The Business Case for Financial Inclusion in Banking

Jim Marous:
Hello, and welcome to Banking Transformed. I'm your host, Jim Marous, owner and CEO of the Digital Bank Report and co-publisher of The Financial Brand. Recent events have put a spotlight in the urgent need for financial institutions to advance financial inclusion initiatives. Beyond responding to recent regulatory developments to provide economic opportunities to underserved and unserved sectors. There's also a strong business case for banks and credit unions to align purpose and profits. That said, is the banking industry doing more than simply talking about meeting the needs of the unserved market? We are joined the Banking Transformed podcast by Courtney Davis, banking principle at Deloitte. We discussed the strategic business imperatives that serve the greater good through financial inclusion and the progress being made by the banking industry.

Jim Marous:
The Global Findex Database shows that 1.7 billion adults worldwide are unbanked, meaning they do not participate in any basic financial projects or services. In the United States more than 30 million households are considered unbanked, or underbanked, having limited access to financial products and services. Given the availability of greater data insights in lower cost of delivery, range of opportunities exist for financial service providers to force for change. Before we begin our discussion with Courtney, can you share a little bit about yourself and your role at Deloitte?

Courtney Davis:
Sure thing, Jim, and thanks again for having me and giving me the opportunity to talk about this really important topic. I began my career in industry JPMorgan, and since beginning at Deloitte, I've really been focused on serving banking clients across a number of areas, regulatory reform, risk management, and capital management. And I'm also excited and proud to lead our firm's initiative on financial inclusion, which is our topic of discussion today.

Jim Marous:
It's interesting, at a time when the world pretty much shut down because of health concerns, consumers also become much more vocal and aware of their belief that corporations should be more active in environmental and social issues. Deloitte has written quite a bit lately on the need for financial institutions to step up to the plate to address these needs. You also presented a financial inclusion framework to outline the drivers of this change. Can you describe a little bit about this framework?

Courtney Davis:
Sure thing. And so we developed this financial inclusion framework really to help facilitate discussions with institutions about how they can drive change and increase adoption of products and services to these unserved and underserved markets. And we've really oriented around four different pillars. And so the first is what we describe as organization, and that's really an inward looking view. And you can think about that as being really analogous to what might be typical DEI type of initiatives, but really with the orientation of what is going to move the needle in terms of how you're showing up and resonating in some of these communities. So you can think about the representation of your Salesforce, for instance, what type of training that they're getting. The second item is around offerings, and that's really the products and services themselves, but not just from a design perspective, but also how are they being distributed? How are they being marketed? What are some of the images and messages that are coming through those channels and how are they resonating with the communities that you're trying to target?

Courtney Davis:
The third area of the framework is around community. And that by far is really how are you showing up in the communities that you're hiring talent from, that you are investing in, that you're trying to serve? And that could be everything from how are you engaging with not-for-profits, around driving financial literacy, to what are you doing around local business credit financing. And then the last piece, which in many ways is where a lot of the opportunity is, is around ecosystems. That's the last component of the framework. And that's really, how are you tapping into third party networks? And whether that be alternative data providers to allow you to think differently about credit underwriting, or fintechs that are really doing a lot around driving scale with younger and more diverse market segments.

Jim Marous:
It's interesting because Deloitte completed a survey of finance institution executives on this topic. To what extent are financial institutions actually devoting resources to promote financial inclusion, providing access to affordable products and services for a much broader marketplace than has been covered in the past?

Courtney Davis:
Yeah, it's interesting because as part of the survey about three and four respondents consider financial to really be a core pillar of their strategy and what they want to achieve in the marketplace. And we categorized institutions really into four buckets, as we think about their level of maturity. Aspirers, those are organizations that have not really started yet on the financial inclusion journey. Developers are those that are really in the initial phases, either having only recently launched their strategies, or have launched them and are starting to get traction. And then we've got forerunners that are starting to see some progress, meaning they've had inclusion strategies and initiatives in place for a while, and they're starting to see the fruits of some of the labor. And then lastly, achievers who have stated through the survey at least that they have accomplished all of the goals that they set out to achieve.

