Canadian banks look to newcomers as key source of client growth

Not really a new trend:

Canada is banking on newcomers to help keep the economy humming along, while banks themselves are eying the hundreds of thousands of people coming to the country every year as a key source of client growth.

Those efforts have been growing along with the number of newcomers, including more efforts to secure people as customers before they even arrive in Canada.

“We’re seeing it as a big focus across all categories of banks, not just the big banks,” said Abhishek Sinha, banking transformation leader at EY Canada.

“Whether you talk to the Big Five or you talk to the next tier after that, or even the credit union segment, newcomers and penetrating that market segment is super important.”

The efforts come as Canada has been welcoming record numbers of newcomers, with an aim to bring in 432,000 permanent residents this year, rising to 451,000 by 2024, while the first half of the 2010s saw the average number of newcomers sit around 260,000.

The segment, which the federal government says accounts for almost all of Canada’s labour force growth and roughly three quarters of population growth, has pushed banks to create partnerships like one recently announced between RBC and ICICI Bank, India’s largest.

“With immigration levels expected to rise to record levels, we’ve announced a collaboration agreement with ICICI Bank Canada,” said RBC chief executive Dave McKay on an analyst call in August.

Some student visa classes require students to put down cash deposits, and the program allows those to seamlessly be transferred to an RBC account in Canada. The program is starting with students but RBC wants to later expand the pipeline of account transfers to a wider field.

“As part of our agreement, ICICI Bank Canada will refer all newcomer clients to RBC over time, making it easier for them to open a bank account upon arrival,” said McKay.

The program, only the second initiative in another country for RBC after it launched a program with a separate focus on China a few years back, taps into an increasingly large source of newcomers, said Amit Brahme, head of the newcomer and cultural client segment at RBC, in an interview.

“We know that the international students segment is one of the fastest growing segments within different visa classes. So we’re really excited about the fact that we are going to be tapping into a growing segment.”

Overall, the number of international students coming to Canada more than tripled in the decade leading up to 2019, reaching 638,000. The pandemic then led to a dip in numbers with 2021 drawing about 622,000.

And while many students will only be in Canada temporarily, a growing number return as potential long-term clients. Statistics Canada says about three in 10 international students become landed immigrants within 10 years of arrival.

Other banks have also been ramping up their efforts, such as Simplii Financial last year rolling out a digital identity verification program that allows clients to open accounts before they even land in the country. Some efforts to secure clients before they come to Canada however, such as Scotiabank’s partnerships in China, go back more than a decade.

The rise of fintechs has also opened new avenues to solve old challenges for newcomers, such as using more global data and international bank partnerships to solve the challenge of credit histories, said Sinha.

“We’ve seen a few fintechs come up who are creating credit models which are based on a more holistic history of the individual than just their history in Canada, and that’s starting to get more mainstream traction.”

Efforts once people arrive in Canada also continue to evolve. Banks, such as CIBC at Toronto Pearson International, have established themselves at airports to be a first point of contact, while banks have also worked to expand and adapt their product offerings, including credit cards without a need for credit history, which is a key stumbling block for many.

At VanCity, the credit union’s efforts have included supporting financial literary courses to help both immigrants and refugees, while it also looks to help newcomers on the business side, said Gurpreet Jhaj, vice president of marketing.

“We support them with micro-financing. And we provide that with financing at favorable terms. And we look really beyond just credit history. We consider what their ambition, character determination and things like that.”

It also provides loans for newcomers to help them write exams to allow their foreign credentials to be recognized, a key barrier for many, and has also been working with the B.C. government to support arriving displaced Ukrainians.

Refugees, such as people fleeing the war in Ukraine, are set to make up about 77,000 of the wider permanent residency goals for this year, so it’s an important segment for banks while for those arriving a bank account is absolutely critical to getting established, said Effat Ghassemi, executive director of the Newcomer Centre of Peel.

“It’s like oxygen, they have to have a bank account.”

She said banks have helped out by bringing teams to the hotels where refugees are staying to help set them up with the accounts necessary to get government aid.

The biggest barrier really for newcomers is trust, said Ghassemi.

