Black-Owned Banks, Fintech: Community Reinvestment Potential

Customers line up at the Dunbar National Bank in Harlem, owned by and for African Americans, on January 7, 1933. | Source: Keystone/Getty

TThe 2011 Durbin amendment to the Dodd-Frank Wall Street Reform and Consumer Protection Act directed the Federal Reserve Board to limit debit card processing fees charged by major financial institutions. However, some players are exploiting this consumer-oriented provision to dampen their bottom lines.

The financial technology sector, or fintech, permeates most everyday aspects of life, from sharing a dinner tab with Venmo or using your bank’s mobile app to paying for your movie ticket with a tap of your phone and tipping your Uber driver with a stored credit card.

Framed by Forbes as the umbrella term for technology used to “enhance, streamline, digitize or disrupt” traditional financial services, the fast-growing fintech sector remains largely unregulated, and its interchange fee structure has drawn investors into money-sharing apps such as like Venmo and Zelle rich.

Now consider Hindenburg Research’s recent swipe at Jake Dorsey’s latest venture, Block, claiming that about a third of revenue for Block’s popular Cash App tool comes from opaque “confusion fees.”

“Congress passed a law that legally limits the “interchange fees” charged by large banks that have more than $10 billion in assets. Despite having $31 billion in assets, Block avoids these regulations by routing payments through a small bank and providing merchants with high fees, the Hindenburg report said.

Dorsey’s Block claims to serve the unbanked and underbanked, or those people whose weak or non-existent credit histories keep them at arm’s length from traditional banking services. However, his tactics avoid the federal limits and charge unnecessary fees that are passed on to consumers, begging the question, “Who is really being ‘served’?”

As the financial sector grapples with how best to fairly regulate the banking climate of the “Wild West,” minority depository institutions and other small financial institutions have an opportunity to provide a stable and growing revenue tool for community reinvestment.

It is possible to be both task-driven and profitable as a financial institution, and during the pandemic we witnessed that. It was the small to mid-sized banks and credit unions that came to the rescue, approving nearly 20% of Paycheck Protection Program (PPP) dollars for small business owners during the first round of funding. These financial institutions are on the ground and intent on helping business owners in their community thrive.

Balancing financial lending with a servant’s heart is no easy task, but properly leveraged fintech tools provide a way to do just that. Students of the new model can easily see that smaller community and black-owned banks are uniquely positioned to restore public confidence in banking institutions.

Ashley D. Bell is a Georgia-based corporate finance attorney, policy advisor, and founder and CEO of Ready Life, a fintech startup pioneering a new path to home ownership without a credit score.

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