Federal Reserve examines racial equity challenges within fintech

Prior to the COVID-19 outbreak and made more urgent by its financial impact on low-income households and households of color, the Federal Reserve Bank of San Francisco’s Fintech Team and the Aspen Institute’s Financial Security Program has been exploring how the greater racial equity goals in financial systems intersects with the growing field of digital financial technology, or fintech. The Fed’s August issue of Community Development Innovation Review examines gaps in the financial system and consider ways to address them, looking at the ways elements of fintech either promote or hinder equity and inclusion. It comes at a time when the growing field of fintech is garnering even more attention from investors and established financial institutions. PitchBook’s newly released Emerging Tech Indicator report revealed that fintech was the largest area of VC activity in Q2 this year, with $920 million invested across 29 deals among startups receiving seed and early-stage investments from a select group of top-performing venture capital firms.

 The essays curated in the Fed publication present authors representing a diverse set of experiences and perspectives toward fintech and equity, inclusion, and community development. Together, the collection asks “important questions about what systems must be in place to ensure [fintech] innovations truly move the needle on racial equity and do not inadvertently leave people of color further behind.”

The publication is intended for fintech leaders, investors and those working to move fintech innovation to market; the introduction notes by creating the collection the Fed hopes “… these perspectives illuminate the broader ecosystem affected by their work and the societal challenges that should serve both as goals and cautionary tales as they try to live up to the promise of fintech.” It is meant to show the promise that fintech may hold to some historic exclusions that have been prevalent in the economy, while also cautioning about the risk of deepening existing inequities if fintech solutions are not implemented carefully.

The chapters explore topics such as the racialized roots of financial exclusion; fundamentals of an inclusive financial system; why mission-minded fintechs may be key to closing the savings gap; how CDFI and fintech partnership could provide an avenue for equitably distributed small- business capital; and more.