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- Of the nation's 5,000 FDIC-insured banks and credit unions, only 3% cater to or are owned by minorities.
- MDIs haven't kept pace with the broader industry, which has seen deposits boom at the nation's largest banks.
- Disparities in who has access to appropriate banking services extend from race and ethnicity to LGBT status.
- This article is part of a series called "The Cost of Inequity," examining the hurdles that marginalized and disenfranchised groups face across a range of sectors.
Banking customers, unfettered by the traditional physical restraints of branches, have seemingly never had as many options as they do now. In a trend that has only been accelerated by the pandemic, a consumer's decision about where to do their banking is no longer dictated by where they live.
But that doesn't mean all these options, or even the vast majority of them, address the most pervasive and systemic issues that constrict the access of underrepresented groups – particularly Black and brown communities – to capital and banking services.
"Our credit and financial services system has traditionally favored people who have intergenerational wealth," Agatha So, an economist at Latino advocacy organization UnidosUS, told Insider.
According to Federal Deposit Insurance Corp. data, there were slightly more than 5,000 federally insured commercial banks and savings institutions in business at the end of 2020. Just 142 of them, or 3%, were minority depository institutions, or MDIs.
The FDIC defines an MDI as a "federal insured depository institution for which (1) 51 percent or more of the voting stock is owned by minority individuals; or (2) a majority of the board of directors is minority and the community that the institution serves is predominantly minority."
According to Eldar Beiseitov, an economist at the Federal Reserve Bank of St. Louis, asset growth at MDIs over the past year has accelerated. But MDIs haven't kept pace with the broader industry, which has seen deposits boom at the nation's largest banks, according to a report compiled by Beiseitov for Insider.
The trend isn't surprising to Christopher LeFlore, of the grassroots non-profit BankBlack USA.
"We saw that during the Great Recession. It hurt banks, but it hurt Black-owned banks, which closed at a rate far greater than the rest of the financial industry. When you're serving a clientele that is disadvantaged, they're not going to have the same assets and it's going to be a greater challenge, which is what we see when people are trying to bank Black," LeFlore said.
For Black and Latino-owned banks in particular, that gap is all the more stark.
The total asset base of Black-owned banks in the US is about $5.6 billion - roughly equivalent to the amount of assets held at the 220th largest bank in the US. For Latino-owned banks, the number is $129 billion, much of which comes from the assets of the two largest banks in Puerto Rico.
To be sure, there are Black-owned banking options spread throughout the US. Insider recently compiled a list of 32 banks and credit unions - including smaller ones defined as MDIs by the National Credit Union Administration - that can be searched by state.
Startups are also looking to break into the space, rolling out offers specifically catering to underserved communities.
While upstart digital fintechs look to upend traditional finance and partner with banks to reach these groups, not everyone is convinced that online banking is the best solution to bridging the divide.
"Even as more banks are going online and fintechs are offering options through application-based technology, that isn't always meeting the mark for people who are really living very much outside of the mainstream," So said.
A scarcity of branches in underserved communities has pushed consumers instead to alternative financial institutions, like check-cashing facilities.
For her part, So said she'd like to see some standardization and regulation across new fintech offerings so that customers know how they compare to each other and which offerings will serve them best.
"Right now, we're comparing apples, bananas, oranges, plums, and pears," So said.
"I see the best possible outcome would be that the FDIC, the Federal Reserve, and the OCC work together on a unified proposal that really centers the president and this administration's commitment to advancing racial equity," she continued.
A banking service for the LGBT community
Unique communities' need for greater access extends beyond Black and brown banking customers as well.
Daylight, founded just this past year, calls itself the first LGBT-oriented banking service in history. The mission of Daylight, which is currently in early access for customers, is built in large part upon the personal experiences of its founders, Rob Curtis and Billie Simmons, and a perspective of data that illustrates the difficulties the LGBT community faces in banking and finance.
"There are, in our opinion, very few financial metrics in our lives that don't have a heavily deterministic element of it that comes down to our LGBT or gender or sexual orientation," Rob Curtis, the CEO of Daylight, told Insider.
Those financial problems can be wide-reaching.
According to one 2019 WNYC survey commissioned alongside Morning Consult, for example, "35% of queer folks say they could rely on family and friends for financial support before coming out, but only 20% say they could rely on family or friends for support after coming out."
College-debt levels, chiefly a function of familial wealth, are vastly higher for LGBT people as a result.
And those who identify as LGBT can face higher health costs - such as the cost of surrogacy that is out of reach for all but the wealthiest of LGBT parents - that constrain their ability to save.
All that is to say that, according to Curtis, the solutions that build wealth within the LGBT community will revolve around more than the most simple of banking services.
"We're using behavioral science, social networking, and community building in order to help our community solve its financial problems," Curtis said.