Report: Technology gap puts Black banks at risk

Black financial institutions are less likely than their minority or nonminority institution peers to offer online and mobile banking services, according to a recent study by the Urban Institute.

As more consumers turn to digital options to address their banking needs, this technology disparity threatens to further shrink a category of financial institutions that have been on the decline for the last 20 years, said researchers at the Urban Institute.

There were 47 Black-owned banks insured by the FDIC in 2002. Last year, that figure fell to 16, accounting for less than 0.03% of assets at all FDIC-insured financial institutions.

The Urban Institute study specifically focused on technology inequities at Black-owned credit unions, using the not-for-profit institutions as a proxy for Black depository institutions overall, since credit unions account for 95% of the combined number of Black credit unions and banks, according to the researchers.

Black credit unions accounted for 361 of the 381 Black federally insured depository institutions operating at the end of the third quarter of 2022, according to the report, which analyzed third quarter call report data.

Around 80% of nonminority credit unions reported having an informational website and online banking service, compared to only half of the Black credit unions, the study found.

Researchers said the report highlights a troubling trend: Black institutions, which help expand credit to underserved areas, run the risk of losing customers if they continue to fall behind their nonminority peers in terms of digital banking offerings.

When it comes to investments in technology and innovation, Black-owned banks face enormous competitive pressure from their larger nonminority competitors.

The report noted the significant size disparity when comparing Black institutions to their peers.

The average Black bank is 7% of the size of the average nonminority financial institution, according to the report.

Similarly, the study found the average Black credit union is 19% of the size of the average nonminority credit union.

When it comes to digitization, Black-owned banks face capital and capacity constraints, according to the report.

“These firms often lack people with the background to help to integrate these digital systems,” report authors wrote.

A lack of pressure or demand from Black consumers could also contribute to the technology gap at Black-owned banks.