McKinsey Institute for Black Economic Mobility

Investing in—and with—Black consumers in financial services

The racial wealth gap is a persistent blight on American life.1The economic impact of closing the racial wealth gap,” McKinsey, August 12, 2019. In 2019, the average Black family’s wealth stood at $24,100, about an eighth of what the average White family possessed.2 A lack of access to financial services—specifically banking and insurance3—is both a symptom and a cause of the gap. Historical exclusionary policies and programs have further perpetuated this cycle and contributed to a difficult relationship between Black consumers and financial institutions: 47 percent of Black households are unbanked or underbanked,4 and Black applicants are more likely than White applicants to face credit denial.5

The current state presents an opportunity for financial-services providers. McKinsey research shows that Black consumers are more likely than their non-Black peers to be looking to spend more on new banking relationships and financial services more broadly. Key stakeholders in financial services—such as retail banks, wealth managers, and insurance providers—can contribute to more-equitable experiences for Black consumers and earn their loyalty and spending. We estimate that from 2022 to 2030, the financial-services providers that offer more-equitable, more-accessible, and better products and services can win $225 billion in cumulative spending from Black consumers (excluding organic growth).6

Our consumer research, conducted in 2021,7 uncovered a number of trends that are likely to influence Black consumers’ spending in financial services. Potentially because of previous exclusionary policies, Black consumers tend to be more interested than their non-Black counterparts in exploring financial products and have accelerated their adoption of digital channels. Facing ongoing bias and higher rates of credit denial, Black consumers continue to seek—and expect—fairness and transparency from their financial-services providers.

To meet these needs, companies can implement five distinct strategies: developing and personalizing financial products according to customers’ income profiles and needs; providing viable alternatives to high-interest, punitive short-term solutions such as payday loans and high-fee check-cashing services; simplifying the processes and requirements to open and manage accounts; ensuring that customer service and marketing campaigns are inclusive and demonstrate cultural awareness; and optimizing their presence in predominantly Black communities. Of course, the sector is already increasing its investments in diversity and equity. These strategies can help individual companies achieve those goals more rapidly.

Unrealized demand for financial services and products

Our research shows that Black survey respondents are especially eager to grow and protect their wealth compared with non-Black respondents, making up for historical gaps. Moreover, compared with other racial groups, Black Americans are more concerned about saving for emergencies, paying mortgages and monthly bills, and not burdening their families with debt should they die prematurely.8

More than half of Black survey respondents—ten percentage points more than non-Black respondents—said they are looking to increase spending on financial services and explore new products and services. Specifically, they want solutions that help build long-term wealth, including products for retirement planning (33 percent of respondents), financial planning (31 percent), and wealth management (26 percent). They are also more likely to prioritize life insurance than non-Black respondents: 28 percent of Black respondents think life insurance is the most important insurance product, compared with only 18 percent of non-Black respondents.

Although wealth creation is their long-term goal, in the short term, some Black consumers may be falling into destructive financial paths. For example, Black Americans are overrepresented among users of high-interest payday loans, which are usually offered by nonmainstream financial institutions that are not minority depository institutions (MDIs) or community development financial institutions (CDFIs).9 Although they make up only 13.6 percent of the US population,10 Black consumers represent 23.0 percent of storefront payday loan customers.11

Black consumers’ aspirations of wealth creation are thwarted by a few layers of compounding challenges. In addition to lower levels of financial literacy compared to their White peers,12 Black consumers have limited access to wealth-building financial products and services such as physical bank branches in predominantly Black neighborhoods.13 Black communities also have higher concentrations of nontraditional banks and non-MDI, non-CDFI payday lenders.14 When Black consumers do access financial institutions, they receive unfavorable terms (such as higher account minimums) and lower approval rates for financial products such as mortgages.15

These challenges are reflected in our finding that incumbent providers of financial products and services are not currently serving Black consumers well at scale. Black consumers have lower satisfaction scores than non-Black consumers for every major offering from the financial-services industry except credit cards (Exhibit 1).

Black consumers are generally less satisfied than their non-Black peers with financial offerings.

Black respondents to our survey cite high account maintenance fees and interest rates on loan products as deterrents to opening new accounts with traditional retail banks. Although some traditional banks have eliminated some fees,16 Black consumers are increasingly drawn to a broad range of emerging digital products such as digital-only banks (also known as neobanks), which are convenient and offer affordable alternatives to traditional banking. Fourteen percent of Black adults now consider a digital bank to be their primary provider, compared with 8 percent of White adults.17 Black respondents to our survey also were 30 percent more likely to use digital-payment services to send or receive money from friends and family.

