This series documents the development and early implementation of Change Machine’s fintech assessment and recommendation process. It is a also a continuation of our #TechForEquity work with our community of practice — a movement of practitioners wielding fintech to build financial security with their participants, and holding the fintech sector accountable to their success.
Part V: How Practitioners and Fintechs can Collaborate to Help Unbanked Communities
Change Machine’s Seal of Inclusivity (SOI) is designed to elevate products that build financial security, highlight harmful and exclusive practices in the fintech space, and equip practitioners to confidently select equitable products. Throughout this article series, we’ve shared our SOI vetting standards for products that advance equity, practices and products we’ve identified that harm vulnerable customers, and our approach to helping practitioners promote equitable, affordable fintech products. In this post, we’ll share our findings about how fintechs and practitioners can work together to maximize their impact.
Fintech and Practitioner Collaboration: A critical component of #TechFor Equity
Social service organizations and public agencies are crucial to increasing equity in fintech. Because of their subject matter expertise and valuable vantage point on behalf of the communities they intimately know, serve, and advocate for, social service organizations can and should be meaningful participants in the work of financial equity because they are committed to helping individuals use fintech tools responsibly and for their own benefit.
There are a few specific ways that this collaboration can help address financial insecurity in low-income communities:
- Increased usage of equitable products: In partnering with social service organizations, fintech providers can leverage the trust these organizations have already built to reach more people who can benefit from their solutions. As is true for many fintech products, tapping into effective distribution channels is essential when a customer is hard to reach.
- Shifting the fintech industry’s mindset: Because practitioners in these organizations are embedded in the community, they have a deeper understanding of what types of solutions and features would benefit those they serve. Incorporating their expertise can help fintech providers build products that are easier to use, culturally competent, and meet the real needs of people navigating financial insecurity. Rather than simply provide feedback, practitioners can inform the way product design is approached with low-income consumers in mind.
- Adding humanity to the process: These organizations also offer an additional layer of human interaction that can help tech-hesitant customers be more open to using fintech to build financial security.
An Initiative to Foster Collaboration
From January to June 2023 we ran a project as a part of the Banking Inclusion Initiative – a 10-year commitment of Wells Fargo to accelerate the access of unbanked communities to affordable mainstream accounts, low-cost banking, and financial education. Like much of our work, this initiative focused on low-income Black and Brown families, with a close look at new immigrants and those impacted by the justice system. The goal of this project was to better understand how fintech products could extend their reach into these underserved communities and get their solutions into the hands of people who could benefit the most.
We invited three fintech providers to participate in this project: Dora Financial, Fair Financial, Varo Bank. Each of these providers have products featured in our recommendation engine and meet the vetting standards of our SOI to be considered an “equitable solution.” We convened leaders from these companies to share their challenges, successes, and insights and asked them to engage with nonprofit financial coaching practitioners in a focus group on Zoom and virtually in an online forum. As a part of this initiative, participants were required to post in SHARE – our online community empowering nonprofit practitioners, financial technologists, and social service agencies to enhance financial coaching strategies and community impact.
Challenges to Becoming “Banked”
During our focus groups, fintech participants shared the challenges or barriers they faced when trying to reach unbanked or underbanked consumers. Their responses fell into a few themes:
Access to technology: Signing up for and using a fintech product requires having access to a device and an internet connection. Our participants noted that while some people on public benefits, like SNAP, can receive government assistance for phone purchases and internet access, this doesn’t solve the problem for everyone who is unbanked. Participants noted that this challenge isn’t age specific – customers of all ages can face barriers to accessing technology.
Identification barriers: A lack of proper documentation can also impact an individual’s ability to take advantage of fintech solutions. If a new immigrant can’t provide proof of address or a registered ID number – or if they are fearful of opening accounts under their full name – then they are often unable to open a new bank account.
Lack of trust in technology and finance: There are two factors that contribute to a distrust of fintech solutions. 1. A lack of trust in technology, a fear of “hacking,” and a preference for in-person engagements and/or printed information and paper checks. 2. A skepticism of financial services and banking. Many low-income customers have had negative experiences with “second-chance banking” like predatory payday loans and are reluctant to trust an institution with their money.
But also, some have too much faith in tech: Participants noted that many younger customers have a “lack of fear” of technology. This leads to limited questions about how their data is used and handing over personal or financial information that could put them at risk.
Limited financial education: Participants noted that overall financial education needed to be increased in order for customers to learn about and understand the value of fintech solutions. One person suggested that an increase in financial education would lead to an improvement in the understanding of technology as well.
The focus groups also allowed for participants to share some of the ways their organizations navigated or addressed these challenges, so that others could implement their best practices.
Assessing technology accessibility from the outset
One participant noted that their company assessed customer access to technology and comfort level with technology before enrolling people into accounts. “We don’t want to enroll people into bank accounts that then they can’t use […] that’s how people get into trouble. They’re not paying attention to their balance, they can’t remember their passwords to get signed into their apps, they don’t have access to the internet, they don’t have a smartphone and things like that.” While they may not want technology accessibility to be a barrier for engaging with their product, they also want to avoid causing harm and furthering financial insecurity.
