Many organizations remain committed to financial inclusion to create better outcomes for underrepresented consumers and small businesses by unlocking barriers to financial well-being and closing the wealth gap. Organizations like credit unions and Community Development Financial Institutions (CDFIs) live by these values—it’s a part of their business DNA. These lenders work hard to ensure these values are reflected in the products and services they offer and in how they attract and interact with customers.
The cross-walk between DEI and financial inclusion
Although Diversity, Equity, Inclusion and financial inclusion involve different strategies, there’s an undeniable connection that should ultimately be tied to a business’s overall goal and mission. The communities that are historically underrepresented and underpaid in the workforce—including Black Americans, Hispanic/Latinos and rural white Americans—also tend to be marginalized by the established financial system.1
Financial institutions that work to address the inequities within their organizations and promote financial inclusion may find that these efforts complement each other.
DEI policies help promote and support individuals and groups regardless of their backgrounds or differences. While financial inclusion is less specific to a company or organization. Instead, it describes the strategic approach and efforts that allow people to affordably and readily access financial products, services and systems.
The impact of financial inclusion
Lenders can promote financial inclusion in different ways. A bank or credit union can change the requirements or fees for one of its accounts to better align with the needs of people who are currently unbanked. Or it can offer a solution to help people who are credit invisible or unscoreable by conventional credit scoring models establish their credit files for the first time.
Financial institutions are also using non-traditional data scoring to lend to applicants that conventional scoring models can’t score. By incorporating alternative credit data2 (also known as expanded FCRA-regulated data) into their marketing and underwriting, lenders can expand their lending universe without taking on additional risk.
Financial inclusion strategies for credit unions
Finding your way around the financial inclusion landscape has its twists and turns. To help smooth the path for lenders, it’s important to have the right data, strategy and technology to grow your business. Here are four tips to help credit unions drive their business goals:
1. Find more consumers and small business owners through expanded demographic, financial and behavioral data
Knowing the ethnic background of approved applicants in your portfolio will allow you to set goals and create benchmarks for an effective financial inclusion strategy. Having this insight gives you a better view of the consumer to understand the percentage of different ethnic backgrounds in your member base and better respond to regulators if asked about financial inclusion adherence to fair lending requirements.
2. Monitor the progress of your programs and their impact
Identify opportunities within underserved communities and benchmark your progress using inclusion dashboards and indexes when you launch or modify targeted initiatives. Converting your data into actionable insights gives you increased knowledge of consumer behavior. This analysis can also help you benchmark against your peers and gain a better understanding of the overall market to stay ahead of the competition.
3. Gather more insights to increase business outcomes through expanded FCRA-regulated data sources and automated decisioning
Leverage risk-scoring models that combine traditional credit data with expanded FCRA-regulated data, advanced analytics and machine learning. These types of models help you score more consumers who were previously considered credit invisible or unscoreable, resulting in greater first- and second-chance credit opportunities. A composite credit risk score merges top-tier mainstream credit data with FCRA-regulated alternative credit data to enable efficient risk assessment by providing comprehensive insights for thorough consumer analysis.
These insights may help you prescreen, prequalify and process credit underwriting risk assessments with one technical integration to help improve automation rates and minimize risk.
4. Improve your decisioning and modeling by leveraging datasets to reach consumers who would otherwise be credit invisible
Leverage integrated demand deposit account (DDA) transactions and account closure data to gain a clearer picture of a member’s financial health, which helps you to advance credit decisioning to achieve growth, reduce risk and improve retention.
Unlocking the value of consumer-permissioned banking transaction data helps you make more-informed decisions, which may improve member experiences, deepen your understanding of financial behaviors, and drive revenue growth with comprehensive data to inform risk and acquisition models.
Working together to create financial empowerment
There’s no magic solution to undoing the decades of policies and prejudices that have kept certain communities unable to fully access our financial and credit systems. But financial institutions like yours, including credit unions and CDFIs, can take these four steps every day to drive financial inclusion and help underrepresented communities.
1 Wealth Gaps Across Racial and Ethnic Groups, Pew Research Center, December 2023: https://www.pewresearch.org/2023/12/04/wealth-gaps-across-racial-and-ethnic-groups/
2 Using Alternative Credit Data for Credit Underwriting: https://www.experian.com/blogs/insights/using-alternative-credit-data-credit-underwriting/
