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Fintech’s Problem With Race

How can we undo the inequality challenges African American students face in the fintech industry?
Kiara Taylor, fintech news, fintech industry US, US tech industry diversity rates, black Americans in fintech, systemic racism in tech industry, US racial inequality, diversity in fintech industry, African Americans access to financial services, racial inequality in US financial sector

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May 11, 2021 07:23 EDT

It’s been a turbulent year for the fintech industry. The pandemic had its effect on the sector, just as it did on many others, in strange and contradictory ways. Experts are predicting that COVID-19 will drive more people into the fintech market while simultaneously slowing down the globalization process that the tech industry has relied on.

Regulating the Fast-Changing Fintech Landscape


Some things never change, however, or at least never seem to. One of them is the fintech industry’s problem with race. Following the Black Lives Matter protests over the past year, some commentators once again turned their attention to this perennial problem, pointing out that despite years of awareness of the issue, fintech companies are still not hiring enough black people. Often, fintech companies put their relative lack of progress in this area down to a so-called pipeline problem. There are simply not enough gifted, well-qualified black students, they say. Spoiler alert: This is not true.

The Scale of the Problem

First up, let’s establish just how big the problem is. Up until 2014, although circumstantial evidence showed that very few black people worked in tech, there were no hard numbers to prove this. That changed, gradually, following Google’s decision to publish figures on the diversity of its workforce. The numbers were damning: Last year, just 3.7% of Google’s employees and contractors were black, up from 2.4% in 2014.

Research has also shown that fintech’s problem with discrimination goes far beyond race. We’ve known for a long time, for instance, that women are also under-represented, as are Latinx people. Although we don’t have data on fintech firms specifically, it’s a fair bet that their diversity is similar to that of other tech firms, namely very low. This means that, according to Georgetown Professor Chris Brummer who cites data from Harvard Business Review, with fintech accounting for between 10% and 15% of overall tech employment, the total number of African American executives and professionals in the fintech industry is lower than 2% and 5.3% respectively, and could be just hundreds. 

This is a problem, and not just for young people who want to get into the fintech sector. Research also suggests that it might be costing the economy of California — at over $3 trillion, the largest in the United States — hundreds of millions of dollars a year in lost revenue and opportunities. So where does this problem come from, and what can we do about it?

A Pipeline Problem?

Tech firms like to explain their relative lack of diversity by arguing that there are fewer well-qualified black candidates for the positions they are offering. This, however, is not entirely true. According to the National Center for Education Statistics, five years ago, almost 9% of graduates with a bachelor’s degree in computer and information science were black. That may be a small figure, but it’s hardly insignificant. 

Instead, in order to understand the lack of diversity in the tech and fintech sectors, one has to look at the way they operate. Many people outside the industry presume that it is fairly meritocratic or that the hiring practices in Silicon Valley are as logical as the computers designed there. But this is not true. Often, in order to get a job, students have to do a number of unpaid internships, go to the right restaurants and know the right people. For black students coming from underprivileged backgrounds, this makes it very hard to break into the sector.

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Another complicating factor is the fact that fintech companies have done a poor job in terms of their overall outreach to minorities. Diversity is simply not a priority for many fintech companies. Financial inclusion does not just refer to the individuals who are launching their own fintech businesses. Rather, it means that everyone needs to have the same level of access to those fintech companies.

One of the biggest problems is the reduced access to traditional banking and financial services that African American families have to live with. The average African American family, for instance, has earning power equal to only one-tenth of white families. This naturally means reduced access to savings and investment accounts. Fintech has proved it has the proper tools to help provide access to bank accounts for underprivileged groups. An example is the development of neobanks that operate entirely online without a physical location and that offer lower fees and lower entry barriers than traditional banks. But it’s not enough to simply develop a product and hope that enough people have access to it. 

Instead, fintech companies need to do more to actually reach out to the communities themselves in order to help build trust in these services. As a result of this lack of outreach, many minority students do not even view the fintech industry as being particularly favorable to people of color. Minorities possess preciously few leadership positions in the fintech and banking industries as a whole. Millennials and Generation Zers are likewise wary of traditional banks, for example, partially due to this reason. 

Seen this way, in fact, the discriminatory hiring practices of fintech firms reflect a much broader problem: that black people, and especially students, have been barred from access to financial systems and tools. Even though many trading platforms now pride themselves on encouraging inclusion, there is still a massive gap when it comes to access to finance between black students and their white counterparts.

Look a little deeper, and you’ll also see that this is a problem compounded by the way that the tech sector is funded. The ecosystem that has been built up to support tech firms relies heavily on venture capital funding, and these firms are even worse at hiring black people than tech companies. Black entrepreneurs currently see less than 1% of venture capital funding in the United States, and some premier firms do not have any black partners at all. This system, with largely white tech firms making deals with largely white investment funds, is similar to the kind of systemic discrimination we have grown used to in many other sectors of our economy. As we have seen elsewhere, it doesn’t have to be that way.

Vectors of Change

When it comes to charting a course out of this problematic situation, we can look to a number of different groups. For their part, tech firms will likely continue to insist that educators are simply not training enough black graduates who aspire to work in fintech. But given the systemic discrimination inherent in the system, tech will never be a representative space until we change the way it is financed and regulated. We should look to the people with the most power in the fintech sector and pressure them to do more for black students. This means, first and foremost, investment fund managers and tech CEOs. These groups can immediately do three things that will help students break into the industry.

First and foremost, black students need money behind them. Thankfully, this is slowly happening already. For example, a leading venture fund in Silicon Valley called Andreessen Horowitz announced a fund to invest in entrepreneurs of color, beginning with $2.2 million in funding from the firm partners. Meanwhile, Apple has announced a commitment of more than $100 million to hiring and retaining black employees.

Second, firms need to do more to establish trust among the black community. This year has been a terrible one for the image of fintech firms and investment platforms in America, with significant concerns about incidents of identity theft and data breaches that have damaged trust in many of these organizations. If companies can show they have strong security measures in place and a strong moral conscience, they are more likely to be viewed as trustworthy by students. 


Third and finally, firms need to simply change the way that they look for candidates. Many tech firms rely heavily on current employee referrals. This is fine if you are running a startup from a garage and need to find trusted employees quickly, but, when applied in large multinationals, this can quickly exacerbate systemic discrimination. On average, you are only likely to see 5%-7% annual growth from traditional investments with a diversified portfolio. 

Ultimately, the challenges that black students face can be best met by those with the resources available to make genuine change — multibillion-dollar tech companies and investment firms. Educators and students, in other words, are already doing their part to overcome this discrimination, and it’s time that the industry stepped up. If it fails to do so, it might finally be time to look into regulating the fintech landscape or even encouraging students to look outside Silicon Valley for firms that truly value them. India is embracing fintech, for instance, and if Silicon Valley is not careful, my black students might take their talent abroad.

The views expressed in this article are the author’s own and do not necessarily reflect Fair Observer’s editorial policy.

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