Courtney Davis:
And what was heartening, I think to the question that you're asking, is that only 4% of the respondents fell into that least mature bucket that we referred to as an aspirer. So, at least based on what we're seeing from the survey, it seems that there's been a lot of focus and effort put on this area. And I'd imagine this is the first year that we've done the survey, but I'd imagine if we were to go back in time and do this 10 years ago, the responses would be quite a bit different. And I think a lot of this not surprisingly has to do with the events of the last year and a half, two years, and the focus on social justice and that shed a light on multiple areas, including health equity, financial equity.

Courtney Davis:
So what we have now is a lot of energy and engagement coming from multiple angles. And I say multiple angles because it's not only internal, it's external. From an external perspective we've got regulators paying a lot of attention to this topic, and really leaning in certain areas from an enforcement perspective. We've got a new administration that has clearly signaled that this is an area focus. We've got the public and customers that are voting with their dollars, and looking for institutions that are playing a certain role from a social and corporate responsibility perspective. And likewise, internally you have employees that are applying pressure as well to ensure that where they're spending their time and effort is someplace that they feel aligns with their purpose. And if we think about more broadly what's happening in the industry, and we've all heard the term the great resignation, that angle has become more critical than ever that institutions are being appropriately responsive to some of these pressures.

Jim Marous:
As you mentioned, more than three in four of your respondents considered financial inclusion to be a core pillar of their corporate social responsibility, with also the same percentage of organizations saying that they have a clear vision and action plan to advance their financial inclusion agenda. Isn't there a possibility that organizations answer these things affirmatively just like they state that consumer experience is a primary objective yet never really completely commit to this agenda, and where measurement is so difficult?

Courtney Davis:
Yeah, that's an interesting question, Jim. And I'm not so sure convinced that the financial commitment is the challenge per se, as much as the need for a more cohesive and integrated strategy, which would feed into a more optimal approach to execution. One thing that's clear as we've stepped through this survey and engaged various institutions across the industry, is that the approaches and the operating model around what we term as financial inclusion varies significantly. The level of top-down centralization in terms of governance and oversight, how well coordinated efforts are across the institution, there's a wide spectrum of what we've seen. I would say that if you look at the commitments and a lot of the activities, in many cases those have been significant, whether it's the billions of financial commitments, the standup of new business units, or functions really focused on driving diversity across how they're approaching the market from a business segmentation point of view, as well as what we've seen as many specific leadership appointments that are tasked with focusing on justice problem.

Courtney Davis:
But the challenge really is a tricky one. If we think about something like the home ownership gap, for instance, that's not a silver bullet solution where you're going to find one thing that is going to close the gap, for instance, between certain unserved, underserved segments in terms of home ownership, with your average American, that could be an issue of financial education, historical issues around things like redlining, income disparities, appraisal disparities, it's a complex issue. And so what we've seen is as many cases institutions can address some things and be in the driver's seat in certain areas, and other areas where they're going to find success is through convening and collaborating either with some of their peers, or other industry participants in a broader ecosystem.

Jim Marous:
Yeah. And your research found when organizations ranked some of the things they're doing, it showed that institutions at all levels of the maturity phase put the greatest emphasis on improving the financial wellbeing of their employees. This makes sense, obviously, since the employees, if they're dealing with stress are not nearly as productive at work and can't accomplish what you want them to accomplish, but it tends to be a little bit self-serving, especially when serving the underserved and unserved got less attention. Do you see this being just a starting point then in that organizations, yes it makes sense that they serve their employees, but they're looking for more ways to serve the outside marketplace as well?

Courtney Davis:
Yeah, I think that's right, Jim, I think what you're describing is the instance of, it's often easiest to address what's closest at hand. And in many cases that will be the easiest to measure success by as well. But I think what you're seeing when you look at institutions is that they often, and I'll go back to the framework I mentioned earlier, they are often working across multiple pillars. The extent to which they are leaning into a given pillar is going to vary significantly from institution to institution, but they're often trying to tackle this in multiple ways. And so I think the hope generally is that there's an evolution into more sophisticated, more substantial investments or activities as they continue to get more comfortable and build out some of that muscle memory.

