While I know many people understand this history, I do want to highlight some moments as we have continued to struggle to ensure this is taught today.

  • In 1874, Freedman’s Savings and Trust Company, a bank that was formed for the benefit of Black Americans post emancipation, collapsed due to corruption.
  • Insurance companies in the 1800s valued life insurance policies of Black customers at one-third the value of white customers due to race traits.
  • In 1921, Black Wall Street, a community of flourishing Black-owned businesses in Tulsa, Oklahoma, was destroyed.
  • The Social Security Act in 1935 excluded jobs predominantly held by the Black community.
  • The practice of redlining was established in the 1930s to limit Black homeownership, resulting in 98% of mortgages going to white families.

To this day, 75% of redlined neighborhoods continue to struggle economically, and even in modern times, we see the challenges around welfare reform policies and the restricted and reluctant roll out of the ACA in states where more than 50% of the Black population in the U.S. resides.

These challenges have continued to compound and fuel the lack of trust in the traditional financial systems, as well as increase the wealth gap. In 2016, the average Black family in the U.S. had 1/10th the wealth of the average American family. COVID has also had a worse impact on the Black community, as there were longer wait times for stimulus checks, as well as an increased likelihood of being laid off (10.8% in October 2020 vs 6.0% for the white community). COVID relief packages such as the PPP program also missed the mark. Guidances around PPP loans to sole proprietorships were the last to be released, leaving Black and brown business owners, who make up a majority of this category at risk. In fact, Black business ownership declined 41% between February and April of 2020 as a result of the pandemic.

Can Technology Help?

How are we using technology to rectify the past and move toward a better financial future when it seems we keep moving further away? When I think of what technology has had the biggest impact on financial inclusion, my first thought is outside the U.S., with mobile money and its proliferation in Africa, especially in Kenya and Ghana. Companies like M-Pesa (which started in 2002) have been incredibly beneficial for increasing access to financial services and connecting people to capital that they would not have had otherwise. In Kenya, 96% of households have a mobile money account. Mobile money can be seen similar to Venmo, but used for peer-to-peer payments, business payment transactions, and connected to a network of money agents (think human ATMs). All of this is done in lieu of a bank account.

Cash App (founded in 2013) is the most similar to this in the U.S. from an access standpoint, and is one of the companies that gets me most excited. The ability to send money between peers is vital in the Black community, and being able to do it without fees and without needing a bank account is extremely impactful. Beyond the offering, Cash App is one of the first modern fintech companies to fully embrace the Black community and especially its culture. It even became referenced in rap songs with the growth really starting out of Atlanta. This created a great starting point of access for consumers, meeting their needs around P2P payments while also providing the ability to trade and save.

What I like about both of these solutions is that they are solving real problems. A challenge that I have with some solutions is they focus too much purely on financial education. While I fully believe that the lack of financial literacy is a problem, the average person does not want to learn about their finances just for the sake of learning about their finances. It’s a means to an end. Can I buy this house? Can I pay my rent? Can I go out to eat? It’s important to instill financial education into financial products in ways that engage consumers in line with how they engage with money. Otherwise, financial education falls flat.

Key Areas of Innovation

There are 3 areas of innovation that I am excited about that can continue to help solve some of the persisting challenges.

The first is demographic-focused financial products.

I am a Black woman who doesn’t want to be identified purely by those two descriptors. So personally, I have often struggled with demographic-focused offerings. Is separate necessarily better? However, through conversations and thinking more about when demographic-specific offerings make sense (in any category), I’ve learned that it’s when the existing offerings have failed or do not adequately serve a specific group. The relationship between traditional financial services and the Black communities shows a clear opportunity for unique products and services. Companies such as First BLVD andGreenwood Bank are early-stage companies, but are looking to make incredible contributions in this space.

The second is from a data and underwriting perspective.

Traditional risk assessment such as FICO scoring is riddled with bias due to financial policies, generational wealth and incorrect data, and traditional methods are fundamentally broken for much of the Black community. There are companies such as Clowte and Perch as well as features such asExperian Boost that aim to improve credit scores, but there is still so much opportunity outside of traditional scoring. Over the years, several companies have looked at embracing alternative datasets for underwriting (e.g. cash flow), but I have been in too many conversations that have dismissed these alternatives because FICO is assumed to be good enough. With the amount of new types of predictive data collected, there is so much opportunity to innovate rather than relying on what seemingly works fine today.

Finally, I see access as the biggest challenge and where I am most excited.

I think of this in two ways: knowledge and trust. Embedded finance can have a huge impact on whether consumers know about certain offerings and whether they have access to them. Many Black communities are banking deserts, and have been historically cut off from traditional FIs. However, there is a lack of knowledge of the fintech solutions that exist because of targeted marketing. Enabling businesses or platforms that are already serving and trusted by the Black community to easily integrate financial products or services into their offerings would help significantly lower that barrier of trust and knowledge.

For example, being able to access a loan via your employer and pay it off via payroll could lead to access to cheaper debt from a trusted entity. There are many examples of services (e.g. phone companies) or brands that have the trust of a consumer as well as interesting underwriting data that can lower barriers to financial products.

Where Do We Go From Here?

While there is still a lot to be done, I’m an optimist. We are at an inflection point where knowledge is power. The more society has woken up to the systemic challenges that have plagued the Black community and other minorities in the U.S., the more likely we are to address and fix these problems. I outlined three main areas where I think change can happen from a consumer perspective (demographic solutions), from a data perspective (alternative data), and from an access perspective (embedded finance); however, these areas can be looked at deeper. I believe there are other opportunities that I did not touch upon and would love to hear from any of you on how else we can evolve from here.

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