Many credit unions and banks have recognized the need for their leadership to reflect the diversity of their communities. But that’s only the first step.
Even lenders that have focused on diversity, equity and inclusion in their ranks may not have fully translated that into providing access to financial services to people who might be turned away by mainstream banks.
“The last new member that you signed up — can they walk out of your doors and go to the next bank or the next credit union and open an account? If that’s true, then what happened to the people that everybody else said ‘no’ to?” asked Víctor Corro, chair of the CU DEI Collective and CEO of Coopera Consulting. “Did you say ‘yes’ to somebody that somebody else has said ‘no’ to?”
It’s important to be welcoming to people who may have been turned away by traditional financial institutions, Corro said in a panel discussion on diversity, equity and inclusion at the Credit Union National Association’s governmental affairs conference this week in Washington.
“If you say no, they’re gone,” Corro warned. “And that is not opening the doors to financial inclusion.”
Although the issue of financial inclusion is not new, recent events have cast a spotlight on just how much banks and credit unions still fail a large segment of the population.
The 2020 murder of George Floyd at the hands of police sparked a national conversation on race and the need for inclusion. The revelation that the Paycheck Protection Program
A survey of 500 Black- and Latinx-owned businesses conducted by Color of Change and UnidosUS in April and May of 2020 found that only 12% received the full PPPassistance they had sought. At the time of the survey, over 40% of respondents had received no assistance after applying for aid and 21% were still waiting.
Lawmakers worried that this would lead to a one-strike-and-you’re-out mindset — that business owners who had been turned away in the first round of PPP lending would not apply again.
And indeed, the next round of PPP loans went primarily to
“The whole country realized that the banking sector doesn’t see half of the country or even more,” said Pablo DeFilippi, executive vice president of the Inclusiv Network, an association of credit unions that serves economically disenfranchised communities, during the panel discussion.
“This system doesn’t work for everyone, and especially doesn’t work for low-income people and especially hasn’t worked for people of color,” DeFilippi said. “Those businesses that were left out — that have been left out for decades — were left out one more time.”
Banking deserts
This need for deeper community involvement is the motivation behind
“There’s a huge, amazingly gaping hole in the financial system for the people of North Minneapolis,” an area “riddled with payday lenders and fringe bankers,” said Debra Hurston, executive director of the Association for Black Economic Power, the organization behind Village Financial.
The credit union hopes to open its doors this year, though it still needs funding. Minnesota has not chartered a new credit union in nearly a decade, and part of the issue is a lack of expertise among the people who would benefit most from a new credit union, according to Hurston, who was an audience member at the panel discussion and spoke during the Q&A.
“The community in itself cannot produce the credit union experts,” Hurston said. “They just don’t have it, but they know that they … cannot survive from payday lender to payday lender.”
For Village Financial, the major breakthrough came when Hurston was put in touch with Renée Sattiewhite, CEO of the African-American Credit Union Coalition and one of the panelists at the CUNA session. Sattiewhite “had never met me,” Hurston said. “She said ‘Debra, we’re going to send you some help.'”
Sattiewhite sent an expert who helped Hurston gather other experts and put in a request for funding from the city of Minneapolis. This request has yet to be fulfilled, but Hurston is pushing forward.
“This will be the only [and] the first Black-led credit union in Minnesota,” Hurston said. “Some people don’t like that. I don’t care. These people have a never-ending cycle of debt.”
'An invisible hurdle'
Lenders may think they are doing a good job of promoting gender or racial diversity based on who their borrowers are, but their data may tell a different story.
"That's just scratching the surface," said Sophie Romana, consultant at Althaë Strategy who focuses on gender, financial inclusion and social impact, in a presentation on improving service to women internationally.
"I'm super curious, for instance, to know: Are loans disbursed to women as fast as they are disbursed to men or is there a hurdle — an invisible hurdle?" she asked. "Because one day matters, right? One day with cash flow matters."
Lenders should also determine whether they offer women as many loans, or loans of equal amount, as they offer to men, Romana said.
In many parts of the world, there is a misconception that women who want to start a business are hobbyists rather than entrepreneurs, and that leads to the perception that they are higher-risk borrowers. But data tells the opposite story, Romana said.
"If you look at the data, the data tells you they're good at what they do," Romana said. "They reimburse [lenders] on time, they have drive, they have ambition, they have successes. And they're lower risk to the overall portfolio of credit unions because on average, their loans are smaller."
To eliminate these blind spots, it helps to have more women on the boards and in the C-suites of banks and credit unions. While there has been a lot of progress toward this goal, it has been spread unevenly throughout the financial services industry.
Among U.S. credit unions, 40% of credit union CEOs are women, and 34% of credit union boards have women — but very few of those women are running credit unions that have assets of over $1 billion, Romana said.
"It doesn't make a lot of sense, because … once you start having more diverse management and boards, you lower a certain number of risks," she said. "You have a better capacity to attract and retain talent. You spend more dollars innovating. You have teams that … make fewer mistakes because they ask more questions of each other. They don't assume that they know everything about each other."
The risk of doing nothing
Community development financial institutions are working to lend deeper into overlooked communities, but other banks and credit unions can do more, Corro said. And they need to, because if they don't, they will become pushed out of their markets by organizations that are better at representing their communities.
“In a country that is already 40% multicultural … 90% of our decision power is white,” Corro said. “In a country that in a few years will be majority people of color, that is a big gap. That is a big issue because we need the voices of people everywhere to be represented where decisions are being made.”
Banks and credit unions are being threatened by fintechs and neobanks that develop products that appeal to a younger and more diverse audience. There are also less well-intentioned competitors such as the payday lenders that prey on vulnerable consumers.
Both of those threats can erode the potential customer base and membership of banks and credit unions. This is a business problem as much as it is a matter of empathy.
"It's so important to see it as a business decision. It's basic math. That's it," Sattiewhite said.
And the math won't work in the favor of anyone who ignores the way the U.S. population is changing.
“We keep appealing to the same demographic over and over and over — for almost 100 years we’ve been doing that, perfecting that customer service for basically the same people,” Corro said. “We are on the fast lane to being irrelevant because the country has changed.”