Courtney Davis:
And I think part of the question, as we talk about maybe some of these early activities, is how do you leverage those learnings? How do you leverage some of those quick hit wins to really drive greater areas of success, really understand what resonates, where you're seeing the learnings, what do the segments that you're trying to target, what do they value? And how do you leverage those learnings to be able to enable more effective product design, or create brand ambassadors in your employees? And do that all in a way that leverages data and analytics to really drive some interesting insights.

Jim Marous:
It's interesting, you bring up the fact that there's a lot more emphasis on the need to work on financial inclusion and diversity and all those things. And as an industry, we tended for a long time to simply check off the boxes. We have the employees have a pain in the house day, or some organizations put a new office of, maybe a community office in a area of lower income. And we look like we're getting beyond simply the checkbox responses, or writing a check, which has been the bank's traditional way of saying, okay, we did that, let's get that off the list of things we need to do. What are some of the more exciting, or specific examples you've seen from finance institutions with regard to reaching the underserved community, and doing some very interesting things that are a little bit out of the box from what you would've seen three, four, five years ago?

Courtney Davis:
Yeah, it's interesting. I think in particular, one thing that I've been really excited about personally is a lot of the engagement that I've seen with some of, especially some of the larger institutions of engaging minority depository institutions and across a number of different fronts, whether that be working with them to figure out ways to, for instance, remove out of network fees at ATMs for customers, as well as trying to help them from a technical assistance point of view, and whether that's providing training, or helping them with talent development, or driving operational efficiencies, to be able to partner with them in different ways to drive more products and services into some of those local communities where some of these institutions really are the primary driver, or initial line in terms of some of those local folks that really do need to figure out ways to expand the products and services that they're taking advantage of.

Jim Marous:
It's interesting, we also have to look beyond just the individual consumer, because we're also talking about the underserved and unserved small business. A lot of small businesses were shut down during the pandemic, but a lot of them are now coming back with some real unique challenges and ways to make an impact in the community. And it really, as you said, it really starts from grassroots efforts and ways to get involved, be it a big financial institution or a little financial institution. What are some of the most common challenges you've seen in prioritizing financial inclusion? How can organizations do better at addressing this challenge?

Courtney Davis:
Yeah, that's a great question. I think I touched on this previously, but I think an integrated strategy and approach to execution is really key here, because if I think about some of the events that we've had from a Deloitte perspective, and the conversations that we've had on this topic, as you go from institution to institution, the functions that are represented and that have a stake in what we describe as financial inclusion, that have a role to play, especially at your medium size larger institutions, it's a broad list of functions, risk, compliance, strategy, ESG, and others. The question is, as we think about the entire life cycle of engaging with customers, everything from prospecting to underwriting, to ongoing monitoring, just everything from when a customer gets in the door to when they leave, how do you integrate your strategy approaches and initiatives around financial inclusion so that they're working together? Because often what we're seeing is that there are silos across these efforts and these various functions that I just mentioned, where what's happening is institutions really aren't getting the full value of the effort and the commitments that they're making.

Courtney Davis:
There's a lot more upside there in terms of being able to drive more successful, better outcomes with respect to increasing the adoption of product and services. So, that's one thing, just having a more integrated coherent, cohesive strategy. Another area I think is around data. So as we think about what's the right product for the right customer, we've got that age old problem that many financial institutions and banking and specifically face of, how do you leverage data as an asset? And if we think specifically in the context of financial inclusion, as with many other problems that these institutions have, I don't think they are short on data. The challenge is, how do you leverage that data? Whether it's data that's coming through engagement with a local community, data that is coming through the compliance channel, how do you bring all of this together to enable you to create better insights, to drive greater levels of outcomes, with respect to what you're doing from an inclusion perspective?