“Put yourself in their shoes, you know, they’re new, they came from war. They don’t trust anybody. They don’t trust government or banking.”

Banks are working to build up the trust factor in part by becoming general resources for clients. RBC has created hubs near cultural centres and on campuses where newcomers can get answers to all sorts of questions beyond banking such as getting a drivers’ licence or daycare, along with apps as general resources to get settled, as it works to differentiate itself in a tough market said Brahme at RBC.

“The space is extremely competitive, because newcomers are the source of new clients to majority of the organizations.”

Source: Canadian banks look to newcomers as key source of client growth

Canada’s big six banks almost came together to help Black entrepreneurs – but then they went their separate ways

Of note. Visions are easier than implementation:

The Black Entrepreneurship Loan Fund started with a vision: bring government and financial institutions together to provide a pool of money that would help Black business owners, who disproportionately face systemic barriers to accessing capital.

When Prime Minister Justin Trudeau launched the program on May 31, 2021, he was joined by members of his government, representatives of financial institutions and leaders in the Black business community. No one from Canada’s big six banks spoke, but Small Business Minister Mary Ng said the banks were on board and were putting up $128-million to help fund the program – nearly half its budget.

Although the banks had been at the table for months, they had all walked away just days before the launch. And the millions of dollars they had supposedly committed to the fund never arrived.

Instead of a single fund, what has evolved is a patchwork system, where it’s largely public money that is at stake and the big six banks – Bank of Montreal, Canadian Imperial Bank of Commerce, National Bank, Royal Bank of Canada, Bank of Nova Scotia and Toronto-Dominion Bank – offer their own individual programs that vary widely in how generous they are and how vigorously they try to get funding into the hands of Black entrepreneurs who need it.

Those who cheer the current system say Black business owners are given a wider choice of loan programs than they would have been offered under a centralized government program. And they argue that, if all the private money that has been promised is spent, there will be a larger total amount of funds available.

But, others say, the scattered approach means there is no national standard for how to reform access to credit – a long-standing concern of Black entrepreneurs – and little transparency concerning what the various programs have to offer.

When the pandemic started, in spring 2020, Tiffany Callender was executive director of the Côte-des-Neiges Black Community Association, in Montreal. At the time, she said, she and other leaders at nonprofits serving the Black business community watched the federal government roll out the Canada Emergency Business Account (CEBA), a loan program for companies affected by COVID-19. She worried that the loans – which were backed by the government but distributed through banks – would be just as inaccessible to Black entrepreneurs as traditional bank loans were.

“The criteria that were set, we knew innately that a lot of Black entrepreneurs would not qualify,” Ms. Callender said.

Black business owners have long said lack of access to capital is one of their biggest challenges. Last year, in an Abacus Data survey of more than 300 Black entrepreneurs, nearly eight in 10 said it would be difficult or impossible to find even $10,000 to support their companies. Fewer than one in five said they trusted banks to do what is right for them.

Black Canadians have a much lower rate of homeownership than the national average, which means they are less likely to be able to use houses as collateral on businesses loans. And, according to Statistics Canada, more than half of Canada’s Black population is made up of first-generation immigrants, many of whom have low credit scores simply because they haven’t had much time to build up their credit history in this country.

Ms. Callender said she and representatives of other Black-led community organizations met with MPs during the early months of the pandemic. George Floyd had just been murdered by a police officer in Minneapolis, Minn., and there was widespread public discussion about racial discrimination. Institutions wanted to make changes to address those issues, and be seen to be making changes.

Ms. Ng became the lead minister on the file. Her office recruited representatives from Canada’s big six banks to sit with members of the Black business community and craft an ambitious lending program that would make an unprecedented amount of funding available to Black entrepreneurs.

What followed were months of talks that, participants said, included frank discussions about the barriers Black entrepreneurs face, and also about the constraints banks in the heavily regulated financial sector felt they were up against in making change.

“The kinds of conversations that took place over that year were, really, between the Black entrepreneurs and the financial institutions, with the federal government at the table. It was really to begin to understand where some of those challenges really were,” Ms. Ng said.

