By Nermeen Nabil In today’s financial landscape, big banks and traditional players prioritize making money off of cash-strapped communities. They don’t put nearly as much value and resources towards empowering them and ensuring their products are inclusive, accessible, and affordable. It’s an afterthought and it’s systematic. The entire financial sector is built on products that are regulated and we’ve seen time and time again that without change and innovation, you simply can’t expect to offer those same products to marginalized communities because they don’t work for their lifestyles. And they never will. We need to first address this head-on as the vast majority of the problem in reducing the racial wealth gap stems from the regulatory environment.
Big banks have always based their underwriting principles on providing resources for individuals who have money, not those without. These same companies that dominate the market share have fostered a highly regulated environment that makes it almost impossible for newcomers to make an impact. They have viewed the Black community as well as the working class as too risky an investment that they wouldn’t get a return from. Since the beginning, the majority of Americans, who tend to be privileged and from wealthy backgrounds have been able to turn to big banks to help them build their financial standing and generate wealth. It’s vastly different for working and middle class communities who have a long-standing history of being mistreated and discriminated against by the banking system. Just recently, the Navy Credit Federal Union came under scrutiny for not giving loans and mortgages to Black people. This is 2024 news.
This was the big hope of fintechs; to change and reduce the racial wealth gap that has persisted and grown larger as time goes by. What open banking allows is to help make products more accessible and this is where fintechs saw sparks of opportunities and found ways to make products truly work. Unfortunately, given the current administration, a lot of these fintech companies no longer exist or they can’t sustain growth to operate their business successfully mostly due to the regulatory environment. I often ask myself, does the United States even want innovation? Do they want to do better? The answer seems to be a “no” when it comes to financial services. The main reason is because if innovation and fintechs gain traction that means less market share, less control and essentially less money for traditional players.
The emergence of neo-banks caused the big banks to drop certain fees and structures so that they could compete and not lose a bunch of customers to fintechs. Unfortunately, as an example, the Black community has struggled for centuries to access these banking products which is causing the most harm since we can’t grow our capital as we are being left out of the equation in the first place.
That said, fintechs have to do better. If you think about it, fintechs really haven’t changed the products they are offering. All they are doing is making the process more streamlined, and the actual products you can get from the fintechs now compared to what you could have gotten 20 years ago at a bank hasn’t changed. It’s still a mortgage, it’s still a checking account, and it’s still a credit card. You tend to see these fintech companies differentiating themselves through their marketing, user demographics or promotions, but the core products remain the same, which is why fintechs aren’t going to win that battle. This is mainly due to the regulation that limits the ability to think out of the box and build something new. Today, when it’s new, the immediate notion is that it’s bad. This has to change. It’s safe to say that we don’t need another of the same things. We need things that are really designed for today’s consumers, not just another credit builder, or more financial literacy, and budgeting apps.
When launching SoLo, which today is the largest Black-owned personal finance technology company in the history of America, and 82% of our users are from underserved communities, it’s because we stuck to our highest priorities of chipping away at the old models. We wanted to focus on the biggest problem, and did everything we could to not be another nice-to-have fintech product. We set out to ditch the traditional ways of lending and borrowing and created a flexible alternative for those individuals often neglected by the financial system to access capital on their terms and grow their money. We did everything we could to address this imbalance and yet we’ve faced extreme regulatory challenges as we strive to make a difference. This is despite all of the data that supports that SoLo has created a more affordable, accessible and consumer-loved solution than in all of financial services.
The power dynamics need to change and the way to do that is through community finance. Customers deserve the ability to choose products that best suit their needs. It’s obvious that we cannot count on banks to create these products as they aren’t incentivized to do this. The only way we are ever going to fix this is if we support the new fintech companies whose entire mission is to create access to useful and affordable products that see the potential in meeting the needs of everyone. Let the numbers talk, not the old rule book.
To really address the racial wealth gap fintech companies need a new mindset. Traditional products, even with a fintech twist, are not making a big enough difference.
Nermeen Nabil Khear