Courtney Davis:
And then another one that I would bring up is around building trust. And this is tricky, because there are a lot of historical things to unpack here, but when we talk about getting people into the door, and we talk about driving change with unserved and underserved market segments, trust is critical. And like I said, there's a lot to unpack there, but so much of the work that needs to be done around showing up in an authentic way, in a way that resonates with some of these communities, so that you're able to really drive greater levels of adoption, it starts with trust, and a big part of that relates to that community pillar, if you think about those four pillars, really being able to show up in a local way and build some relationships locally that will then translate into hopefully driving additional customers and share in some of those local communities.

Jim Marous:
It's interesting, all the elements you really mentioned fall into eventually that trust factor, if you do the other things right, the trust factor, while it may take a while, because we have a historical biased working against us, it really works better for us. And it's interesting, I spent some time in Shenzhen, China, at the beginning of 2020, seems like eons ago, but one of the things that was very evident was the use of data and alternative sources of data really played well into the whole financial inclusion area, where organizations learned how to use data from mobile devices, how you used the mobile device, looked at rent payments, looked like at apartment payments and utilities. They looked at alternative sources that financial institutions traditionally didn't look at, we looked at credit bureaus. And what's interesting is financial inclusion then becomes possible with good data, especially in a digital marketplace that the cost of delivery is so much lower, and actually the demands of this audience, this segment, this relatively big segment, is less. So there's really openings for opportunity there, aren't there?

Courtney Davis:
I would agree. And you bring up something interesting, just the use of data allows for a level of customization and segmentation that's impossible without it. And when we talk about unserved and underserved markets, it's not a monolithic homogeneous group. There are a lot of different stories that are in these groups, sub-segments, if we want to use that term. And being able to understand that as well as leverage data to make sure that you're tailoring your solutions in a way that they will be able to resonate and be adopted is really critical.

Jim Marous:
What's interesting is the listening skills become important. I remember at the beginning of the pandemic, there was a lot of people that took forego in their mortgage payments. Now what's interesting about that is there's two very distinct different groups that did that. One group are actually trying to make ends meet and make it so they can put food on the table, the other group let go of their mortgage payments and delayed them in order to build up a better savings plan, because there was so much doubt in the future. And that's why savings rate skyrocketed, people stopped some of their payment, because they were allowed to without getting a penalty, and put that money towards savings. Those are, as you mentioned, vastly different markets, and we have to listen because there's no obvious way of saying where did this person fall into without either insulting somebody or mistargeting them. So let's take a short break here and recognize the sponsors of this podcast.

Jim Marous:
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Jim Marous:
Welcome back to Banking Transform. So I'm joined today by Courtney Davis, banking principle at Deloitte. We're having a discussion about the importance of building a comprehensive plan for addressing financial inclusion and the progress that's been made on this imperative. So Courtney, in your research, deploying financial literacy programs were the third most prioritized way financial institutions are serving lower segments of the population, but it was noted less often by the firms that were considered the most inclusion mature. Shouldn't financial literacy be a cornerstone of every financial institution?

Courtney Davis:
Absolutely. And I think at the end of the day, it's foundational, and whether it be to level the playing field to make sure that everyone understands the nature of the products that you're offering, or understands broadly how they fit within goals of building wealth and driving financial health, it's really critical. It goes back a little bit to what we were talking about before, or even something like driving literacy can be tricky, because you have to meet people where they are. And whether that be access to digital, whether it be educational disparities, whether it be cultural differences, there needs to be the notion of meeting people where they are and using that, the goal of listening to help drive your approaches to literacy, because a cookie cutter approach to enabling this is not going to get it done. So I still think there's work to be done here in terms of how institutions think about enabling financial literacy and financial education, and banking it into the life cycle of how they engage with customers, and also how it scales.

Courtney Davis:
And this is one area where I think there's a big opportunity for institutions to think about collaborating, or convening with peers and other market participants to drive scale and to drive to what I'll describe as best practices and ideal outcomes here.

Jim Marous:
It's interesting because you talk about the third parties, and the research that you did it showed that surprisingly organizations weren't partnering with third party providers as much as I would've thought they would, mainly because you look at financial literacy, there's a lot of great programs out there rather than having to build them yourself that have addressed this solution. A lot of organizations have found ways to make revenue as well as having serve the purpose of banking through fintechs and even big tech firms. The solution providers out there that are trying to find those niches in serving the underserved. But it was interesting that in the research that I mentioned that there was less of that than I thought, isn't this where a great opportunity really lies with regard to making those the next leap means of maturity of financial inclusion?

