February 23, 2021
Globally, financial inclusion and equal access to financial services have been addressed for the most part. This can be attributed to a financial system that has evolved over the years, powered by technological advances in the areas of telecommunication, artificial intelligence (AI), machine learning (ML), and data management solutions, as well as the relaxation of stringent banking regulations and increasing financial education and awareness. Only a few countries lack fairly stable financial access.
Even though technology has democratized financial access to a great extent, some disparity continues to exist because of diversity in cultural backgrounds, race, religion, and gender. This disparity is further fueled by societal factors such as income inequality that has dictated for centuries. In the US, for example, migrant workers are paid much less than their counterparts who are US citizens. According to some estimates, in 2017, Hispanic men made 14.9% less in hourly wages compared to White men (an improvement from 17.8% in 2000). The Black and Latino communities are among the minority groups that still find it challenging to open bank accounts and get bank loans, and when they do manage to get loans, they are usually charged exorbitant interest rates.
These imbalances can be attributed to various socio-political and economic factors. We’ll explore the opportunities that have emerged as a result of this scenario, especially FinTech solutions aimed at serving underserved ethnic communities.
Sports, educational institutions, media, and the modern society have consciously made attempts to achieve racial equality. The financial industry focuses on achieving financial inclusion by bringing together previously excluded races. In addition to forming coalitions and pressure groups and promoting activism, the FinTech industry has taken several practical steps to level the field of access to all previously underserved communities, mostly the Asian, Hispanic, and Black communities.
Fair, one of the frontrunners, has raised $20 million to set up its neobanking operations in the US. It aims to serve individuals from minority ethnic groups, including those new to the country and without any reliable financial history. As with most FinTechs, it rides on the strength of Coastal Community Bank and provides its customers a Mastercard debit card (available in English, Spanish, and Arabic). Fair offers BNPL services along with interest-free loans for big-ticket items.
Several FinTech firms are leveraging the ‘language and culture connect’ to empower communities. Finhabits connects with the Hispanic community through its bilingual mobile investment platform and offers easy ways to save small amounts of money (as low as $5 at a time). With an easy-to-understand graphic interface, Finhabits imparts financial education by making fun blog posts on financial topics such as bonds, IRAs, and 401(k) in English and Spanish. Crediverso, a family-owned Los Angeles-based firm, is another FinTech targeting the Hispanic community. Still in its beta stage, it aims to provide its users the ability to compare various financial products and arrive at the best solution. According to the FDIC, as of 2017, 14% of Hispanic households in the US were unbanked (though this has improved over time) as opposed to White households (only 3%) in the same year.
GRIND Finance is one of the FinTech firms that offer mobile banking solutions to the African-American community. It provides FDIC-insured current accounts with debit cards and a user-friendly mobile banking app to its members. Customers can get paid two days in advance if they set up direct deposit with GRIND Finance. There are no overdraft fee, ATM fee, and monthly fee options for different account tiers. This addresses the perennial problem of this community saddled with opportunistic lenders who charge extortionate interest rates.
In many parts of the world, women earn less than men and are often excluded from their household finance matters. As they are sidelined, they are less informed about how finance works and, unfortunately, bear the brunt of financial mismanagement. However, observations, especially among African communities, show that when women are empowered, they can financially liberate their families through their tenacious savings and financial prudence. In many parts of Africa, it is women who operate informal lending services among themselves through table banking.
Basis is an app that offers basic knowledge about money management and financial advice tailored for women. It targets independent women who are unaware of financial products and services, mostly salaried, freelancers, and entrepreneurs. Ellevest, a program that targets women in need of coaching in investment and banking, offers plans as affordable as $1 per month.
FinTechs have done quite more than their bit to democratize financial access. Major financial corporations are realizing the impact that FinTechs can make on underserved communities. Daylight, part of Visa’s Fintech Fast Track program, is the first LGBTQ+ digital banking platform in the US. The LGBTQ+ community has been looking for equitable banking options, as they are deprived of opportunities due to financial illiteracy and discriminatory practices. Daylight is looking to create a platform that can offer equitable banking solutions to this community.
As long as we have a financial system devoid of entry barriers, serious issues of wealth gap and income inequalities under the broad categories of race and gender would be easier to address. These 'segment-specific' FinTechs have been a great start to reduce and, for the most part, erase these barriers.
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