Of the many benefits touted by proponents of financial technology (fintech), one particular talking point has revolved around the potential to increase economic inclusivity. Historically, financial systems have often served as perpetuators of bias and inequality, as demonstrated by the insidious effects of redlining, or else by the body of research demonstrating systemic difference in home appraisals based on the occupants’ skin color. In theory, objective and technologically advanced systems might have the ability to mitigate some of these concerns, providing a more equitable and fair approach to finance.
To further explore these points, Kenan Institute Executive Director Greg Brown moderated a panel around inclusive fintech at the Future of Digital Assets Symposium in March 2023, jointly hosted by the Milken Institute and Rethinc. Labs. The panel’s participants included Ashley Bell, CEO and founder of fintech platform Ready Life; Corey Carlisle, head of policy and social impact at Varo Bank; and Nicole Elam, president and CEO of the National Bankers Association.
Bell discussed how racial inequities manifest in financial systems, as well as the statistics around these inequities: only 44% of African-Americans own homes, compared with 76% of white Americans, and Black Americans have roughly 10% of the wealth of their white counterparts. Bell went on to identify a key component for undoing these inequities: the American financial system’s reliance on credit scores. Much of Ready Life’s work consists of finding other metrics, such as timely rent payments, that allow them to underwrite their clients’ mortgages.
Continuing the discussion around credit scores, Elam pointed to the stale and bias-laden data behind credit scores, making them deeply problematic metrics of financial health. Given her background at the National Bankers Association — a coalition that advocates for minority-owned banks — Elam pointed to the importance of having minority-owned and operated institutions in the financial ecosystem. These institutions matter precisely because they’re headed by individuals with a personal understanding of the racial inequities within the U.S. financial system, which allows them to better contextualize the data upon which the financial system rests.
In his responses, Carlisle discussed how opaque and byzantine the financial system can appear, the need for greater promotion of financial literacy, and how simplifying the banking system is essential to widescale economic empowerment. Much of the motivation behind Varo Bank — which provides account services that don’t require a credit check, minimum balance or monthly fees — is to create avenues for people who face obstacles to acquiring traditional banking services.
All three panelists also pointed to the ways in which technology can make banking more affordable and accessible. On the banking side, each pointed to ways that technology can bring down operating costs and allow for greater outreach, consumer education and risk management, all of which ultimately expand the amount of services that these fintech institutions can provide.
However, they also pointed to the unique challenges that technology can introduce to the financial system. Beyond the obvious need for incredibly high sensitivity and protection of user data, more advanced systems necessarily entail high costs upfront, which can prove challenging for smaller institutions. In addition, financial institutions using new software or application-based systems must also consider how to make these systems user-friendly for all demographics, balancing capability with ease of use. Moreover, the panelists pointed to the ways in which artificial intelligence systems can be discriminatory. Given that such systems inherently reflect preferences and values of their creators, tech-based financial systems must take particular care and rely on a variety of metrics to ensure that bias and inequity is not being preserved.
Ultimately, the panelists agreed that while many in the fintech space may claim to be working toward greater financial inclusivity, it’s important to unpack the suite of services and products an entity offers — and understand whether the firm in question is actually realizing its stated mission. The rapid proliferation of fintech innovation has allowed a variety of actors to enter the space, but prohibitive fees and opaque products often serve as indicators that the product in question is not actually able to reach greater populations. If technology is to aid with the creation of a more equitable financial system, its uses must be affordable, accessible and carefully planned. Otherwise, it runs the risk of merely allowing current inequities to continue.