Courtney Davis:
Yeah, no, I think that's absolutely right. And I think probably the reasons why there hasn't been more traction in this area probably varies a bit from institution to institution, for larger institutions there will often be challenges in terms of some of the internal hurdles that need to be jumped over in order to engage with third parties in a way that is meaningful and involves access to client data. And then many of these large institutions are struggling with data infrastructure and systems architecture that can be challenging to navigate and stitch together in a way that's going to yield all the benefits that they would like from engaging with some of these parties, but I completely agree, I think if we think about alternative data as an example, there's a big opportunity to, for instance, leverage alternative data within the credit underwriting process.

Courtney Davis:
And if we think about certain underserved communities, where as an example, maybe the home ownership rates are lower, but there could be a strong instance of years and years of rental history. And so the question is, how do you bring in that rental history, which is indicative of a strong credit profile into your underwriting process? And if you're solely relying on bureau scores and other more typical traditional measures, you're missing the opportunity to get folks in the door that are going to be a solid customers, and you're missing the opportunity to really build what could be any cases lifelong customers that you can expand into a broader set of products and services.

Jim Marous:
It's interesting, is it really also gets down to how we fix the back office? We talk in the normal sense around the way to make digital better is to fix the back office and make it so its faster, and it's easier, and you show empathy in the process. And really rebuilding that back office also helps serve the underserved, because you really have to look at credit differently. You have to look at what you ask on an application differently. You have to realize that, as you said, if a customer, now it used to drive me nuts, my wife was in banking where a customer would come in and say, yeah, I don't have any credit, but I've been a customer here for 15 years. Don't I get anything for that? Yeah, they should. And we're understanding this better on what the risk and reward is.

Jim Marous:
One interesting aspect, and we've talked about listening a couple times in this podcast, is that your research also found that the priorities of financial institutions in serving the needs of the underserved were actually pretty misaligned with what the underbanked consumers stated they wanted from the financial institution. Can you explain how this happens, and what the research showed?

Courtney Davis:
Yeah. And it's interesting, I think it can be boiled down to there not being enough of an outside driven view. And so the question is, whether you're talking about research, whether you're talking about product design, whether you're talking about how things are being rolled out and distributed, how are you bringing in the community's view, and those that you are trying to serve? And many times, I think, and whether it's because of the silo view that I mentioned earlier, or a lack of representation perhaps in terms of the folks making decisions, and that are engaged in some of these processes, I think a lot of institutions are missing the mark here. And I think simply by taking a step back and asking the question of, have we solicited enough feedback, enough input? Are we engaged enough in ways that matter with the communities that we're trying to serve to know that what we are coming up with and what we're implementing is going to resonate and gain traction? I think simply asking those questions in each step in the process will go a long way to driving better outcomes here.

Jim Marous:
It's interesting because it's getting close to the audience you're trying to serve, and the reality is people that work in the bank are not the audience we're trying to talk about in many cases, in some cases they are, but they're, as you get up higher in the organization and people that make the decisions, they tend to have their own biases. We have this in banking in many ways. We've had it with diversity and inclusion within the banking ranks, you think about who usually runs the larger banks and they tend not to be minorities, they tend not to be females in, at least in the past, it's getting better, but it's also not the underserved. And so, again, the listing skills, the ability to engage a community and getting back to something you said before our break, that builds trust, honestly in any real relationship, be it a, my wife and I, or anything else, trust is built through good listening skills and then deploying against those.

Jim Marous:
And nobody's asking for the world, and I think having our own biases and having our own, and Lord knows there's a lot of biases out there today on every front, but, again, if you get out in the community, if you walk the streets, that's going to help organizations of all sides. And one thing that's interesting about the whole inclusion thing is the size of the organization doesn't matter, dynamic can be done and progress can be made by organizations of all sizes, having a big impact in, before we had the podcast we talked about the fact that data and analytics allows, and digital delivery, allows organizations to go outside their traditional footprint to serve the needs of people that they wouldn't have normally served, everybody's looking for growth, and this is one of the areas that growth can be had.

