Socially-focused neobanks are filling crucial gaps
New banks are recreating a sense of community for our digital age.
In 2014, Revolut introduced its rainbow charge card to demonstrate solidarity with LGBT+ communities all over the world. A rainbow card might be a nice gesture, but in 2021 it pales in comparison to the socially-focused offerings on the market. Socially-minded banks are on the rise. A growing number of neobanks are being built for the needs of specific communities.
In the U.S., Greenwood is a bank designed for the Black and Latinx communities. Their name, Greenwood, is a reference to the Greenwood district, which was the home of Black Wall Street in Tulsa, Oklahoma, early in the 20th century. The African American community has notoriously been ignored by the financial system. For decades, Black people have been locked out of financial services that are so critical to everyday life and building wealth over time. This has contributed to the enormous racial wealth gap that exists in the United States.
Greenwood hopes to promote more circulation of money among these communities, instead of letting those dollars escape to other areas, never to return again. Beyond a suite of tools making banking easier, the bank also donates to non-profits such as the King Center and NAACP, as well as giving $10,000 every month to a Black or Latinx business.
For LGBT+ people, there is now Daylight, a bank dedicated to the queer community. With purposeful services and a safe space for money, the bank is creating an offering that will be tailored to the specific needs of the community. There are also organizations like Superbia that are improving access and equality in financial services. The Superbia Credit Union is offering loans specifically for transitioning costs, a need that is often neglected by traditional financial institutions.
Ultimately, these types of neobanks are part of the broader financial inclusion movement that is underway in the industry. Underbanked populations are denied critical financial services and are often forced to turn to predatory services like payday lenders. LGBT+ people face more obstacles than their straight counterparts in accessing the same services. The financial system still locks out too many people.
Socially-focused banks are built around the idea of community banking. In the past, banks were central pillars of communities. They were local, with tellers and advisors maintaining personal relationships with their clients. With deeper ties to its customers, banks could be more responsive to their needs. When clients are your neighbors, engagement isn’t an aspirational goal, but a foundational element of the business.
As banking has become digitized and globalized, it has also become sanitized. People are using banking apps that were designed in different countries and are deployed across the globe. No one has a personal banker. People only interact with their banks via chatting with a customer service representative or a chat bot! While digital-only banks go considerable lengths to deliver a top-notch customer experience, by virtue of their design, they can be devoid of the type of human touch that exemplified community banking of the past.
With everyone banking from their phone, the challenge becomes cultivating a digital product with a certain community at its core. What banks like Greenwood and Daylight are doing is recreating a sense of community banking for our digital age. Different communities have different needs. More importantly, different communities face different challenges. A 2019 study found that same-sex borrowers were 73% more likely to be denied a mortgage. In African-American communities, banks require a higher minimum balance than they do in white neighborhoods: $871 compared to $626.
The list of challenges facing these communities is long. But a bank that is more in touch with the specific needs of its communities will be a better bank. It will have the double effect of recreating a sense of community, now digitally-based, while also being more responsive to that community. And in turn, empowering people and reducing inequality in society.
“For me, these neobanks express a need for banks with different values. It’s difficult to say whether they will succeed, but they will surely make traditional banks, who often only think about profits, examine their own offerings and business models,” said Efma’s Boris Plantier.
We have come a long way since Revolut introduced their rainbow charge cards to the market. While financial inclusion efforts are being broadened to meet the needs of more people, they are simultaneously becoming more targeted to create a greater sense of community. Socially-focused, values-based banking is here to stay.