Being Black in Fintech: Diversity and Its Importance
With earning power a tenth of white families, Black communities struggle with limited access to banking and financial services. The development of fintech tools that are inclusive and tailored to their needs could help break this cycle.
However, these initiatives will only succeed if fintech companies commit to diversity as part of their core values.
1. Black Fintech Founders
Black founders are at the forefront of fintech companies that are tackling issues like income inequality and financial inclusion. Their innovative approaches are making landmark advances not just for their own companies but the industry as a whole.
One of the biggest obstacles for Black startups is finding investors who are willing to give them a chance. When many Black founders try to raise money from venture capital firms, they find it difficult. This is often due to the fact that VCs are still using old ways of doing business that exclude Black founders from their network. Despite the many efforts to promote diversity among VCs, they have yet to fully change their ways of working.
Founders say it’s still difficult to get an initial meeting with a VC, and even harder to convince them to invest in their company. They say that the main reason for this is that VCs still don’t have the right networks to connect them with the best Black entrepreneurs. Many VCs use warm intros and closed networks, which are hard for Black founders to navigate.
But despite these challenges, Black founders are not giving up. In 2021, Tamara Ifill launched Guava, an online banking platform for small businesses that focuses on the needs of Black business owners. The platform already has more than 3,000 members, and its membership base is growing rapidly. It has helped more than 100 businesses, ranging from candle companies to spinning studios.
The platform also offers a range of other services, including tax filing and payment processing. It is a good option for Black entrepreneurs because it helps them to reduce their tax bills and improve their cash flow. Moreover, it helps to protect their assets from creditors and debtors.
As a result, the platform is becoming popular with Black entrepreneurs. It is also a great way to connect with other Black founders. Several other platforms are dedicated to connecting Black entrepreneurs with each other and with potential investors. Some of them are free to join, while others are charge a fee.
2. Black Fintech Investors
Investing in fintech is an exciting way to make an impact, especially when the companies you’re backing are creating products that cater to intersectional communities. Black fintech investors are leading the call for diversity in this space, bringing a unique perspective that can help shape better products and build a path to financial freedom for all.
These investors are building a diverse space in finance through a number of different methods. Many are investing in companies that specifically cater to Black users, such as Novae, which provides consumer financing and entrepreneurship opportunities. Others are focusing on global markets, like TEEK TAKA, which is tackling the impact of the coronavirus crisis in Bangladesh by providing loans to textile factories so they can keep their doors open. And then there’s Lightship Capital, a venture capital firm that is using its funds to create a more equitable startup landscape, with particular focus on entrepreneurs that have been overlooked or excluded.
As a result, some of the most impactful fintech investments of 2022 came from Black-founded companies, such as edtech company Lighthouse Learning, which secured a Series B round led by Heron Rock, and cross-border payments platform Flutterwave, which was first valued as a unicorn in 2021 at $250 million. While these examples show that Black fintech companies are gaining traction, we need to see even more investment and support to scale up their growth.
Fintech in Action, a nonprofit focused on accelerating progress, innovation and opportunity for Black people in fintech and ancillary industries, is calling for more companies to build a more inclusive space by hiring and mentoring Black people. These efforts can go a long way in increasing the reach of their products and services, especially in Black communities. For example, one national bank increased the number of Black customers using their digital offerings by incorporating features they found most valuable, such as simple and engaging user experiences and mobile accessibility.
These strategies can also be applied to brick-and-mortar banking institutions. For instance, banks could partner with community development financial institutions (CDFIs) to invest in communities that are underserved, or they can expand their digital offerings to include more products like savings and lending options that target low-income consumers, such as the ones offered by Black-owned Guava.
3. Black Fintech Recruiters
Increasingly, consumers expect companies to act with purpose and take a stand on political, social and environmental issues. They also want their companies to have the ability to help close racial wealth gaps and address other social injustices. Fintech is ideally placed to do so, enabling them to capture new markets and provide more access to credit and liquidity for underserved communities. But for that to happen, the industry needs to ensure it is bringing in talent from all backgrounds and leveraging their skills and expertise in all roles.
As the Black Lives Matter (BLM) campaign gained traction, many fintechs spoke out in support of the movement and pledged to recruit more BAME staff. However, in terms of representation at the top of the fintech talent funnel, a great deal more needs to be done. In fact, a number of fintech executive boards surveyed by The Fintech Times have no BAME representation – even among those companies which publicly back the campaign.
While tech firms like to put their relative lack of diversity down to a so-called pipeline problem – that there are simply not enough gifted, well-qualified black students coming through the university system and into the workforce – that is not the whole story. Rather, they tend to hire from a narrow pool of elite universities, ignoring those from HBCUs. And, as a result, they fail to tap into the wider talent pool of highly talented black students.
It is possible to diversify the workforce by recruiting from a wider range of schools and introducing more flexibility in hiring policies. This would allow for a greater number of qualified candidates to be recruited and, more importantly, it will ensure that more black people are brought into the finance sector as employees rather than as founders.
A more granular approach to ethnicity is needed, too. The data suggests that the proportion of BAME workers drops as companies move from seed stage to Exited, but more work is required to unpick why this happens and whether the emphasis on diversity in earlier stages is a key driver of this trend.
4. Black Fintech Companies
Black fintech companies are transforming the financial services industry by providing equitable solutions for individuals and communities. Their products include financial services and education that help people invest, build wealth and grow their businesses. They are also providing a sense of community and collaboration for entrepreneurs, and they are helping to address historical racial gaps in finance.
These fintechs are bringing in new customers with targeted marketing and simple user experiences. For example, one national bank increased digital adoption by investing in features that were highly valued by its customers—including banking, investment and borrowing functionalities. They also invested in diversity and inclusion initiatives, including unconscious bias trainings for their customer service representatives and financial advisers.
Another company, Greenwood, is a Black-owned fintech that provides a variety of financial services to small businesses. It offers a free checking account with no fees or overdraft, and it connects businesses to investors who can provide capital for growth. It has raised more than $45 million in venture capital funding to support the growth of its business. The company has also partnered with the NY Fed to provide PPP loans to small business owners who would otherwise not have access to these funds.
Other fintechs like Novae, which has been recognized for its Buy Now Pay Later financing platform, are targeting marginalized communities with a focus on financial literacy and entrepreneurship. Their goal is to close the equity gap in the US economy by increasing access to capital for black entrepreneurs, who make up a significant percentage of the population.
Despite decades of well-meaning efforts to address it, the racial wealth gap remains stark and inequitable. A person born black in the United States can expect to generate 10x less lifetime net worth than a white person. In response to this blatant injustice, several black fintechs are challenging the industry to align its march toward progress with the financial emancipation of black Americans. The companies are doing so by establishing a range of initiatives, from developing products to fostering black-owned enterprises and hosting events. They are also addressing racism within the fintech sector, with Betterment’s CEO Jon Stein leading the launch of a Fintech Equality Coalition in 2020.
