Meeting the needs and demands of black consumers could yield — to be precise, a colossal $225 billion in new revenue — for the country’s financial services sector.
The figure represents expected cumulative spending by Black Americans between 2022 and 2030. The disclosure was taken from Investing in and with Black Consumers in Financial Servicesrevealed a new report from the McKinsey Institute for Black Economic Mobility.
The study surmised that financial providers could perhaps gain a windfall if they offered “fairer, more accessible, and higher quality products and services” to black people, while addressing black consumer dissatisfaction with vis-à-vis existing services.
Strategies to Better Serve Black Consumers
The report examined several issues that have created challenges for black people in financial services and offered five strategies companies could apply to help address them. Some of these strategies included “developing and customizing financial products based on income profiles and customer needs; provide viable alternatives to punitive, high-interest, short-term solutions such as payday loans and high-fee check cashing services; and optimize their presence in predominantly black communities.
Two of the main findings of the study focused on wealth and services. The study concluded that the persistent racial wealth gap remains a problem. He revealed that the average black family wealth in 2019 was $24,100, about one-eighth of what the average white family had. Another problem: 47% of black households are unbanked or underbanked, and black applicants are more likely than white applicants to face a loan denial.
The study pointed to “a lack of access to financial services, namely banking and insurance, ‘as both a symptom and a cause’” of the wealth gap. He added that “historic exclusionary policies and programs” have prolonged the case and made it difficult for black people to relate to financial institutions.
For their part, observers from banks and insurers countered that they had taken more steps to make services accessible to black people in recent years. And proponents said many unbanked or underbanked black people have chosen or are choosing this path based on their perceptions or experiences with financial companies.
More help building a much-needed estate
Interestingly, the research found that Black respondents had a distinct desire to develop and protect their heritage compared to non-Black respondents, filling in the historical gaps. He showed that, compared to other racial groups, black Americans were “more concerned about saving for emergencies, paying mortgages and monthly bills, and not burdening their families with debt if they died. prematurely”.
More than half of black people surveyed — ten percentage points higher than non-black respondents — said they wanted to increase their spending on financial services and explore new products and services. For example, they wanted solutions that would help build long-term wealth. Some 33% wanted products for retirement planning, 31% for financial planning and 26% for wealth management. Precisely 28% of Blacks thought life insurance was the most important insurance product, compared to just 18% of non-Black respondents.
Removing inequalities could prove beneficial
Asked about today’s greatest racial inequalities among financial services providers, including banks, wealth management firms and insurance companies, the senior partner at McKinsey & Co. Shelley StewartIII said black Americans face inequality at every level.
He explained inequalities, including living in banking deserts with reduced access to financial institutions in their communities, lower approval rates, less availability and participation in a range of financial products and services, and lower overall satisfaction with financial service providers.
“By helping to address these inequalities, financial services firms can help solve this seemingly intractable wealth gap problem and boost economic mobility among this group.”
So how do these shortcomings prevent black Americans from getting rich?
Stewart said wealth protects families from financial shocks, whether it’s a job loss, health issue or other unexpected expenses. With wealth, he said, people can invest in their own or their children’s education, as well as in home ownership and entrepreneurship.
Collecting more consumer data could be helpful
Stewart, who helped write the report, suggested that financial service providers offer to help black people improve their financial situation. He said one way would be to continue to invest in collecting, analyzing and acting on data about black consumers and how to better serve them.
While progress has been made, Stewart said a major challenge for companies is that they don’t have the consumer data to highlight the strong business case for serving black consumers fairly. For example, understanding how and where black consumer spending is increasing can influence where a company opens its next branch.