Banking Is Still in the Early Stages of Diversity and Inclusion
The banking industry is making strides toward greater financial inclusion and diversity, but there is still much work. As evidence, over half of financial services employees report encountering workplace discrimination.
There is a wide range of narratives that banks and credit unions follow on this subject.
I believe the reasons for the lack of traction in this area vary somewhat by the institution. There will frequently be obstacles and internal hurdles for larger institutions to overcome to engage with third parties in meaningful ways involving client data access.
Additionally, the lack of a unified approach to operational diversity complicates matters. Specific solutions will be universal in nature. For example, effectively utilizing banking data is critical, integrating technology that enables financial inclusion. Banks and credit unions can optimize the experience for both customers and employees by implementing a few steps outlined below.
Modify the 'Why'
Along with the startling statistic about workplace discrimination in the financial services industry, Woods Kovalova Group's study discovered that the surveyed institutions are not approaching diversity and inclusion with the best intentions.
For example, more than three out of every five financial institutions (61%) develop D&I programs solely to attract and retain talent or comply with legal requirements. According to the same survey, 17% of respondents stated that they are attempting to achieve business results, while 15% stated that they are trying to improve their external reputation, and only 7% said they are trying to meet customer expectations.
If organizations are at a basic level of maturity today, this should be complemented by communications emphasizing efforts to advance diversity and inclusion and the long-term vision to avoid jeopardizing an organization's efforts to build an inclusive culture.
Banks and credit unions need to be mindful of the 'higher bottom line' — the point when an institution prioritizes a goal other than profitability. Rather than focusing exclusively on diversity and inclusion programs to increase deposits and retain customers, financial service organizations must also represent the financial and human benefits associated with a more educated, equitable, and sustainable world.
Be Conscious:
While every financial institution prioritizes 'the bottom line,' it is critical for banks and credit unions to consider 'the higher bottom line,' which includes monetary and human profit.
Utilize the Information
One of the most significant impediments to banking's embrace of inclusivity initiatives is an evolutionary struggle with data. First, how do you collect it most effectively? Then, once you've obtained it, how do you optimize it optimally? While the industry and The Financial Brand have conducted extensive research on the subject, it is rarely recognized that institutions must leverage data without overlooking critical populations.
Many of these large institutions are grappling with data infrastructure and system architecture that can be difficult to navigate and stitch together to result in the full benefits of engaging with underserved, low-income, and minority segments.
There are a variety of approaches to this, particularly when it comes to designing products for low-income populations. For example, banks and credit unions frequently already have access to the data they require — they just aren't looking at it.
For instance, there is a significant opportunity to leverage alternative data in the credit underwriting process. And when we consider specific underserved communities, while homeownership rates may be lower, there may be years of rental history.
Beyond the Box:
Not all products are a good fit. Banks and credit unions must sometimes develop products that benefit diverse populations.
At Woods Kovalova Group, we encourage financial institutions to consider alternative methods for developing a solid credit profile for customers other than the time-honored methods they have relied on for years. By relying solely on credit bureau scores, you're missing out on the opportunity to bring in solid customers and on the chance to truly build what could be, in many cases, lifelong customers with whom you can expand into a broader set of products and services.
The homeownership gap is not the only impediment facing underserved segments. It could be a matter of financial education or historical repercussions related to redlining income disparities or appraisal disparities. So it's a complicated situation.
Investments in developing alternative customer data sources have increased, but he is interested in seeing if these small investments grow into much larger ones.
We believe the hope is that as people gain more comfort, they will evolve into more sophisticated, more substantial investments or activities.
Expand Your Base of Customers by Serving the Unbanked and Underbanked
Redesign the System
Woods Kovalova Group proposes a three-pronged approach for fostering a more inclusive corporate culture that benefits both employees and customers.
1. Structure. Before addressing anything else — products or customers — banks and credit unions must establish an inclusive work environment and integrate financial wellness into the employee experience. Davis recommends assembling a resonant team with a diverse range of populations, particularly unserved and underserved. Additionally, it entails assisting employees in achieving their financial objectives, both short- and long-term.
The way things have been turning out cannot continue. The credit unions with which we work only now recognize the importance of employee well-being. They must tailor that experience to provide their employees with a stunning work environment and something that prevents them from burning out and needing to relocate.
Using a Different Logic to Solve a Problem:
Everyone appreciates a pay increase. That, however, is frequently insufficient to keep employees happy and satisfied with their jobs. Consequently, banks and credit unions should also learn to value their employees' mental and physical health.
2. Gifts. After institutions have addressed these issues within their own workforce, they should — and only then — begin expanding their product set to become more inclusive. Davis recommends developing services that are useful to various populations, such as a flexible loan payment schedule or a fee-free savings account.
It's also critical to consider how you market and distribute these products. For example, expanding the number and diversity of channels your institution markets its products can be vital for reaching new audiences.
3. Community on a local and national level. While community and society on a national and international scale may not be as high on your institution's priority list as products and culture, it is still an excellent way to establish a reputation as a diverse bank or credit union. This can occur in a variety of ways, but some of Davis' recommendations include the following:
Direct investments in diversely owned institutions, such as Minority Depository Institutions (MDIs) or Community Development Financial Institutions (CDFIs).
Financial education in the form of webinars to assist underserved communities in developing their financial literacy.
Collaborate with community organizations, fintechs, and other financial service providers to innovate as a unified unit.
Work together on data analytics with providers who can assist your institution in establishing more effective underwriting and risk monitoring systems.
Coordination with regulators to maximize the use of self-assessment metrics and Know Your Customer (KYC) systems through public-private partnerships.