Banking system discrimination against communities of color and low-income communities is a reality that dates back more than a century and has materialized in a variety of ways, including fewer banks in non-white neighborhoods (majority-white counties are home to an average of 41 financial institutions for every 100,000 people compared to 27 in non-white majority neighborhoods), fewer mortgage approvals, and higher fees when members of these demographics do use financial service providers. More often, however, this challenging and inequitable landscape often drives low-income, often Black and brown community members to the most expensive and least desirable alternatives in the finance space—payday loans, auto title loans, check cashing services, and more. “The system is broken in the United States,” says Snigdha Kumar, who spent two years at Harvard researching how traditional banking has disproportionately neglected underserved communities and now serves as head of product operations for the savings and investing app Digit. “There’s a shortage of banks in U.S. counties that are non-white and since banks are lacking in these communities, individuals do not have access to any financial services. At the same time, products like traditional bank accounts are not being tailored to unserved communities.” The continued rise of fin-tech appears poised to change all that. A Harvard study has shown that banking apps, credit apps, and even investing apps have been slowly democratizing the financial services industry and providing new levels of access and equity to historically underserved people and locations. These developments are even allowing such communities to build wealth in ways that were previously not possible. Start-ups like Tend, Nova Credit, Chime, Upgrade, and others such as Robinhood are helping disenfranchised populations do everything from build and repair credit to obtain loans to make fractional investments. Here’s a closer look. One of the new platforms hoping to address this particular challenge is Tend, a banking collective that launched a few months ago. The bank’s CEO says its mission is to empower communities of color and low-income communities and that it will do so in a variety of ways, including by not excluding customers who may lack credit history or who have a less-than-prime credit score from its customer base. “If you have credit issues or no credit, you’re not going to be blocked by that,” says Tend CEO James Dunavant. “What we want to do is provide tools to help people build their credit profile and also help improve credit for this population.” Tend will help its customers do this is by offering them access to as much as 75 percent of their personal savings in the form of a secured line of credit, which customers can use to help build a positive credit history. Members build or improve their credit profile simply by making consistent monthly payments on their Tend secured line of credit, and the payments will be reported to the credit bureaus. Tend will also provide members with access to their credit score, credit report, and other credit monitoring tools that can actively keep them abreast of any changes to their score. There will also be a credit score simulator on the Tend platform to help members learn about the various ways one’s credit score can be impacted. The credit score access is already available through Tend, and the additional enhanced tools will be launched soon. The emergence of financial tech apps, however, including virtual banks and neobanks, is creating an environment in which providers can—through automation and other measures—bring down the cost of doing business and this savings can be passed on to customers, say experts. Chime Banking is following such a model and lowering the barriers to entry, says Kumar. There are no minimum, monthly, or overdraft fees, ever, for Chime customers. The Chime website makes clear that it does not believe a bank account should cost you money. It also provides other services that are particularly useful to low-income communities such as allowing customers to get paid up to two days in advance when they sign up for direct deposit. It also offers a fee-free network of ATMs. And finally, much like Tend, the Chime platform seeks to help customers build their credit and does so by allowing them to apply for a secured Chime Credit Builder Visa. “Robinhood allows people to invest at no cost, which was not a thing three or four years ago,” says Kumar. Robinhood has also introduced a groundbreaking new program called IPO Access. While IPO shares are typically limited, Robinhood’s IPO Access gives platform users—regardless of the order size or size of their account value—the same opportunity to invest in an IPO as anyone else. The emergence of fractional investing via fin-tech apps such as Stash (which allows you to start with as little as $5) and Webull (no minimum deposit, zero commission, fractional investing) have also thrown open the doors to wealth building via the stock market. “If I’m a gig economy worker and I made $100, I can now invest $10 of that, which could not have been done three years ago,” adds Kumar. “Fin-tech has also forced incumbents to reduce fees so that now you can trade at Schwab or Fidelity and expect that trading should be free.” “Lack of a domestic credit history keeps millions of immigrants in the United States from realizing their dreams,” says the Nova website, which is to help newcomers and other global citizens apply for financial services using their international credit history. The platform translates international credit data into a U.S.-equivalent score and report in a format familiar to American underwriters, who then use it to evaluate applications. Nova Credit connects users with both auto loans and credit cards. The company is also opening doors to other financial products as well for immigrant communities. “Newcomers can also apply for a student loan via MPOWER Financing, and rent an apartment through landlords who use tenant screening platforms like Yardi, Intellirent, or First Advantage via our platform,” explains the Nova Credit website. “We’re also currently piloting a partnership with a major U.S. cell phone company in selected cities across the United States.” “Digital is democratizing underserved communities,” says Kumar. “This is especially true because of the emergence of neobanks, which are all digital, meaning every user is seen the same, making them very approachable for historically underserved communities.” Neobanks, says Kumar, have helped underserved populations access bank accounts, while credit fin-techs are providing these populations with access to credit cards and also credit building services. And now there are even platforms providing loans to the traditionally disenfranchised. “You can get a bank account, save money, take loans, and you can invest,” says Kumar. All of which leaves one last and very important service gap for such communities, as Kumar sees it: holistic financial advisory services. By that Kumar means the kind of advisory services that help these same communities and individuals develop a complete financial plan for their lives and their future, including developing a comprehensive household budget, and planning for such milestones as home buying and retirement. “The fact is that in underserved communities many people are probably working multiple jobs, and let’s face it—they don’t have time to do it,” explains Kumar. “And many people are also scared of finances. So where is that holistic financial advice to help users start on the journey, and become strong in investing, home-buying, credit, and all of these things together?” That, it seems, remains the next frontier for the fin-tech world.
