By: Hannah Calhoon, vice president, Innovation, Financial Health Network
Fintech plays an important role in helping to democratize access to finance, making it imperative that more fintech solutions target the underserved and those who are not financially healthy. While venture capital funding for fintechs has exploded over the last decade, new innovations in the sector now appear to be plateauing. Unfortunately, this leveling is happening too soon. There remains much work to do in order to deliver on the potential of financial health for all.
Enormous Financial Health Gaps Persist
According to a recent FDIC report, an estimated 5.4 percent of U.S. households were “unbanked” in 2019, meaning that no one in the household had a checking or savings account at a bank or credit union (i.e., bank). This proportion represents approximately 7.1 million U.S. households, and unbanked rates were higher among lower-income households, less-educated households, Black households, Hispanic households, American Indian or Alaska Natives.
Further, our own research shows us that two thirds of people in America are not financially healthy. Only 28% of women were Financially Healthy, compared with 40% of men. Black and Latinx communities continue to bear the brunt of the pandemic, with millions experiencing food and housing insecurity.
This is especially true as people focus on rebuilding their financial lives post-pandemic, creating an opportunity for fintechs and other innovators to focus on solutions designed for low- to moderate-income (LMI) or underserved consumers, and for diverse populations including Black, Latinx, and LGBT+ people, and women.
As the market for traditional banking services becomes even more competitive, authentically meeting the needs of diverse consumers can provide a critical advantage for fintechs as well. Emerging fintechs such as Daylight, focused on the LGBTQ+ market, and Greenwood Bank, targeting Black and Latino customers, serve as great examples of innovators whose products and services are meeting unmet consumer needs.
Intentional Investments in Products and Leaders
Investing in diverse leaders needs to be a priority in the fintech space. While data on the industry is evasive, we can look at the larger technology space to understand its diversity issue. Only 3% of venture investors – and less than 1% of founders – were Black as of 2016, according to a Harvard Business School analysis. Diversity in the leadership of an organization is more likely to benefit diverse users in terms of business strategies and products.
Investing in fintech solutions that are intentionally developed for underserved individuals can also reap several societal benefits. There are five main ways to drive more intentional innovation for underserved communities:
- Investing in innovators who bring lived experience as members of these communities.Founders who are connected to or represent a community have an empathetic and competitive advantage because they understand the communities they are trying to serve, so they are much more likely to build the right products and services. Corporate incubators or innovation labs at large companies should commit to having internal products teams that are made up of diverse individuals for the same reasons.
- Increasing the diversity of fintech investors. This includes VC firms, internal corporate venture arms, etc. Diversity is beneficial for innovation, especially when developing solutions for underserved communities. We need to fundamentally reimagine how financial products work and are delivered in order to meet the needs of these households. And to do that, the people funding our most innovative ideas need to reflect who they are trying to help.
- Providing support and incentives to help innovators understand and center the experience of diverse consumers.It’s often easier to collect feedback on the product experience from people who are already your customers, but if your existing user base is homogenous this can create blind spots that represent lost opportunities. Incentives and onramps for diverse funders building solutions that target underserved individuals has the potential to do even more good. This can open the door to new financial health solutions being delivered to people who need it most.
- Help young teams remain committed to their vision.Traditional venture-backed fintech solutions may launch with a vision to serve the underserved, but many are often forced to move upmarket to minimize risks and appease investor demand for growth. Impact-focused investments or philanthropic endeavors are one way to bypass this to endorse solutions targeting those in need, and empower diverse entrepreneurs creating said solutions.
- A holistic approach to diversity. Beyond investing in solutions for underserved communities or diverse founders, there is an opportunity to coach young founders to think holistically about the companies they’re building, solutions they’re offering, and the communities they’re serving to amplify the impact of their work. Considerations should include the makeup of leadership teams, intentional hiring, the makeup of advisory boards, feedback loops, and consumer engagement practices.
Ultimately, an expansive and inclusive approach to designing products and building teams are critical for fintechs – and for established financial institutions, investors, and others from the ecosystem. Commitment to diversity considerations from the getgo will help fintechs build better organizations and products, and deliver solutions for the most financially vulnerable people. In this way, we can accelerate rather than stall vital financial health innovation. To learn more about the work the Financial Solutions Lab is doing to support financial health for all, visit www.finlab.finhealthnetwork.org/