Being digital first not digital only
Another participant noted that being a fintech provider doesn’t have to mean being digitally only. By partnering with a network of ATMs, companies can give customers a digital-banking experience via an app or website, but still make it easy to access cash or make deposits via a familiar ATM interface. “We’re trying to bridge the gap between actual transactions you have to do in person when you’re banking and leaning on the technology a little bit more.”
Limiting barriers to opening an account
While opening a bank account with an FDIC-insured depository institution requires some form of identification, fintech providers are finding ways to limit the barriers to entry that keep people from becoming banked. For example, Dora Financial allows people to open a bank account regardless of immigration and documentation status. Customers can create an account with any proper ID and an Individual Taxpayer Identification Number (ITIN). Additionally, designing products that take into account cultural considerations and language differences can help improve use of fintech solutions.
Eliminating overdraft fees and other harmful practices
Because some aspects of traditional banking products can exacerbate financial insecurity, fintech providers need to be intentional about what features and fees are a part of their product. One participant noted the common challenge of people stuck on “a rollercoaster of overdraft fees” and how important it was that overdraft fees NOT be incorporated in the delivery of their solution. “You can rack up three, four more overdraft fees in a day, a week, whatever. And then suddenly you’re hundreds of dollars in the hole, and it’s really hard to get back from that. And so, through negotiations with our banking partner in developing our banking products, we said no overdraft fees. This needs to be a big part of it.”
Bridging the Fintech Equity Gap with Nonprofit Partners
Across the board, fintech participants agreed that collaboration with social service agencies and nonprofit organizations is key to getting equitable solutions in the hands of marginalized communities. Earlier in this article we talked about the three ways organizations can support the fintech ecosystem: increasing usage of equitable products, providing feedback to build better products, and adding humanity to the process. Here are five specific opportunities that our participants surfaced in our focus groups.
- Access to devices and internet: On-the-ground partners may be able to help customers apply for government programs that can help them take advantage of digital tools. Providing reliable access to computer labs can also help customers get online.
- Hosting community events to facilitate financial education: By organizing community events, partners can create a safe space for people to improve their financial education and address concerns they have about engaging with fintech.
- Stamp of approval: As a trusted source, organizations and financial coaches can provide reassurance that a specific product or service is safe.
- Partners in the sign-up process: Signing up for a new fintech product is the first step to using a new tool, so practitioners can use their time together with customers to get their new account up and running.
- Providing data on user needs and user testing: Fintech participants were eager for feedback and data on how to build products that could best serve the needs of specific communities. Organizations can aid equitable product development by passing along available data about financial management practices or connecting providers with individuals for user research.
Challenges to Forming Partnerships
In addition to sharing opportunities for collaboration, our focus groups also surfaced the challenges fintechs faced when trying to establish fintech-nonprofit partnerships.
Trust and familiarity with fintech: While practitioners (particularly those who provide financial coaching) will often have a high level of financial literacy, they may have less familiarity with fintech. Newer terms like “neobank” have some negative connotations, and there may be confusion around other terminology used on these platforms. This can lead practitioners to be hesitant to recommend something they don’t fully understand or trust themselves. One solution recommended by a nonprofit participant is for fintech providers to highlight trusted brands they work with on their website to help establish credibility. (You can read more about practitioner concerns in Part 4 of our series)
Technology training is often time-intensive: Customers aren’t the only people who need help learning how to use a new tool. The practitioners recommended fintech products also want – and arguably need – to understand how the fintech product works. One fintech participant noted that distribution partners need continual support and training in order for the product to continue to be integrated into their flow of services. And it’s often difficult to train all front line staff who could be recommending the tools. One suggestion to “shortcut” this challenge is to allow end customers (and/or practitioners) to test-drive and look around an app before inputting personal information.
Prioritizing the development of equitable solutions: While fintech participants were eager to request nonprofit support with research and user data via our SHARE platform, responses from nonprofit participants were limited. We know that practitioners are juggling numerous responsibilities, but if building financial security is a key part of their mission, it is important to prioritize knowledge-sharing and giving feedback to the fintech providers developing tools for their community. To enable this, fintech providers and organizations like Change Machine need to help organizations make the connection between fintech solutions and the opportunities it presents for marginalized communities.
At Change Machine, we will leverage findings from this initiative to promote continued, effective collaboration between fintech partners and nonprofit practitioners. Equitable fintech products have a critical role to play in helping the over 5.9 million households who remain unbanked, and practitioners actively working with these families are in the best position to introduce solutions to help them build financial security.
Change Machine’s Seal of Inclusivity (“SOI”) is a comprehensive, customer-centric framework for the evaluation of consumer fintech products using an equity lens. It’s based on our unique perspective as practitioners and champions of the solutions urgently needed within the marketplace to help Black and Brown women navigate toward financial security. The framework is informed by copious research into previously existing product vetting standards. With defining principles including safety, accessibility, and transparency, the SOI provides, for the first time, a set of standards that not only center the experiences of customers and practitioners but explicitly incorporate financial security as a core principle. These standards provide fuel for fintech practitioners to further #TechForEquity movement-building on behalf of the low-income consumers we serve.
To learn more about our efforts to explore the impact of fintech on customers’ financial security, check out the other blog posts in this series. Special thanks to Wells Fargo’s Banking Inclusion Initiative for helping to fund this work.