Our survey suggests that Black consumers will continue to explore new fintech products and services. Compared with non-Black consumers, Black consumers are ten percentage points more likely to discover new financial products through social media and seven percentage points more likely to listen to recommendations from peers. In this context, traditional banks have an opportunity to boost Black consumers’ use of their digital channels. Only 33 percent of Black respondents use mobile banking, and 20 percent use online banking—a combined six percentage points lower than non-Black respondents to our survey.18

Consistent with our previous research, Black consumers seek fairness and transparency from their financial institutions.19Black consumers: Where to invest for equity (a preview),” McKinsey, December 15, 2021. Consider the high rates of implied dissatisfaction in our survey results: 18 percent of Black respondents said they would not recommend their bank (compared with 14 percent of non-Black respondents), and 20 percent said they would not recommend their insurer (compared with 12 percent of non-Black respondents). High fees are a top complaint about banking and credit card services, and value for money is the top complaint about insurers.20 Meanwhile, Black respondents are more likely than non-Black respondents to prioritize an insurer’s reputation and trustworthiness when buying life insurance and to cite explicit commitments to racial equity as leading criteria in choosing a provider.

Incumbent providers of financial products and services are not currently serving Black consumers well at scale. Black consumers have lower satisfaction scores than non-Black consumers for every major offering from the financial-services industry except credit cards.

Five commercial strategies for institutions

The financial-services industry is already increasing its investments in diversity and inclusion, but it is a long-term effort, and results can be slow. Only 2.6 percent of senior employees in financial services are Black,21 and our analysis shows that only six companies effectively meet Black respondents’ needs at scale (Exhibit 2).

Most financial-services companies are not meeting Black consumers' needs at scale.

Companies can implement five strategies to better and more equitably serve Black consumers—and earn a bigger piece of a $225 billion pie.

Develop personalized financial products to help build and maintain wealth

Given the hurdles that Black consumers face when accessing wealth-building products, the salience of high fees for Black consumers, and Black consumers’ outsize emphasis on economic safety, personalized products are perhaps the best way to help consumers cultivate, protect, and grow their wealth. Products that emphasize continuous financial education and a holistic view of customers’ financial profiles can help Black consumers make savvy decisions while exploring new and innovative financial products tailored to their specific needs.

When developing these products, more financial institutions should eliminate fees, such as overdraft charges, that disproportionately affect specific customer segments and should instead introduce alternative fee structures to offer greater flexibility to customers based on their income profile and financial goals. For example, one neobank has no monthly minimum balance requirements for checking accounts and does not impose account fees. It also waives fees for overdrafts of less than $200. Another wealth manager has no advisory fees on assets below $10,000. Insurers could also develop financial-planning capabilities to help customers plan premium payments and reduce the risk of nonpayment.

At the same time, credit card companies should be transparent about rates and rewards, clearly explaining the implications for consumers’ monthly financial outlook. Product innovation will also be valuable to offer a wider range of reward structures to help customers improve their creditworthiness. For instance, one neobank provides a no-fee, zero-interest credit card aimed at helping its customers build credit.

For insurers, equitable underwriting will be key. The specifics of successful underwriting operating models can vary,22From art to science: The future of underwriting in commercial P&C insurance,” McKinsey, February 12, 2019. but insurers have the opportunity to win over Black consumers by treating them well—starting with offering equitable premiums—and effectively communicating the value of insurance. Insurers should assess the algorithms they use to develop risk profiles to ensure that Black consumers pay fair premiums, especially compared to non-Black consumers of the same profile. For auto insurance in particular, factors unrelated to driving, such as marital status and zip codes, can produce racially inequitable underwriting results even when models were not designed with race in mind.23

Develop tailored solutions for short-term financing needs

The need for short-term cash may be difficult to avoid, but mainstream financial institutions can help Black consumers avoid punitive payday loans’ high interest rates, which can reach up to 400 percent per year.24 To protect more of Black consumers’ wealth, financial-services companies can develop or invest in scaling products that meet consumers’ short-term and emergency cash needs while continuing to help consumers build wealth sustainably—and clearly communicate any risks and terms. Alternative products include interest-free short-term financing solutions such as buy-now-pay-later programs and minority-focused lending programs.

In fact, Black consumers already use buy-now-pay-later solutions at higher rates than the US population as a whole.25 This suggests an opportunity to develop products to help Black consumers purchase necessities. Consider that the average Black American spends a higher share of income on groceries than the average White American.26Nourishing equity: Meeting Black consumers’ needs in food,” McKinsey, June 1, 2022. One fintech already offers a digital card that customers can use for specific types of purchases, including digital subscriptions.

