Transitioning our focus from inclusivity to equity should be the next step in fintech’s evolution.
Mae Watson Grote | Founder and CEO
A few months back while working on a pitch, I got caught on a phrase that we’ve used many times over at Change Machine: “Fintech companies democratize financial security.” It took me a moment to figure out why, suddenly, this phrase tripped me up. Of course, fintech companies can democratize financial security, but have they? Will they? And, if so, is democratization—the sibling of access, inclusivity, and universality—enough of an ask?
Just as anti-poverty work elevated our strategies and improved outcomes by shifting focus from income to assets, fintech must move beyond inclusivity to applying an equity lens by building products and services that work primarily for Black and Brown households. Such products can’t just be useful, affordable, and timely; they must also emphasize customer assets and long-term financial success. Inclusivity had a good run, but the introduction and availability of new fintech products won’t close the persistent banking gap, let alone “democratize” financial products and services.
When fintech enables Black and Brown households to consistently achieve their financial goals and build the lives they want for themselves and their families, it advances an equitable economy in which we ALL thrive. According to the most recent FDIC survey, approximately 7.1 million U.S. households remained unbanked. While the gap is narrowing for non-white and low-income households, disparties persist: “Despite the improvements in unbanked rates for Black and Hispanic households, unbanked rates in 2019 for these households remained substantially above the unbanked rate for White households.” (emphasis added.) After striving for inclusion—that is, the availability of products for historically un- and under-banked households—the next iteration of fintech must ask whether products are advancing a forward-thinking, customer-centric definition of financial security.
To get better outcomes, we need a better vision.
Poor people can, do, and will save. Let’s revisit how efforts to eradicate poverty have been most effective when the financial security field has prioritized assets—a lesson to which Change Machine can attest in our 15 years of building financial security. Michael Sherraden heralded the advent of this strategy with his 1991 book, Assets and the Poor, in which he argued that poverty wasn’t going to be solved through consumption spending. Instead, it must be addressed in the same way all Americans get ahead: by accumulating and leveraging assets. Nobody, he pointed out, “spends their way out of poverty.”
Later, when Sherraden’s work was embodied in policies such as individual development accounts and child development accounts, these programs amply demonstrated that poor people can, do, and will save. Their finances are no less a reflection of their values, hopes, and dreams than they are for middle class or high-net-worth people. Further, they make many of the same financial decisions that more affluent households make, but with higher stakes and associated stress levels (a ripe environment for fintech, one might think).
Don’t confuse poverty with character. Sherraden’s work cuts against the personalization of poverty—the persistent myth that people are poor because of an outsized personal or moral failing relative to other income groups. More recently, Ibram X. Kendi points out in How to Be An Antiracist: “Americans have long been trained to see the deficiencies of people rather than policy.” So how can fintech not only avoid perpetuating harmful narratives that confuse poverty with character, but seize opportunities—by evaluating low-income consumers based on their aspirations rather than their limitations—to build better, more impactful products?
Prioritize financial security. Assets and the Poor didn’t just offer a radically different perspective on how to alleviate poverty through policy; it underscored the value of making significant and upfront investments in people’s futures. Assets orient people toward their futures, providing a personalized set of criteria to assess hard tradeoffs and anticipate unintended consequences. Assets don’t just influence individual behavior, they change the individual’s place in the world. In Sherraden’s words, “assets are hope in concrete form.”
Fintech is now at a similar juncture in its evolution. Product makers should heed the lessons of this rich history: that poor people can, do, and will save; that harmful biases are too easily perpetuated; and that there is much to be gained by prioritizing a forward-thinking, customer-centric, asset-driven definition of financial security. In doing so, fintech will be elevating their strategies to advance an equitable economy.
While the intent of financial inclusion efforts in the past has been to represent Black and Brown households, the results begs a more intentional approach. We’ll know that there’s meaningful inclusion when unbanked rates aren’t wildly divergent between these households and their white counterparts. To accomplish equity, we’ll need to expect more than access and availability of fintech products, which isn’t closing the under-banked gap, much less building financial security for the poor. We’ll need fintech that works for Black and Brown households.