Technology has become an essential tool for Community Development Financial Institutions (CDFIs) and Minority Depository Institutions (MDIs).
Yet CDFIs and MDIs have historically been unable to secure and operate technology tailored to their needs and enabling them to scale and serve their communities fully.
Many are asking, can Black- and brown-owned banks compete in a digital economy?
It is a question that panelists hope to answer during a Juneteenth summit hosted by Georgetown Law’s Institute for International Economic Law.
“The forum will serve as the first in a series of cutting-edge programs, culminating in Washington’s annual Fintech Week conference, designed to tackle long-standing obstacles of financial inclusion and access,” officials noted.
Some experts believe they already know the solution.
“If Black and brown banks are going to be able to compete in a digital economy, they will have to start using social media, updating their banking systems, and competing with other community and large-scale banks,” said Olivia Tan, co-founder of Coco Fax.
Tan’s startup provides fax solutions for businesses.
“To attract the next generation of consumers, Black and Brown banks, like many community banks, must realize the need to offer mobile apps and become more social media savvy,” Tan continued.
Reportedly, from 2001 to 2007, the number of Black-owned banks declined from 48 to 44, followed by a 50 percent decrease after the Great Recession.
According to some estimates, by mid-2020, there were only 20 Black-owned banks in the U.S., with combined total assets of $5.45 billion. By contrast, commercial banks number more than 5,000, with the largest bank in the U.S., JPMorgan Chase & Co., holding assets of $2.8 trillion.
Economist Eldar Beiseitov wrote in a blog that “calls for racial economic equity, including #BankBlack, have increased after the police killings of African Americans George Floyd and Breonna Taylor last year.”
“The #BankBlack movement is already having an impact, with some banks reporting an enormous uptick in deposits. The rise in deposits is attributed to a wave of new individual customers and nonprofit and community organizations that now choose Black-owned banks and credit unions,” Beiseitov wrote.
Corporations also promised to make more deposits with Black-owned banks, he added. The investment could also help Black-owned banks weather an expected increase in the shares of nonperforming real estate and small-business loans caused by the pandemic, he continued.
“Scholars and policymakers agree that encouraging greater access to mainstream financial services is critical to closing the racial wealth gap,” Beiseitov wrote.
“Black-owned banks have demonstrated an unwavering commitment to their communities and could play a vital role in equitable economic recovery.”
In March 2020, Wells Fargo announced it would put as much as $50 million in Black-owned banks, which would then have access to financial and technological help and product development.
The company said this would help to “grow and benefit their local community.”
Wells Fargo officials noted that communities of color had been disproportionately affected, and this investment is part of the company’s effort to generate a more inclusive recovery across the country,” the release says.
The Wells Fargo initiative includes Broadway Federal Bank, in Los Angeles, Calif., Carver Federal Savings Bank, in New York, N.Y.; Citizens Savings Bank & Trust, in Nashville, Tenn.; Commonwealth National Bank, in Mobile, Ala.; M&F Bank, in Durham, N.C.; and Optus Bank, in Columbia, S.C.
In April 2021, Wells added more minority-owned banks to its initiative, including Carver State Bank in Savannah, Ga.; Citizens Trust Bank in Atlanta, Ga.; First Independence Bank in Detroit, Mich.; Liberty Bank in New Orleans, La.; and Unity National Bank in Houston, Texas.
Wells Fargo also supports each MDI’s development through a banking relationship in the form of a single touchpoint coverage model.
The model will help them access Wells Fargo’s expertise and pursue strategic priorities like entering new markets, expanding locations, designing new products, and hiring staff to support loan growth.
Investments like these are critical for minority-owned banks to offer mobile apps and become more fluent in social media.
Some argue that much more is needed.
“I think there are wonderful solutions that exist today that help people live financially well, resulting in financial institutions having strong relationships with their clients,” said Eddie Ortiz, CEO and founder of Press Play Finance LLC.
“I just believe there is a better way for financial institutions to create new pathways and intelligent ways that help people, particularly people of color, take charge of their finances,” Ortiz asserted.
“And it’s not all on financial institutions like CDFIs & MDFIs.
“I believe new and existing FinTech/FinEd solutions must step up to the plate to create tailored digestible personal financial content that is in-culture and in-language to help people understand basic financial concepts so we can take a more collaborative approach to tackling the longstanding obstacles of financial inclusion, access, and general social inequality.”