Supporting Financial Inclusion in the Fintech Space

Published by: Jose Ortiz

September 7, 2022 | CUNA Mutual Group

Building a bridge between inclusive fintechs and inclusive credit unions

By: Elizabeth McCluskey, Director; CMFG Ventures

What percentage of venture capital (VC) funding goes to Black, Latinx and female entrepreneurs?

If you guessed somewhere near each group’s share of the population, that would be roughly 13% for Black people, 19% for Latinx and 51% for women (as per the 2020 US Census). Sadly, those figures bear little relation to actual funding rates.

According to Crunchbase and Bloomberg, Black and Latinx founders accounted for 2.4% of VC funding (from 2015-2020) while women accounted for only 2% (in 2021, the smallest share since 2016).

 

Plenty of ways to fund inclusive innovation

Why the disparity? It’s certainly not for lack of opportunities.

According to Fundera, 40% of US businesses are women-owned (and 64% of these were started by women of color). Additionally, research from University of South California Santa Cruz found the number of Black and Latinx business owners in 2021 was higher than pre-pandemic.

Exclusion is bad for everyone

Not being able to access venture capital funding can be devastating to entrepreneurs, but they are not the only ones missing out. According to a 2019 report from Morgan Stanley, the VC industry might be leaving a trillion-dollar opportunity on the table by not investing in diverse founders. And think of the consumers who could have benefited from the products or services these companies hoped to provide.

Inclusion is the right thing to do…

Funding diverse fintech entrepreneurs allows the Discovery Fund, an arm of CUNA Mutual Financial Group, dedicated to supporting diverse entrepreneurs developing fintech solutions, to uncover products that help credit unions meet the needs of an increasingly diverse member population. This is especially important now that 61% of all new credit union membership growth comes from multicultural consumers.

…and it makes sense financially too

There’s ample evidence to show the financial benefits of focusing on diversity, equity, and inclusion (DEI).

A 2021 DEI research report from Filene Research Institute found credit unions that have DEI related to and supportive of their strategic goals realized performance gains versus peers.

There are Fintechs committed to financial inclusion

To date the Discovery Fund has made fourteen investments in promising entrepreneurs committed to financial inclusion. Here are a few highlights:

Home Lending Pal: An AI-Powered mortgage advisor and blockchain-based marketplace that addresses the needs of first-time buyers, especially people of color.

Key stats: 3.1 million Black Americans and 4.8 million Latinos are qualified but not buying homes; Black Americans are turned down for home loans at higher rates than any other race or ethnicity (16% vs. 6.1% for non-Hispanic White Americans).

Use case: This software allows lenders to access the borrower’s financial information without revealing their race, gender, or age – essentially removing the possibility for upfront discrimination. It also helps borrowers find mortgage options and assists them in assessing their financial ability to take out a loan. This tool could be especially valuable for minority and millennial consumers who often face challenges getting a mortgage.

Listo: An AI fintech platform that provides more inclusive access to affordable financial services for Latino consumers.

Key stats: The US Latino market represents $2.7 Trillion of US GDP and is growing 57% faster than U.S. GDP.

Use case: Allows credit unions to offer auto loans and insurance products to new members. Listo uses data and technology to democratize fair access and help underserved (underbanked) people who are credit worthy but have been overlooked by mainstream institutions and are exploited by predatory financial service providers as a result.

Zirtue: A relationship-based lending and alternative bill pay application that simplifies—and protects—loans between friends and family with automatic monthly loan payments.

Key stats: More than $200 billion is borrowed annually from friends and family.

Use case: Recognizing how many people rely on friends and family for short term loans to pay their bills, Zirtue has created a platform whereby the lender (friend or family member) pays money directly to the creditor owed (e.g., medical, insurance, car payment, utility bill, etc.) that would have otherwise become bad debt for the borrower. The borrowed money is automatically deducted from the borrower’s bank account to repay the loan under the terms decided between the lender and borrower.

We are still a long way from true VC inclusion—but we hope these investments inspire others to follow our lead.

Contact Jose Ortiz for questions or assistance.

Jose Ortiz
Jose Ortiz Sr. Business Solutions Manager E: jortiz@ohiocul.org
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