4 ways the banking sector can boost financial inclusion
The COVID-19 pandemic has underscored a concerning aspect of American life: even in an age of relative plenty and prosperity, inequalities continue to plague our nation.
Consider the pandemic’s disproportionate impact on communities of color. According to the U.S. Centers for Disease Control and Prevention, Black and Hispanic Americans face an increased risk of getting sick and dying from COVID-19. That stems, the CDC notes, from a variety of complex, interrelated factors, including healthcare access, discrimination, educational and housing disparities, and economic opportunity.
That last factor — economic opportunity — is an area where leaders in the financial services industry can have a powerful impact by making a genuine commitment to a financial inclusion agenda.
Since the outbreak began earlier this year, we’ve seen many efforts, both public and private, to mitigate the virus’s economic harm. Measures such as the Paycheck Protection Program, for instance, and other CARES Act provisions, certainly helped many business owners survive during this national emergency. But one clear lesson we should learn from the pandemic is that we must invest in a longer-term financial inclusion agenda that creates robust economic benefits for all Americans.
That effort begins with expanding access to quality financial services. A 2018 study of “unbanked” Americans by the Federal Deposit Insurance Corp. reported that about 8.4 million U.S. households — more than 14 million adults — lack a checking or savings account at an insured financial institution. An even larger number, 24.2 million households, have accounts at an insured institution, but still rely on alternative financial services – such as payday lenders or check-cashing services – to make ends meet. Minority households are more likely to be among the unbanked, and thus, more likely to be targeted by predatory lenders.
We can do better than this.
As someone who has spent their entire career in the financial services industry, and now heads the National Credit Union Administration, the independent regulatory agency that oversees the nation’s credit union industry, I’ve focused on inclusion for underserved communities because I know how transformative it can be when people gain access to quality, affordable financial services and credit.
That’s why I encourage fresh thinking among my colleagues in the banking space about how we can lead the way to fostering greater financial inclusion among minority communities. As a starting point, here are four concrete steps industry leaders should take now to address this issue:
- Invest in financial literacy and capability training. In its 2020 U.S. National Strategy for Financial Literacy, the U.S. Treasury Department argues for more financial education to help families and workers save and build wealth while avoiding financial traps like predatory lending. Private-sector financial partners should take the lead in expanding financial literacy training in minority communities, including collaborating with community and faith-based organizations, to make these programs more widely available.
- Support community institutions. The credit union industry has made great strides in supporting minority depository institutions, which provide much-needed financial services in underserved communities. But such approaches shouldn’t be limited to credit unions; financial services providers of all kinds should examine ways to invest more in local communities.
- Support small business. The pandemic-driven economic contraction has been hard on small businesses, especially on minority-owned small businesses. Financial services providers can help these businesses recover and thrive by providing mentorship, entrepreneurial training, and alternative lending options geared toward helping these small enterprises get access to the capital they need.
- Leverage the promise of financial technology. Fintech shows great promise for improving efficiency and customer service, especially as the pandemic has driven increasing numbers of banking customers into a digital world. Those same fintech tools can be used to connect with minority and rural communities and increase access to financial services.
The NCUA recently announced its ACCESS initiative – short for Advancing Communities through Credit, Education, Stability and Support – which will bring together agency leaders to develop policies and programs that support financial inclusion within the agency and more broadly, throughout the credit union system. By building on the NCUA’s past and current financial inclusion initiatives, ACCESS will focus on meeting the financial services and financial literacy needs of underserved and diverse communities, and expanding their employment opportunities.
We must recognize there’s no “silver bullet” to combating inequity. Instead, we need a carefully considered, comprehensive agenda that puts financial inclusion for underserved, minority communities at its core.
As 2020 comes to a close, we might look back on this as the year in which the pandemic made us all more aware of these punishing inequities. But I’d rather 2020 be remembered as the year when we finally started tackling the problem. It’s time to go beyond awareness and focus on actions to remedy those inequities once and for all.