Traditional institutions could also consider connecting consumers with peer-to-peer lending platforms. One company provides emergency loans of up to $1,000 for unexpected financial situations through a peer-to-peer program.

Financial institutions should consider streamlining their processes and requirements to make opening and maintaining accounts less cumbersome for Black customers, who might be wary of the burden of the process.

Make account-opening and -management processes and requirements simpler and more convenient

In every industry we studied, inconvenience contributes to Black consumers’ dissatisfaction.27Black consumers: Where to invest,” December 15, 2021. In financial services, complex processes for opening and managing accounts can be burdensome to lower-income consumers, a group that is disproportionately Black. Financial institutions should consider streamlining their processes and requirements to make opening and maintaining accounts less cumbersome for Black customers, who might be wary of red tape and the burden of the process. Companies should also adapt user interfaces and user experiences across channels for individual customers’ preferred activities based on company-specific customer insights.

Banks should reevaluate their account-opening process to eliminate any factors that may disproportionately affect Black consumers. For instance, banks can simplify loan applications to eliminate any documents that are not strictly required to assess creditworthiness and that disproportionately complicate the process for low-income borrowers. For example, proof of employment may be difficult to obtain for consumers who have incomes from nontraditional sources, such as freelance and gig work. One Black-founded fintech aims to shrink the wealth gap and build credit for immigrants and minorities by reporting rent payments to credit agencies to help build users’ credit histories.

In insurance, companies should simplify claims processes to ensure that consumers can quickly submit claims and receive payouts. Given Black respondents’ interest in financial planning and apprehension about high premiums, insurers can also consider embedding personalized payment timelines within insurance quotes to help consumers more easily make decisions about new policies.

Ensure inclusive, culturally intelligent customer service and marketing campaigns

Consistent with the broad investments in equity for Black consumers we have outlined elsewhere,28Black consumers: Where to invest,” December 15, 2021. communications and customer service departments should facilitate relationships and build trust with Black consumers seeking to achieve their financial goals.

Companies should uphold customer service and adviser standards that eliminate biases and ensure Black customers are welcomed and treated equitably. In particular, companies should use customer feedback to inform employee diversity and unconscious-bias trainings for financial advisers and customer service representatives.

With marketing campaigns, partnerships with Black-owned media companies may help industry players access relevant insights, develop an understanding of Black consumers, and create messages that resonate. One insurer spent $1.3 billion in 2020 on ads in Black media. Another spent $138 million in 2020 on ads that featured diverse talent.

To rebuild trust with Black communities, institutions should supplement traditional marketing with community engagement. Collaboration and engagement with Black communities through trusted cultural and civic organizations, as well as partnerships and support for Black-owned banks, can help. One national bank set up a loan facility to purchase loans from MDIs, freeing up their balance sheets to continue investing in their communities.

Optimize presence in Black communities

Financial institutions can use their presence in Black communities to increase Black consumers’ access to wealth-preserving and wealth-building tools.

One place to start is digital channels. Black consumers are more likely to own a smartphone and use it more frequently than White consumers.29A $300 billion opportunity: Serving the emerging Black American consumer,” McKinsey Quarterly, August 6, 2021. Black consumers also use mobile banking but are often overlooked as digital consumers. Consistent with the Community Reinvestment Act,30 banks could expand their presence in low-income neighborhoods through digital channels, an action that can have outsize benefits for Black consumers given their disproportionate representation in low-income brackets. To achieve this, mainstream financial institutions could partner with digital platforms that have credibility and traction within Black communities to target Black consumers’ financial challenges. Services concerning financial education and support for student debt can be good places to start, since those issues affect a higher share of Black Americans than White Americans.31

Simple and engaging user experiences and accessibility are also valuable. One national bank increased digital adoption by investing in functionalities that customers value, including the ability to manage their entire financial profile across banking, investing, borrowing, and retirement. The number of the bank’s customers accessing investment features through mobile nearly doubled.

In the physical realm, traditional institutions such as banks could partner with entities that already have a strong physical presence or recognition in Black communities. Banks could also make more direct investments in Black communities beyond their current involvement with CDFIs, which are targeted at low-income communities.

Assessing Black communities’ needs and understanding the impact actions could have on those communities will be critical in ensuring equitable access. Decision makers should use localized insights to assess the potential effect on Black communities before opening, closing, or making major changes to branches. For instance, institutions in predominantly Black communities may emphasize financial education and take a nontraditional approach to sales to Black consumers.

Providers of financial services and products can help Black consumers build economic security. Continuing to invest—strategically—in ongoing efforts to provide equitable and inclusive service will be key.

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