PARTNER WITH BANKS TO ENSURE FINANCIAL INCLUSION
The inclusion of Black families in the financial system would create new opportunities for financial services companies. Our research shows that financial institutions could realize approximately $2 billion in incremental, additional annual revenue if Black Americans had the same access to financial products as White Americans. If Black Americans reached full parity in terms of wealth with White Americans, financial services companies could realize up to $60 billion in additional revenue from black customers each year.
— McKinsey & Company
McKinsey & Company, management consulting firm, goes on to say, "As the world evolves, financial services companies should view financial inclusion of Black Americans as a critical business imperative. In a time of severe economic inequality, companies that lead the way in creating solutions for Black communities have an opportunity to build an enduring legacy that is aligned with consumer demand; indeed, 64 percent of Americans say that a company’s primary purpose should be making the world better, and by 2043, the majority of Americans will be people of color. In addition, our present moment represents a meaningful opportunity to counter decades of exclusionary practices and rebuild trust with Black communities. Doing so could improve the competitiveness of financial services firms and accelerate financial inclusion for Black families."
How, together, the private, public, and social sector
could address financial inclusion for black families
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Break down geographic and affordability challenges.
In financial inclusion, geography matters: bank branches tend to be scarcer and banking services more expensive in communities of color. Banks would be wise to re-examine their geographic footprints — in terms of the location of branches as well as how they engage in the communities where they are present. Local partnerships such as Prudential Financial’s investment in Newark and JPMorgan Chase’s investment in Detroit, for example, could serve as models. Banking institutions can also adopt existing guidelines and standards for affordable banking, such as allowing opening deposits of less than $25, giving free access to online and mobile services, or limiting overdraft fees. The Federal Deposit Insurance Corporation’s Model Safe Accounts or the Cities for Financial Empowerment Fund’s Bank On National Account Standards have set such examples.
Social-sector organizations can help by rigorously testing these interventions, advocating for programs that work, and piloting solutions that limit the influence of geography (for example, campaigns to connect black families to community development financial institutions). The public sector can support policies that reward institutions that expand their presence in Black communities.
New technologies could also further address geographic and affordability barriers. For example, digital banks such as N26, Aspiration Bank, and Chime increasingly offer customers flexible access to banking and investment services, delivered digitally and with no or low fees. Such services could help meet the needs of Black Americans who have mobile or internet access and are currently underserved by traditional institutions. The public sector can support these emerging solutions by creating a regulatory environment that enables responsible deployment of digitally enabled products and services.
Increase diversity in the financial system.
Increasing representation in financial services institutions is a critical step in creating the conditions that can lead to products that serve Black families, as well as reversing feelings of mistrust among Black customers. Currently, Black Americans are underrepresented; 82 percent of loan officers are White, and only 9 percent are Black. Moreover, Black employees make up only 7 percent of director-level roles in financial services institutions, and only 2 percent at the executive level. This lack of representation, combined with historical precedent, may send an implicit message that Black Americans are less valuable customers. Indeed, almost one in three unbanked households cite distrust of banks as a reason for not having a bank account. Black perspectives must be at the table when new financial products and services are being created and when decisions about investments in specific communities are being made. Increasing racial diversity in the financial services sector and creating more equitable working environments for black employees could go a long way toward ensuring financial products are accessible for Black families.
Explore innovative, inclusionary credit decisioning.
Financial institutions could also embrace alternatives to conventional, backward-looking credit scoring that could expand access to credit for Black customers. For example, start-ups such as RevolutionCredit combine big data with behavioral economics to predict a loan applicant’s creditworthiness going forward. This approach often benefits borrowers of color, who are disproportionately likely to have had predatory first lending experiences that leave them with more challenging credit histories. The Lending Circles Program developed by the Mission Asset Fund offers another example of a successful credit-building innovation, with members lending money to other members of the circle on a rotating basis. Loans are offered with no interest or fees, and repayments are reported to credit bureaus to help participants strengthen their credit histories. Public-, private-, and social-sector institutions could also take on bolder initiatives to serve black customers by creating consumer labs to study the preferences and needs of Black communities, using this fact base to inform product development, marketing, research, and policy.
Alleviate financial pressure through supportive employee policies.
Finally, organizations across sectors can provide the benefits and services that employees need to make smarter financial decisions and to overcome short-term financial stress. Short-term fluctuations in income and expenses often have severe consequences for American families, particularly for the 50.5 percent of Black households that are liquid-asset poor (compared with 28.2 percent of white households). Although myriad programs and products in the market today support saving habits and income smoothing, employers are particularly well positioned to support their employees in this.
One key example is early wage access, or a policy allowing employees to receive their paychecks ahead of the typical two- or four-week cycle for a small fee. Walmart’s partnership with Even offers an example of this approach. Employers can further support inclusion by making sure that any financial advice or education offered through the workplace is explicitly paired with thoughtful services, products, and opportunities (such as on-site tax prep clinics and auto-enrollment into programs) to ensure employees fully benefit. Financial stress is a major cause of lost productivity at work — thus greater employee financial security ultimately benefits employers, too.
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These recommendation are taken straight from the report: Aria Florant, J.P. Julien, Shelley Stewart, Nina Yancy and Jason Wright. "The Case for Accelerating Financial Inclusion in Black Communities." McKinsey & Company. 25 Feb 2020