2020 has changed everything. The pandemic has exacerbated serious social and financial issues and shed light on challenges facing so many of this world’s citizens.
The personal stories of those experiencing financial hardship are heartbreaking, and the vast numbers of impacted individuals is staggering. More than 22 million Americans lost their job due to the lockdown. One-quarter of Americans were unbanked or underbanked last year, with millions more left out of the global banking system worldwide. This year has also exposed long-term, systemic inequities that impact all aspects of life for many.
Financial institutions and their fintech partners have a responsibility to redefine finance for good and take action to empower better outcomes for society as a whole. Now is the time for action. Businesses – and especially financial institutions – need to take an active role in building a better, more equitable world.
How do financial institutions get started redefining finance for good? Let’s consider three areas and explore how technology and finance can converge to create positive, impactful change.
Confronting bias in artificial intelligence
As technology opens new opportunities, financial institutions and their technology partners need to take care to promote equality and support marginalized groups within their own operations. Artificial intelligence (AI) has generated significant excitement and discussion as a source of opportunity for the industry. However, AI is only as ‘intelligent’ as the data it is built on. More specifically, AI systems learn to make decisions based on training data, which can include biased human decisions or reflect historical or social inequities – even if sensitive variables such as gender, race, or sexual orientation are removed.
A 2019 LendingTree report found that among the nearly 1 in 10 borrowers who are denied a mortgage, African American borrowers had the highest denial rates at 17.4%, in contrast to non-Hispanic white Americans having the lowest denial rate of 7.9%. Financial institutions and fintechs need to focus not just on improving efficiency, but on identifying and eradicating biases from algorithms and AI systems. In order to do this, both entities must invest in projects, provide more data, and take a multi-disciplinary approach in bias research to continue advancing this field. Additionally, transparency around algorithms’ confidence in their recommendations is necessary in order to give humans context for the degree of bias that may be present.
Investing in a more equitable world
Diversity and inclusion efforts are top of mind as financial services firms look to hire and retain the best talent across their organization and within leadership. However, to truly achieve a diverse and inclusive workforce, will require some significant changes and investments in culture, talent development, and succession planning. Financial firms can lean into today’s remote workforce to advance good by seeking more diversity from a wide candidate pool and fostering a more inclusive culture, through recruitment and retention tactics.
At the same time, we must continue to invest in youth, our future leaders, and help prepare them for a future where both technology and financial services play key roles in their lives and communities. Companies can push forward this agenda by partnering with organizations like Hour of Code and work with children directly on delivering computer science and coding skills. Finastra has connected more than 15,000 kids to coding skills around the world through our partnership with Hour of Code. In times of unprecedented changes, embracing the people and communities around us paves way for further collaboration and opportunity to enhance solutions for others.
Supporting small and family-owned businesses
Around the world and especially in the United States, small and medium-sized enterprises (SMEs) provide the foundation for local economies and serve the livelihoods of their local communities. When these institutions thrive, the entire community benefits. Both locally and globally, it isn’t just financial institutions that impact the financial lives of their local populations. Increasingly technology — used either by the local citizens or by the financial institution – plays a critical role in empowering small businesses, community banks and credit unions to succeed in an increasingly digital economy.
When COVID-19 struck, small businesses who rely on local patronage from their communities were the hardest hit. The U.S. government’s Small Business Administration implemented the CARES Act and
Paycheck Protection Program (PPP) to extend loans to SMEs in need. To help financial institutions support small businesses through PPP loans fintech companies, including Finastra, quickly adapted their lending platforms to accelerate the preparation and processing of PPP loan applications.
Globally, small businesses in developing countries are also suffering and struggling to access financial support. In light of this reality, projects such as Finastra’s collaboration with Mastercard, Asian Development Bank and N-Frnds to provide an estimated 5,000 SMEs access to funding, and a revolutionary microfinance initiative, Trust Machine, can make a real and long-lasting impact. The Trust Machine project, being piloted in Kenya, brings together partners in data, financial literacy, blockchain and scenario modelling, to reduce the costs of small loans for small businesses. The program aims to reduce the country’s funding gap by 1%, and create a potential 50,000 new jobs, as well as to fuel sustainable economic growth.
Finance for good
COVID-19 created an unprecedented set of challenges for the global financial community – but it is far from the only obstacle the industry must overcome to move forward. Collaboration between financial institutions and technology companies is crucial. As these organizations work together to enrich their own enterprises, they must also be held accountable for improving their communities and the world around them.
As the world continues to wrestle with COVID-19 and a host of other challenges, financial institutions and technology companies have a responsibility to invest in people and future generations and collaborate on solutions that deliver better outcomes to individuals, small businesses and communities. Now is the time for banks, fintechs and other players in the global financial services ecosystem to hold one another accountable for leveraging their resources in service of the greater good.
This column does not necessarily reflect the opinion of FinLedger’s editorial department and its owners.
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