Fintechs can help narrow racial gaps: San Francisco Fed president

Structural gaps made it harder for communities of color to access pandemic relief funds, but community banks and fintechs can help ease those difficulties, Federal Reserve Bank of San Francisco President Mary Daly said Wednesday.

Daly called for new partnerships among fintechs, banks and community groups aimed at finding solutions to racial inequities in the financial system, arguing that doing so is good for business.

Daly spoke at an event focused on a new report on fintech and racial equity. The report by the San Francisco Fed and the Aspen Institute highlighted difficulties that minority-owned businesses faced in securing Paycheck Protection Program loans, as well as problems that some minorities experienced with government stimulus checks.

Those challenges reflect a “systemic risk” for economic policymakers, Daly said, reducing the effectiveness of policies aimed at softening the blow of downturns. She likened the situation to one in which the government promises to distribute water to a “desperately thirsty” population, but only some people have the pipes to get water delivered.

“A financially healthy community is a resilient community,” Daly said. “You want things paid back? Make sure that … people have access to the things that allow them to get back on their feet in a shock and allow them to grow and create a cushion when the economy is good.”

Though fintechs and innovation are not a “panacea,” the report launched Wednesday offers some examples of progress, Daly said. The report highlighted the nonprofit fintech SaverLife, which offers rewards for savings, and a tool from app-maker Propel that helps people check their Supplemental Nutrition Assistance Program balances.

It also included a chapter from the Accion Opportunity Fund, a nonprofit small-business lender that says its long-standing partnership with LendingClub helped ensure that it could respond to customers’ needs during the pandemic.

Many microlenders, community development financial institutions and minority-owned banks are interested in pursuing the partnership model, and banks and fintechs have also expressed interest over the last year, Daly said. But any successful arrangement requires a deep understanding of the tools that are most useful to underserved communities, she added.

Such rootedness is partly why fintechs led by people of color have seen significant growth, said Marla Blow, president and chief operating officer of the Skoll Foundation, which helps invest in entrepreneurs around the world.

These fintech leaders should be empowered to show how those solutions work and roll them out more broadly, Blow said.

“[There] is a real possibility to drive change in fintech and then expand that change into the entire banking system,” she said.