A key issue for the banks was what level of risk they were prepared to take on if, for example, they were to accept loan applicants with credit scores lower than their usual minimums.

Four sources with knowledge of or involvement in the talks said the financial institutions wanted the government to guarantee the loans. The government had done so with CEBA, but did not want to extend similar protections to the Black entrepreneurship program.

The Globe and Mail is not identifying the sources because they were not authorized to discuss the private negotiations publicly.

One of the sources, a senior government official, said the minister’s office was concerned that, if the changes were linked to full loan guarantees, they would last only as long as the guarantees were in place. The official said the government did explore options for guaranteeing portions of the loans, but did not settle with the banks on how that would work.

As talks continued for months, the banks grew more uncomfortable with collaborating with one another and with the government.

Ultimately, with the public announcement of the program just days away, the banks raised concerns about whether they could co-operate on a lending program without violating the law, four sources said.

The Competition Act contains criminal and civil provisions that prohibit collusion between financial institutions. But the act also spells out some circumstances in which financial institutions can collaborate. For example, one exception allows banks to work together on guaranteed loan programs created by Parliament – such as CEBA. Another exception allows the federal finance minister to endorse a collaboration if it is in service of a financial policy.

The government did not want to guarantee the loans, so the first option was out. The senior government official said the government considered the second option. But it had never been used before, and officials were reluctant to set a precedent.

The banks pulled out. The government quickly instructed the Business Development Bank of Canada, a Crown corporation, to provide $130-million to back the loan program, along with $33-million from the government itself. The government publicly said the banks would join in a second phase of the program and provide $128-million, so that the total budget of the fund would be $291-million.

The second phase was never announced. For much of the past year, the government’s website continued to say it was coming.

When The Globe began to inquire about that claim in late February, the government said the banks were still considered the program’s partners. But it was at this point that the website changed. Mention of the big banks was removed. And the overall budget of the program, once touted as $291-million, was revised down to $160-million, meaning the bank money was no longer being counted.

The Globe contacted each of the big six banks, but all declined to explain why they left the program.

The Black Entrepreneurship Loan Fund launched in two parts: a large loan program, and a microcredit program.

The large loans provide up to $250,000 to each applicant, with financial backing from the government. The microcredit stream provides privately funded loans of between $10,000 and $25,000, and is run through two credit unions: Alterna, in Ontario, and Vancity, in British Columbia.

The microloan programs are modelled after similar programs the two credit unions have run for years, which aim to get money into the hands of people who might be denied traditional bank loans.

Bill Cunningham, Vancity’s vice-president of community, business and real estate, said his organization will consider low credit scores by looking at what contributed to them. He said there is a difference between an applicant whose low score is because of negative factors – such as a bankruptcy – and someone whose score is low because they are a new Canadian who hasn’t had time to build up their credit history.

The large loans are reviewed and administered by the Federation of African Canadian Economics (FACE), a Black-led organization created for the purpose and led by Ms. Callender. It’s a coalition of five Black business groups: the Côte-des-Neiges Black Community Association and Groupe 3737, in Montreal; the Black Business and Professional Association, in Toronto; the Africa Centre, in Edmonton; and the Black Business Initiative, in Halifax.

The launch was rocky. The announcement and the promised millions of dollars for Black businesses led to thousands of applications. But FACE, which had just been built from scratch, was woefully understaffed and unprepared for the surge. The organization is still digging through the backlog.

Cheryl Sutherland, a Toronto entrepreneur who owns an e-commerce stationery business called PleaseNotes, said she applied for a loan shortly after the program launched and still hasn’t received an update on her file, more than nine months later.

She said the BBPA, one of the groups that helped found FACE, recently sent out a mass e-mail to loan applicants inviting them to a webinar. But the organization forgot to hide the addresses of recipients, which led to a group e-mail chain full of complaints

“It’s kind of, unfortunately, indicative of what ends up happening for a lot of things that they create for people of colour,” she said, referring to government programs in general. “It’s like, yeah, we’re doing something, but it’s all smoke and mirrors.”

FACE said it has received 16,000 applications and approved $14-million in loans.

