Magazine article American Banker

Updating CRA Will Help Bring Fintech to the Masses

Magazine article American Banker

Updating CRA Will Help Bring Fintech to the Masses

Article excerpt

Byline: Ray Martinez

Fintech adoption by consumers is accelerating, especially among millennials. But using technology to improve financial condition faces a roadblock similar to challenges for adoption of less tech-driven financial services: financial literacy.

Fintech tools able to improve consumers' overall financial health require financial and tech literacy to utilize them. Yet studies in financial literacy show that certain socioeconomic factors can pose a hindrance to consumers' financial aptitude, limiting their ability to benefit from innovation. And while banks can address financial literacy issues, they do not always effectively funnel resources to that end. The Consumer Financial Protection Bureau last year found that banks spend $25 on consumer marketing for every dollar spent on financial education. Like technology, marketing could return more on its investment if it truly impacted all consumers, not just the most literate. Banks can access consumers in a responsible way through education.

Traditionally, the Community Reinvestment Act has been useful in promoting education; financial literacy programs targeted to low- and moderate-income individuals count as credit under the CRA. Studies from academia and government conclude that, on balance, CRA has effectively enhanced access to credit for LMI and minority borrowers. This includes through financial literacy efforts.

And the need to improve financial literacy against the fintech backdrop has never been greater. Several studies show a persistent financial literacy gap, including among low-income communities. This is of particular concern when one considers that for the first time in 50 years, a majority of U.S. public school students came from low-income families in 2013. This sets them behind in profound ways.

Yet current technology innovations are a missing piece of the existing CRA framework. …

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