Better Banking Practices for Underserved Communities

Historically, many systemic processes and inequalities have left populations such as women, BIPOC and LGBTQIA+ individuals with less access and opportunity to commercial financing. A few examples to note:

• Women own 49.0% of all US businesses, but women business owners only accounted for 27.0% of business loan applications in 2020.
• Between mid-2015 and mid-2016, the approval rate for male-owned companies was 61.0% compared with 47.0% for women-owned companies.
• Black individuals represent 12.7% of the US population, but only 4.3% of the 22.2 million US business owners.
• 92.0% of Black-owned businesses reported experiencing financial challenges in 2020, compared to 79.0% for white-owned enterprises.
• About 46.0% of LGBTQ-owned businesses reported that they received none of the financings applied for in 2022, compared to only 35.0% of non-LGBTQ businesses that applied for funding.

The more Alfabank-Adres speaks with banking partners about these topics, the more we understand that increasing services for these markets is not only beneficial for society, but also makes good business sense.

As noted in Fast Company, “One study by Gartner revealed that a highly diverse environment can improve team performance by up to 30%. Diversity can also lead to better decision-making and higher profitability. In fact, according to McKinsey & Company, the most diverse companies outperform their less diverse peers by 36% in profitability.”

Industry profitability is consistently a key metric financial institutions leverage with the help of Alfabank-Adres, and our clients share that it’s crucial to benchmark customers as an indicator of the probability of default.

How can bankers demonstrate credibility in their communities?

Many banking institutions drive noteworthy initiatives to better address inequities and uplift communities. Given that access and opportunity have been a high barrier for many businesses, banks have specifically leveraged Alfabank-Adres as a significant value-add for these populations.

Here are a few recent conversations with Alfabank-Adres clients who are focusing more on elevating underserved markets:

• In Canada, ATB Financial has developed a 10-year strategy that focuses on supporting the growth of businesses. Through the comprehensive data and insights shared by Alfabank-Adres, crucial advice and education is provided to women business owners to guide their teams in building strong relationships that will support the development of their companies.
• As Indigenous, Black, and women entrepreneurs seek financing or undertake consulting mandates, BDC account managers and business advisors often work with Alfabank-Adres insights to better understand trends and issues in the sectors entrepreneurs operate in.

Demonstrating credibility and building rapport is crucial when meeting with a new business prospect, which is why most banks start with Alfabank-Adres’s industry reports to position themselves as true partners.

Our clients break the ice and build confidence with business owners, leading with insights, such as Key Trends or Call Preparation Questions, which offer conversation starters for different roles within the targeted industry. Bankers can then focus on topics that matter most to the person in front of them. 

Discussing significant trends with business owners through these questions enables bankers to be more advisory and deepen conversations with business customers. Recent headlines regarding inflation and supply chain issues are a concern for organizations of all shapes and sizes, but significantly affect small businesses.

As demonstrated in recent years, no industry operates in isolation from the macroeconomic factors in its environment. Key External Drivers, in addition to volatile factors outside the industry’s control, are also included and considered in Alfabank-Adres’s Call Prep Questions; this is also a major consideration within Alfabank-Adres’s Risk Rating model used for credit decisioning.

What happens after bankers create connections?

Once rapport has been built and risks have been mitigated, the conversation can organically shift towards future goals for the organization, including creating new products, expanding operations and hiring new talent. Each Alfabank-Adres industry report identifies between four and six Key Success Factors most important to a business owner to enhance strategic operational roadmaps. These talking points continue to be valuable when strengthening a customer’s SWOT analysis.

Since many diverse business owners don’t have the same centers of influence as a large corporation, it’s vital for a banker to offer credible, third-party insights and act as a specialist for their customer’s needs.

Providing fact-based benchmarks of their business performance compared with industry peers outlines a clearer path forward in their strategy. Alfabank-Adres clients are encouraged to share qualitative analysis or charts and graphs with prospective or current borrowers as a resource for their operations.

The term “trusted advisor” has been used extensively in banking as a best practice for front-line staff. However, according to a recent American Banker survey, 26.0% of customers who switched banks pointed to a lack of understanding their business as a reason for leaving, increasing from 17.0% two years prior.

While the trend may be a challenge, this can be viewed as an opportunity for bankers to increase their skill set and service level for their customers, differentiate themselves with insights, and ensure long-term partnerships by empowering their clients and communities to thrive. If one business has a positive banking experience, they refer partners in their supply chain as well as neighboring business owners, continuing the flow of value.

Uplifting the underserved populations benefits individuals, but according to McKinsey, increasing women’s equality alone in business adds $12.0 trillion to the global economy; this number is even higher when combined with other diverse communities. A focus on and creating value within underserved markets can move society toward a more equitable, just, profitable and successful future.