The banking industry is improving financial inclusion and diversity, but it still has a long way to go. As evidence of that, over half of financial service employees say they wrestle with discrimination at work, according to a 2021 PwC Hopes and Fears D&I survey. PwC polled 32,500 corporate employees and found that “people revealed a mostly optimistic story, but one with some concerning undercurrents.”
Courtney Davis, Banking Principle for Deloitte said there is a wide variance in narratives that banks and credit unions fall into on this subject, during a Banking Transformed podcast interview, with Jim Marous, Co-Publisher of The Financial Brand and CEO of the Digital Banking Report.
“I think the reasons why there hasn’t been more traction in this area probably varies a bit from institution to institution,” Davis explains. “For larger institutions, there will often be challenges and internal hurdles that need to be jumped over in order to engage with third parties in a way that is meaningful and involves access to client data.”
It makes it difficult, too, that there isn’t a single approach to being more diverse operationally. Some of the solutions will be universal. For instance, effectively using banking data is crucial, says Davis, as is integrating technology that can support financial inclusion. Banks and credit unions can use a few of the steps outlined below to optimize the experience for customers and employees alike.
Adjust the ‘Why’
In addition to the startling statistic about discrimination in the financial service workspace, PwC’s study also found that institutions it surveyed aren’t even approaching diversity and inclusion with the right intentions.
More than three out of five financial institutions (61%), for example, only develop D&I programs to attract and retain talent or to comply with legal requirements. In the same survey, 17% said they are looking to achieve business results while only 15% are looking to enhance their external reputation and a mere 7% are trying to respond to customer expectations.
“If organizations are at a basic level of maturity today, this should be complemented with communications highlighting efforts to advance D&I and the long-term vision in order to not compromise an organization building a culture of inclusion,” Julia Lamm, Global Workforce Strategy Leader at PwC tells The Financial Brand.
Davis makes a similar point in a September 2021 article, noting that banks and credit unions must be cognizant of what he refers to as the ‘higher bottom line’ — when an institution values a goal that exceeds the idea of profitability. Instead of simply prioritizing diversity and inclusion programs as a way to increase deposits and retain customers, it is crucial that financial service organizations also “represent both the financial and human profit to be gained from a more educated, equitable and sustainable world,” Davis writes.
Every financial institution prioritizes ‘the bottom line’, but it is crucial that banks and credit unions also consider ‘the higher bottom line’, which will represent human profit in addition to monetary profit.
Utilize the Data
One of the biggest obstacles facing banking’s relationship with inclusivity initiatives is an evolutionary struggle with data. How do you best gather it? Then, once you have it, how do you best optimize it? The industry and The Financial Brand have explored the topic in-depth, but it is seldom recognized that institutions must utilize data without neglecting key populations.
“Many of these large institutions are struggling with data infrastructure and systems architecture that can be challenging to navigate and stitch together in a way that’s going to yield all the benefits that they would like from engaging with underserved, low-income and minority segments, Davis explains.
He maintains there are a few different approaches to this, specifically when designing products for low-income populations. In many cases, banks and credit unions already have access to the data they need — they’re just not looking at it.
For example, “there is a big opportunity to leverage alternative data within the credit underwriting process,” Davis continues. “And if we think about certain underserved communities — maybe the homeownership rates are lower, but there could be years and years of rental history.”
Out of the Box:
Products aren’t always a good fit for everyone. Sometimes it is necessary that banks and credit unions create products that benefit different populations.
Davis encourages financial institutions to think about how else they can design a strong credit profile of customers without using the same, traditional methods that they have depended on for years. “If you’re solely relying on credit bureau scores, you’re missing the opportunity to get folks in the door that are going to be a solid customer and you’re missing an opportunity to really build what could be in many cases, lifelong customers that you can expand into a broader set of products and services.”
The home ownership gap isn’t the only hurdle facing underserved segments, Davis adds. “It could be an issue of financial education, historical issues around things like redlining income disparities, appraisal disparities. It’s a complex issue.”
Investments in developing alternative sources of customer data have been growing, Davis notes, but he is looking to see if these small investments turn into much larger ones.
“I think the hope generally is that there’s an evolution into more sophisticated, more substantial investments or activities as they continue to get more comfortable,” Davis states.
Rework the System
Davis suggests a three-prong framework to creating a more inclusive company culture, for both employees and customers.
1. Organization. Before anything else is addressed — products or customers — banks and credit unions must first create an inclusive workplace and embed financial wellness right into the employee experience. Davis recommends building a team that can resonate with multiple populations, especially unserved and underserved populations. It also means supporting employees with their own financial goals, both short- and long-term.
Jill Nowacki — President and CEO of Humanidei and O’Rourke, a firm specializing in employee development at credit unions — tells The Financial Brand that she works with institutions that are still trying to function the same way they’ve been doing for years.
“The way things have been going cannot be the way things continue to go,” Nowacki says, adding the credit unions she’s working with are just now recognizing they need to care for their employees’ wellbeing. “They have to customize that experience in order to provide their employees not just with an environment that’s wonderful, but with something that keeps them from burning out and needing to move on.”
Solving a Problem With Different Logic:
Everyone values a raise. However, that’s often not enough to keep employees happy and satisfied with their job. Banks and credit unions must learn to value the mental and physical health of their staff as well.
2. Offerings. Once institutions have stabilized these issues within their own workforce, then — and only then — should they begin to build out their product set with the purpose of being more inclusive. Davis recommends designing services that can be useful to different populations, such as a flexible loan payment or a savings account without fees.
How you market and distribute these products is also important. For instance, increasing the number and the diversity of the channels your institution uses to market products can be vital to address new audiences.
3. Local and National Community. The community and society on a national and international scale might not be as high on your institution’s list of priorities as the products and the culture of your organization, but it is still a great way to establish a reputation as a bank or credit union that emphasizes diversity. This can take place in multiple ways, but some of Davis’ recommendations include:
- Investments into direct sources, such as Minority Depository Institutions (MDIs) or Community Development Financial Institutions (CDFIs) and other diversely-owned institutions.
- Financial education in the form of workshops and webinars to help build out financial knowledge in underserved communities.
- Partner up with community organizations as well as fintechs and other banking providers to innovate as a cohesive unit.
- Work on the data analytics with providers that help your institution set up better underwriting and risk monitoring systems.
- Coordinate with regulators to better utilize self-assessment metrics and KYC systems through public and private partnerships.