Fintechs are the New Community Banks
Fintechs across the world are challenging community banks by offering targeted products to niche demographics. While not banks themselves, they provide a suite of services that run the gamut of lending, savings accounts, and financial advice. Many engage in customer segmentation in order to better serve the needs of specific communities with personalized consumer banking experiences.
These targeted products are ideally suited for new or underbanked demographics. Legacy financial offerings are often unable to customize their approach, which makes it challenging to appeal to the diverse needs of the wider community.
Proactive, tailored fintech programs can allow for underrepresented communities to access the capital and resources they need to succeed.
All over the world, fintechs have risen to the challenge of providing personalized products to underrepresented demographics.
Cheese is a Chinese-American fintech that allows its users to earn 10% cash back at over 10,000 stores and Asian-owned businesses and restaurants. Aimed primarily at serving the Asian-American community, Cheese offers its services in its multi-language platform. When it launched its digital banking platform in March 2021, its founders pledged $100,000 USD to the Cheese Giveback Fund, all of which was donated to nonprofits in support of Asian businesses and neighborhoods negatively impacted during the COVID-19 pandemic.
Typically, it’s challenging and expensive to change the names on banking accounts and cards, a process which nearly always requires a letter from a doctor, judge or notary. This is a significant hurdle that prevents many LGBTQ+ individuals from financial inclusion. Enter New York-based Daylight, which describes itself as the first LGBTQ+ digital banking platform in the United States. Regardless of the name on their ID, Daylight’s customers can create accounts with their chosen names. Founded by Rob Curtis and Billie Simmons, it was informed by their experiences as members of the LGBTQ+ community. As Simmons told Fast Company, “We had established ourselves in our various careers by downplaying those aspects of our identity. What we quickly realized was that actually, this is our competitive advantage.”
Racial justice and truth and reconciliation movements in Canada have driven an increase in targeted programming and investments, as well as startups dedicated to social equity.
Financial services platform, MICC, is a P2P credit building and group savings service that is used by a large proportion of immigrant workers. CEO and Co-Founder of the service, Jonah Chininga, is passionate about helping underrepresented people build their credit profile. In an interview with the CLA, he states, “I saw the need for new immigrants to establish a credit identity while avoiding high-interest debt. This is why Micc has digitized the informal rotational savings model to provide new immigrants with a unique option to save and borrow.”
Benefi enables employer-supported financial services including financial literacy, savings and lending to individuals that do not have access to traditional banking. On the issue of employee turnover, Founder and CEO of Benefi, Patrick Dunn, states: “indebtedness has quickly become an employer issue; poor financial wellness can have an impact on employee performance.” Furthermore, “in the current age of ‘turnover tsunami’, the demand for solutions to attract, retain, and engage talent is high,” says Dunn. Benefi helps employees keep more of their money, which ultimately impacts bottom-line metrics that companies care about.
The list goes on and on: Fintech lender QuadFi uses machine learning technology and data to offer personal loans with fair rates targeted at students and immigrants. Another company, Moves, lends to gig workers that require real time access to credit. Both of these companies serve the underbanked, many of whom would otherwise be overlooked by incumbents. Financial services of the future will offer tailor-made products and services that meet the needs of all members of society. This not only helps meet the needs of the credit invisible, but is a big opportunity for alternative lenders to capitalize on an untapped market.
The Key to Growth
Embedded finance and embedded tech are going to elevate community fintechs from the supporting to the starring role in the financial services landscape. For example, a community fintech focused on the LGBT+ community might launch, acquire, or partner with a queer-owned clothing subscription service.
From a technology standpoint, fintechs are often better positioned to integrate with partners and provide a full suite of online services, but should consider partnerships and embedded tech to retain a competitive advantage.
Although community fintechs may have limited addressable markets, network effects can lead to low customer acquisition costs. Furthermore, community alignment and affinity of members will increase loyalty and the potential for longer-term customers.