It’s Not Just Rainbow Flags
Pride month, celebrated in various countries during the month of June, is often seen by some as a carnival – with celebrations and parades, elaborate costumes and parties. But it stems from something much more serious; namely an entire community challenging the status quo and ensuring equal access to basic human rights for the LGBTQ+ population. That equal access? It also extends to financial services.
The stats are clear – LGBTQ+ individuals face unique challenges when it comes to accessing financial services products. The LGBTQ+ population often faces discriminatory practices in employment, which can lead to 10-30% lower incomes on average. Additionally, many people leave jobs because of harassment, meaning that LGBTQ+ people are twice as likely to be unemployed. But the economic pressure can often be felt even when just starting out in the working world – with a 20% higher average college debt load thanks to the loss of family support upon coming out. LGBTQ+ consumers are 75% less likely to be homeowners than the general population and are often faced with difficult financial decisions (i.e. spending money on adoption/surrogacy, gender affirming surgery, etc.).
A recently released Nationwide Retirement Institute survey shared more sobering stats:
- Almost two-thirds of LGBTQ+ Americans report living paycheck to paycheck (which jumps to 72% if you happen to also be Black).
- More than a third (37%) report that their career has been negatively impacted due to gender identity or sexual orientation and nearly half (46%) say that their opportunities for career advancement have been negatively impacted due to gender identity or sexual orientation. (Of course, this means that their earning potential is seriously impacted, which compounds over time.)
- More than half (56%) believe that LGBTQ+ people experience higher healthcare and health insurance costs than non-LGBTQ+ people.
But encouraging financial inclusion of all individuals “strengthens the availability of economic resources… [and] helps the overall economic development of the underprivileged population.” According to Finca, ensuring everyone has access to financial services and credit products helps to improve overall household income, increases the size of the economy, builds individual/household asset holdings, increases financial and health security, reduces vulnerability, and encourages job development.
So why doesn’t that inclusion happen more? Because of the financial challenges many in the LGBTQ+ community face, traditional lending institutions can be wary of extending credit and/or offering certain financial services/products.
How can the financial services industry improve access?
Fintechs and finservs have the means to meet the financial needs of the LGBTQ+ community. With only 37% of LGBTQ+ individuals who feel that financial advisors understand their unique challenges, fintechs and neobanks have an enormous opportunity to be flexible in a way traditional financial institutions can’t, increasing financial inclusion and tapping into an underserved demographic. And that approach is gaining more traction: more and more niche banking and fintech products are emerging, proving hyper-personalization can be a winning strategy.
Euphoria, a Denver, Colorado-based organization, has built a suite of technologies to help the transgender community alleviate some of the burden of the complex and pricey process of transitioning. Its app Solace provides info and resources on the transition process, and Devotion offers daily affirmations and support along the way. Bliss is a revolutionary savings app that helps you manage the high costs associated with transition, including medical bills, legal costs and even buying new clothes.
The CEO of Euphoria, Kate Anthony, told us that “Euphoria exists to help the millions of transgender individuals out there to live their lives with agency and dignity. Our practices of inclusion are demonstrated in our apps, but these are ideas that should be copied to make banking better for all. Namely, the KYC process for any financial service company should be able to be inclusive of transgender people, which includes the 44% of transgender people who have incongruent legal documentation. Given that most financial services and fintechs can accommodate a legal document incongruence due to marriage (where the legal last name is different than what’s on the driver’s license, as an example), it’s clear that the mechanisms for inclusion already exist. All that is needed is the will to implement it.”
Daylight, a U.S.-based neobank founded by queer millennials, focuses heavily on the financial well-being of LGBTQ+ individuals. According to Daylight, 53% of the population struggles to maintain regular savings, so the organization has built financial products around the unique needs of the community, whether that’s different types of families, timelines for careers, or retirement goals. The company also offers discounts and cash back rewards for spending at LGBTQ+ allied businesses and provides transparency on how ‘queer-friendly’ certain companies really are.
Making More Inclusive Credit Decisions
But you don’t need to be a niche finserv/fintech to support the LGBTQ+ community. If you’re aiming for more inclusivity, where do you start? As Kate Anthony shared, “By making micro-modifications to existing practices, fintechs and other financial services can serve this community and create greater financial liberty for all.” One of the ways to do this is to ensure you can make smarter, more accurate credit risk decisions.
- Access More Data: Access a greater variety of data sources, including alternative data. More regions globally are starting to warm up to supplementing traditional (bureau-based) credit scores with alternative data like social media presence, web and travel data, rent payment info, etc. Ensuring you have easy access to a wide variety of data sources, and that you can easily integrate them into your workflows, is key.
- Deploy Advanced Analytics: One of the most efficient, effective ways of integrating data into the decisioning process is by using Artificial Intelligence and Machine Learning (AI/ML). AI helps you find relationships in your data that are not always apparent with legacy credit scoring methods or decision engines, and it expands the useable data, allowing you to increase the diversity of your data, manage bias and improve your decisions. “Too many financial services and fintech companies still lavender line, the practice of denying financial services and products based on perceived LGBT+ status,” explained Kate. Using AI, you can manage bias more effectively, with ML models that fully explain why they made the decisions they did and ensure a more inclusive decisioning process for all.
- Make Smarter Decisions: To fully understand each customer and be able to offer them the personalized products they need, you need to combine data, AI and decisioning into one unified solution. A wide variety of data provides fuel for the AI models to accurately predict risk, and voila: smarter, more accurate risk decisions. And, with an all-in-one unified platform, you can use your decisioning and credit/loan performance data to auto-optimize decisioning across the entire customer lifecycle. Your models (and therefore, your decisions) keep getting smarter, and more inclusive, the more you use them.
Our understanding of the world and all the people and identities living in it continues to evolve. And so must the way we do business and develop products and services. As digital transformation continues to change the way we solve business problems, financial services organizations have a unique opportunity to shift from a product-focused mindset to one that is more centered on their audience. And what do most audiences want? To be seen, heard, and understood.
For more information on how unified access to AI-powered decisioning and data can help you make better risk decisions, for ALL individuals, check out our latest eBook.