Data finds that low-income households are four times more likely to be “unbanked” and Black households are two-and-a-half times more likely to fall into the ranks of the under- and unbanked
Despite rising awareness of disparities in all of American life following 2020’s racial justice protests, data shows Black households still struggle with access to banking. The 2023 survey from Yale and the Federal Reserve Bank of Chicago finds that access to bank branches was a prime factor, with Black respondents reporting they’re 10% less likely than White respondents of similar incomes and ages to visit a branch in the past year. At the same time, branchless banking doesn’t make up the difference, as Black respondents are 7% less likely to depend on digital only banks. “They rely on branches more,” says Yale researcher Alexander Zentefis. “Yet they’re visiting branches less.”
In addition to the lack of branches nearby, the role of trust in banking remains a critical challenge for banks to solve, according to the Urban Institute. The lack of consumer trust not only leaves people underbanked, but leads to lower profitability and greater instability in the banking system. “Recent bank-supported programs, such as special purpose credit programs and targeted down payment assistance, are a welcome first step toward addressing the wealth inequities,” says Amalie Zinn, Michael Neal and Vanessa G. Perry in Urban Wire. “But going beyond new programs to build trust is a more comprehensive response to the wealth inequities Black communities experience.”
Individual institutions are committed to building that trust by offering banking tailored to Black consumers’ needs. For example, OneUnited Bank, the nation’s largest Black-owned bank, introduced an AI-powered financial wellness tool for customers. “WiseOne Insights uses AI to provide real-time, personalized guidance to help individuals make better financial decisions and reduce financial stress,” according to a news release. Other banks like Greenwood are diversifying their offerings. Cofounder Ryan Glover says, “It’s just as important for the company to create a place where Black and Latino consumers can learn and network as it is to provide banking services.”
Industrywide, targeted investments in the banking sector are slated for support. In October 2023, Treasury Secretary Janet Yellen pointed to $8.5 billion in COVID-era funds to be used for community development financial institutions and minority-owned banking firms, according to Reuters reporting. Speaking at the Freedman’s Bank Forum, she said that these investments will increase lending to Black and Latino communities in the next decade by nearly $140 billion. “This is just the start,” Yellen said. “Over the next decade, we expect that ECIP will result in nearly $80 billion in increased lending in Black communities and nearly $58 billion in Latino communities.”
If you’re a banking leader looking at serving more and serving better, get in touch with the bank and credit union experts at Adrenaline. And don’t forget to subscribe to Believe in Banking to stay up to date with the latest news impacting the banking industry.