2022 saw “ethical fintech companies” come under the spotlight. Questions were raised around how non-regulated banking alternatives should abide by trustworthy, responsible, and transparent data usage. This was coupled with the need to implement security measures to protect customers from fraud or scams, such as ‘pump-and-dump’ schemes.
Around the same time, another interesting trend in ethical and CSR fintech came to light and has continued to grow. This trend saw companies examining community priorities and ensuring that their business ethics clearly aligned with the customer’s personal values – the idea here being that the customer could easily resonate with the company and thus build a stronger level of brand trust.
However, this new approach went even further and aimed to target customers from demographics that were habitually overlooked by traditional banks and offer a unique money management service. These solutions sought to promote financial inclusion by providing previously unavailable features such as mentoring and advice, lower barriers of entry, or the ability to grow their wealth through the use of cryptocurrency.
We’ll explore how some fintech apps are challenging the traditional system to aid positive ethical change for these demographics.
Unbanked households – data from the FDIC report
In 2022, the Federal Deposit Insurance Corporation reported the number of unbanked households stood at 4.5% for the previous year, meaning approximately 5.9 million households either had limited or no ability to own an account – or chose not to out of personal preference.
The FDIC report presented further systemic flaws in the traditional banking system, as “unbanked rates were higher among lower-income households, less-educated households, Black households, Hispanic households, and working-age households with a disability.”
How fintech could support low-income households
A minimum balance is often needed to keep an account open at a traditional bank, however, many Americans earn under this threshold and can’t meet the criteria. Almost 3 in 10 households surveyed by the FDIC (29.2%) referenced their reason for being unbanked as not having “enough money” to meet a minimum balance, or fees being “too high” or “unpredictable.”
Low-income consumer groups can benefit from the support of fintech banking apps, as several emerging companies require a lower (or even zero) minimum required balance, alongside providing perks that solidify them as firm competitors to traditional branches. One such example is the company Current, which recently announced an offering with “no minimum balance required and no direct deposit or spending requirement” while members can earn interest daily as opposed to the standard monthly rates.
In 2020, TechCrunch released an Inclusive Fintech 50 cohort to debut their top applications tailored to low-income workers and households.
By enlisting an alternative as their primary bank, lower-income households interested in opening an account may finally have access to the benefits of digital money management and budgeting, making it easier to reach their financial goals and grow their wealth.
How fintech is supporting Black consumers’ passion for finance alternatives
In 2022, Mastercard surveyed over 4,000 US and Canadian consumers “to better understand the near and long-term implications of open banking on financial services and the consumer experience.” This data revealed:
- 81% of Americans are connecting third-party financial apps to their primary accounts and the highest demographic for this (at 94%) was categorized as ‘affluent Black households.’
For perspective, 93% of respondents were categorized as Gen Z (aged 26 and under), 92% were Millennials (27-42), 89% were Hispanic and 88% of respondents were Black – but not categorized as ‘affluent’.
Meanwhile, in a 2022 report by Morning Consult, it was revealed that Black and Hispanic adults have become statistically more likely than White adults to consider a digital bank as their primary provider.
Source: Charlotte Principato, Morning Consult, 2022.
One cause noted was a long-standing issue around lack of accessibility within primarily Black communities, with a higher likelihood of their homes “being more than 10 minutes from a bank branch” or having no local access at all. The convenience of a digital banking app or service is much more suitable for communities such as this where banks have little presence.
It was highlighted however that this preference was not only limited to a lack of physical accessibility, “but a broader interest in financial technology and access to financial services of all kinds.” In fact, 78% of Black consumers in the survey showed a higher interest in digital wallets and specialist services not traditionally offered by banks (such as bitcoin and cryptocurrency exchanges).
This passion for adopting fintech apps above any other demographic has presented a market for alternative services that aim to close the financial wealth gap by supporting the Black community, such as:
- First Boulevard, which offers “Cash Back for Buying Black™” with up to 5% cash back on debit card purchases made at participating Black businesses.”
- Kinly, offers a bespoke service to “proudly serve the unique needs of Black America and its allies” through app-exclusive financial mentoring and podcasts from experts in the Black community.
Ethical Fintech companies to support personal ethos
Reasons for favoring fintech alternatives also extend beyond income or race, with several initiatives proving popular by converting a users everyday actions into contributors for positive change.
Fintech for the planet
“…many banks have yet to turn their commitments to environmental, social, and governance (ESG) concerns into concrete action.” – Victoria Hernandez, The Mobile Century, 2022
As climate change becomes a pertinent issue for many, over 1 million customers have transitioned to the fintech company Aspiration, a certified B-Corp which awards 5-10% cash back for purchases at environmentally-conscious businesses. This is alongside features such as ‘Plant Your Change’, which rounds up every purchase to the nearest dollar and plants a tree with the difference. 40% of Aspiration users consider it to be their primary banking provider.
LGBTQ+ identity
Daylight is a fintech banking app to aid LGBTQ+ financial and family planning, with premium mentoring from expert coaches. Daylight also offers Visa-branded cards with the users’ chosen name as opposed to their legal ID name, in support of non-binary and trans users.
As more Americans consider fintech companies to be their primary provider and the line blurs between banking and identity, will traditional banks be forced to change – or be left behind?
Only time will tell, but it’s fair to say that fintech is a growing disruptor in the industry. As summarized by Bernard Marr for Forbes;
“This new breed of fintech providers is threatening the long-established monopoly that traditional banks and financial service providers have over money and payments.” – 2022
Work with our specialists at Distinct
Our specialists at Distinct keep their ear to the ground with new trends in finance and accounting. We are well-placed to provide you with insight into the current market. Whether you’re seeking your next role or looking to hire, contact us today.