Jim Marous:
So finally, Courtney, you're a great example, and Deloitte's a great example. This is a relatively new area of Deloitte from the standpoint of a formal place on their website to address these needs. And it's getting more and more attention. It got my attention, I wrote an article about it in The Financial Brand, and it really is one of these things that has got to be on the agenda for 2022 and beyond. So if you were to reach out to financial institutions globally and said, if there are a couple things you did now, what would you recommend that they try to do right now to make an impact in the community, but more importantly, to raise the level of awareness within the organization as to the importance of serving those who are less served?

Courtney Davis:
Yeah, that's a great question, Jim. I think first and foremost, as I mentioned earlier about the need for an integrated holistic strategy and approach to execution, I think to your point about what we've done at Deloitte in terms of really trying to put resources behind this, we have stood up an initiative around financial inclusion, we really do want to drive discussion in the marketplace and support clients in ways to drive change and transformation here. I think similarly, it's important that institutions have the right top-down level of accountability and focus for this. And as we think about some of the silos that we've been talking about throughout the course of this discussion, I think that more than anything will help to drive some alignment in terms of strategy and how an institution is showing up, and maybe more importantly, hopefully drive accountability, and drive measurement and metrics around this, because something else that's critically important is really making sure that you're measuring, because you're not going to get success around anything that you aren't sufficiently measuring, that you don't have metrics around.

Courtney Davis:
So those are two things that I would say really early on institutions should be thinking about how they can do more, or do better. Top-down leadership and alignment and measurement, and metrics, because once you've got those in place, then the rest becomes, what are your strategic initiatives? How do you want to execute? How do you show up in communities? How do you bring them in, how do you get the right people aligned to the right activities, and how do you iterate, and how to be flexible and responsive to what your clients are telling you. But I really think those two items upfront can be critical in allowing institutions to really move the needle in a more substantial way over the next 10 years than we have over the last 10.

Jim Marous:
It's interesting, my history in the banking world says that in the past contribution to the underserved community and all that was a line item, the only measurement that was done was on the front line, or the front side, which was how much have we expended? And it really wasn't looking at what impact have we made. And it's not a return on investment all the time, it's a return on commitment, and really, how can we measure the impact on the community? And maybe even, this would be a novel concept, involve the community in those measuring tools, how do they believe we should measure our impact on the community? Because it's not dollars and cents, it goes beyond that. And the impact is so important now more than ever. And because of diversity of income, because of diversity of wealth, because of everything that's going on right now, it's probably more important than ever to make sure that we make this commitment and make sure it has an impact rather than, again, simply writing a check.

Jim Marous:
Courtney, thank you so much for being on the show today. I really appreciate the time you've spent together and appreciate you digging deeper into the researches that I wrote about, I will say that in my article, I was a little bit cynical of the banking industry because of their past and knowing how they work a lot of times. But I think as you said, we should not look at all organizations say, everybody's only focusing on themselves or the narrow scope. I think the reality is consumers are going to drive this change just like they've driven a lot of the change, and it'll be interested to see where we are a year from now.

Jim Marous:
Thanks for listening to Banking Transformed, raise to the top five banking podcast. I generally appreciate the support you provided since we started this endeavor. If you enjoy what we're doing, please be sure to follow the Banking Transformed podcast on your favorite podcast app. In addition, if you can take third 30 to 45 seconds to show some love in the form of review, it really means a lot to us because it helps guide who we get as guests and what we talk about. Finally, be sure to catch my recent articles on The Financial Brand and check out the research we're doing for the Digital Banking Report. This been a production of Evergreen Podcasts, a special thank you to our producer, Leah Longbrake, audio engineer, Sean Rule-Hoffman, and video engineer, Will Pritts. I'm your host, Jim Marous. Until next time remember, doing good and doing well no longer need to be separate goals for financing institutions.