ChangeFi CEO: “We have to be on the ground with our communities”
The racial wealth gap in the US has been growing consistently year on year.
A US Federal Reserve survey shows the racial wealth gap grew from about $100,000 in 1992 to $164,000 in 2019
From research conducted in 2019, the US Federal Reserve says the typical White family has “eight times the wealth” of the typical Black family and “five times the wealth” of the typical Latino family, with White families gaining significantly more wealth since the early 1990s.
The COVID-19 pandemic has also seen higher rates of unemployment and lost income for Black and Latino families, contributing further to the disparity.
According to a survey by Bankrate, Black and Latino Americans also pay “more than double” the bank fees that White customers do as of the start of 2021, as well as reporting fewer no-fee account options.
Added to the fact that Black and Latino borrowers pay, on average, more in interest than white borrowers on mortgages, it’s clear that more needs to be done across the industry to start closing the wealth gap and supporting underserved communities.
Reversing the trend
There is a growing number of fintechs looking to show traditional banking institutions the way when it comes to supporting financially underserved communities.
B.C. Silver is CEO of ChangeFi, a digital bank and financial services provider. Its current mission is to lend over $2 billion towards Black and Latino homeownership and provide “equal access to the American dream”.
In his role with ChangeFi, B.C. leverages what he calls a drive for equality and financial empowerment to lead a business dedicated to providing banking services to the “underbanked”.
“My passion lies in serving the underserved/disenfranchised community, because that’s the community I come from,” he tells Fintech Futures.
“I had a unique opportunity to see the problem from two different viewpoints. And now I have a platform that can give people a solution to the problem.”
B.C.’s roots were established in Atlanta, Georgia, where he was orphaned at a young age. Growing up, he saw systemic inequality and constant inequities in the Black and Latino communities.
Flaws in the traditional banking system
Speaking about where the traditional system has gone wrong, B.C. explains: “They aren’t in touch with the communities they service, and the specific problems that exist within the community.
“In the past traditional banks have shown limited interest in addressing the financial needs of underserved communities. The have a large customer base and increased revenues, but very little reinvestment into the community people, businesses, schools, and so on.
“It’s important to be connected to the communities in which we serve; reinvest money, resources, and jobs into those communities.
“If banks help support customers in their journey, underserved communities would have more trust in these organisations.”
The focus on profits, high overdraft fees, high onboarding fees and high interest rates for loans and mortgages makes it increasingly difficult for poorer communities to gain financial inclusion.
“It can be a difficult balance in keeping a customer-centric focus while meeting investor expectations,” says B.C.
“Market share and profits do not have to take precedence over the mission. It is possible to have a viable business model and meet both investor and customer expectations.”
However, with the conversation around equality and fairness growing louder, B.C. says he does see some improvement coming from the sector.
“I think more people and organisations have been made aware of some inequalities. And so I do think on a positive note there’s awareness starting to happen.
“Organisations are making monetary commitments, but those are short-term bandages.
“The future is not only big investments made at one point in time, but we need to start to do more structural modifications that help people, you know, every week.
“Those types of decisions have a ripple effect much broader and wider than one-time investments.”
The role of banks and fintechs
Financially underserved communities cannot bridge the wealth gap without access to credit, access to loans and mortgages and infusions of capital. This is where banks can do more, and where fintechs come in.
B.C. Silver, ChangeFi CEO
“We are true to our mission in terms of closing the wealth gap and serving all people — that’s African-American, Hispanic and low-income communities no matter what ethnicity you are — we want to help give you tools and resources for financial inclusion,” says B.C.
“The reality with the wealth gap is that if we continue this trend, by 2053 Black and Latino communities will have an average wealth of zero. Homeownership closes that gap.
“Lower fees, giving people loans, helping people improve credit and building them to homeownership is what could potentially close the wealth gap. That’s what we do and what makes us unique from a systematic approach.”
Less red tape, fewer outside influences and a clear focus on mission gives emerging fintech start-ups an advantage over traditional banks when it comes to disrupting the current banking system.
“We have lower operating costs, a lower expense structure because we don’t have physical branches, there’s already a profit differential we can relay back to the customer. Cost per acquisition is different as well, which is more that we can do for the customer.
“So from a structural or organisational standpoint then you have a unique opportunity to be more disruptive in the marketplace.”
Working together for the better
With the importance of bridging the wealth gap front and centre, B.C. also supports the idea of banks and fintechs working together to achieve their mission.
“More traditional banks want to help, there has been a change in the social climate. I welcome the change and their involvement.
“The underserved community and lower-income people need help. The more fintechs and traditional banks answer the call to lend a hand makes it a win/win for all. Especially if it’s authentic and brings about real change in a systematic approach to impact racial inequality and inequities, and they’re taking systematic approaches to help.
“There is no reason for banks not to join in this step towards inclusion. It’s a choice. How much profit must you make off of people? At some point it becomes counterproductive to the collective and helping bring about inequality to those who are disenfranchised.”
An opportunity for change
With growing awareness of the disparities being caused by the current system, technological advancements and the growing number of fintechs looking to disrupt the system, B.C. believes we could be reaching a turning point.
“I feel like we’re at a unique moment in time now to make a difference – because of technology, because of awareness and because of a shift in social consciousness.
“I challenge fintechs and traditional banks to help marginalised communities by genuinely seeking products and services that can bring authentic change to make a material difference.”
