Bridging the Gap: Fintech’s Role in Financial Inclusion
Data is increasingly revealing a transformative trend: communities historically marginalized from banking and investing are now leveraging financial technology (fintech) to enhance their access to financial services. This shift is prompting industry leaders to advocate for greater diversity in top leadership roles, recognizing that varied perspectives are essential for driving meaningful progress.
The Commitment to Diversity
Companies are stepping up to address these disparities. Change Machine, a nonprofit based in New York, is at the forefront of this movement. Founded in 2005 as The Financial Clinic, the organization rebranded to Change Machine to focus on evaluating and recommending fintech products tailored for lower-income consumers. This year, Change Machine committed to ensuring that 40 percent of its recommended fintech products are developed by minority-led companies.
Mae Watson Grote, the founder and CEO of Change Machine, emphasizes the potential for fintech to promote equity. “We think that fintech companies could similarly advance equity in their work by aggressively investing in products developed and led by members of those communities that stand to benefit the most,” she stated in an email to CQ Roll Call.
A Diverse User Base
Recent data underscores the importance of diversity in fintech. A survey conducted by The Harris Poll, commissioned by fintech company Plaid Inc., found that fintech users are now fairly evenly distributed across racial groups. The survey revealed that 56 percent of whites, 59 percent of Blacks, and 62 percent of Hispanics reported using digital financial tools. Notably, Asian Americans led the way with a 70 percent usage rate.
John Pitts, head of policy at Plaid, highlights the need for diverse perspectives in leadership roles to effectively address the access gap. “There is a real diversity problem in financial services,” he noted. “If you are building tools to close that access gap, you need people who understand those communities to be at the base layer of building that.”
The Importance of Inclusive Leadership
Many fintech companies are actively working to diversify their leadership and product development teams. Kate Goldman, who tracks fintech for the Milken Institute, advocates for this inclusion movement, stating, “Overall, promoting an inclusive work culture strengthens a company from the inside out.” She also points out the potential of fintech to improve financial inclusion and rectify historical disenfranchisement for many Americans.
The Legacy of Discrimination
However, the journey toward equity is fraught with challenges. Change Machine’s Grote recently presented research at DC Fintech Week, referencing a 2016 study by the National Community Reinvestment Coalition (NCRC). This study examined mortgage lending patterns in cities like St. Louis, Milwaukee, and Minneapolis, revealing the compounding effects of systemic discrimination in banking. It documented areas with predominantly Black populations that were largely unbanked and underbanked, correlating with low rates of mortgage originations.
The practice of redlining—where banks denied access to financial services based on racial demographics—has left lasting scars on communities. The NCRC study concluded that isolation from financial services hampers wealth-building efforts in majority African American neighborhoods, perpetuating cycles of poverty and disinvestment.
The Role of Technology
Despite these challenges, technology holds promise for reversing long-standing inequities. Algorithms used in digital lending can potentially offer a more objective assessment of creditworthiness than traditional human loan officers. However, Pitts cautions that algorithms can still inadvertently discriminate by proxy, substituting other factors for race. This highlights the necessity of including diverse voices in the programming and development processes to mitigate such biases.
Yet, significant work remains to achieve true equity. For instance, the Paycheck Protection Program (PPP) aimed to support minority-owned businesses during the pandemic, but many borrowers were effectively excluded due to a lack of established banking relationships, which hindered loan approvals.
Gender Disparities in Fintech
The gender gap in fintech usage is another critical issue. According to Plaid’s survey, 52 percent of female respondents reported using digital financial applications, compared to 65 percent of men. Goldman emphasizes the need for fintech companies to reevaluate their hiring practices, challenge implicit biases, and actively recruit more women into the industry.
“Fintech’s triumphs for ‘social good’ do not nullify the gender gap that exists within the industry,” she remarked. With more women entering STEM fields, there is a significant opportunity to foster diverse representation in fintech.
Tailoring Solutions for Women
Change Machine is particularly focused on uplifting minority women within the fintech landscape. Grote notes, “We know that Black and brown women have been grossly underrepresented in fintech, and our hypothesis is that products developed and led by these groups will better support our community of practice.” This targeted approach aims to ensure that the solutions developed are not only inclusive but also effective in addressing the unique challenges faced by these communities.
By fostering diversity in leadership and product development, fintech companies can play a pivotal role in bridging the financial access gap, ultimately contributing to a more equitable financial landscape for all.