One of the recipients is Margaret Adekunle, the founder and chief executive officer of City Lending Centres, in Edmonton. Her company provides credit cards and credit-education services to Black Canadians and immigrants in the area.

Ms. Adekunle, who has a background in financial services, said she faced skepticism from banks when she began to inquire about a startup loan in 2021. She said she felt much more supported when she applied for the federal loan.

“I think they understood what I was trying to do for the community and they believed in it from the beginning,” she said.

In the year since the federal loan fund launched, the big six banks have pursued their own programs.

National Bank said it had made a $1.25-million donation to the Black Opportunity Fund, an endowment started in 2020 by a group of Bay Street executives, and that it had also partnered with the BOF to create a $5-million investment fund. The bank said it had also given $10-million to EVOL, a Quebec-based organization that supports diverse business ownership.

Scotiabank said it is spending $500-million over 10 years on its ScotiaRISE initiative, which aims to direct money toward underrepresented groups, including the Black community.

TD said it would donate $10-million to the BOF over five years. The bank said it is focusing on its Black Customer Experience Strategy, which aims to improve relations with Black clients.

Three banks have unveiled programs similar to the federal one.

In October, RBC launched the RBC Black Entrepreneur Business Loan, which provides up to $250,000 to each applicant. RBC said the program is part of a five-year, $100-million commitment the bank made in 2020 to supporting Black communities.

In January, CIBC launched the CIBC Black Entrepreneur Program, which provides loans of up to $250,000 as part of a $15-million investment. The bank said it was working with the BOF and the Canadian Black Chamber of Commerce.

And in February, BMO launched Business Within Reach: BMO for Black Entrepreneurs, which provides loans of up to $250,000 as part of a $100-million commitment. The bank said it was also working in partnership with the BOF.

All the federal and bank loans are repayable in 10 years. The federal loans have interest rates of between 6 and 8 per cent. CIBC said its interest rate is the bank’s prime rate plus 1.25 to 3 per cent. RBC and BMO wouldn’t reveal their interest rates.

None of the three banks would say how many applications they have received so far, or how many loans they have disbursed.

Craig Wellington, executive director of the BOF, said his organization has spoken to hundreds of Black entrepreneurs about the financial barriers they face and has shared those lessons with some of the banks.

He said the BOF is working closely with CIBC on its program, and he encouraged Black business owners who had previously been denied loans to try again.

“Because they were declined a year, a year and a half ago by CIBC does not mean they will be declined from this current program,” he said.

But some entrepreneurs say any change hasn’t gone far enough.

Before launching her business last year, Ms. Adekunle had worked as a branch manager for three different banks over the course of 20 years. She said she looked into the terms of the banks’ Black entrepreneur programs and spoke to former colleagues to get a better sense of how they worked.

“What I was trying to figure out was, what really makes what they’re offering a Black entrepreneurship program? What is different? What is new?” she said.

She came away with the impression that the only thing different was the word “Black” in the names. “It’s the same criteria,” she said.

Source: Canada’s big six banks almost came together to help Black entrepreneurs – but then they went their separate ways

Ottawa should require banks to share race-related data on services: business groups

Of note (expect banks are doing some of this already internally as part of understanding their client and potential client base):

Canadian banks should have to disclose data related to race, gender, income and neighbourhoods to ensure more equitable access to credit and loans, say organizations representing racialized and Indigenous business owners who want Ottawa to step in.

Nadine Spencer, president of Black Business and Professional Association, says Black business owners grapple with microaggressions, unconscious bias and discrimination in banking, and both tracking and releasing this data would help hold banks accountable.

“In order for us to move along, we have to look at the data, look at the gaps and address the issues,” she said.

Banks in the United States have had to keep track of applicants for business loans by race, gender, income and neighbourhood for more than 40 years through their obligations under the Community Reinvestment Act. Designed as a way to encourage banks to better serve lower-income neighbourhoods and racialized communities, it involves the U.S. Federal Reserve and other banking regulators evaluating their performance on this front, with ratings published in an online database.

Duff Conacher, co-founder of Democracy Watch, said the federal government should require something similar of banks in Canada as a way to fight systemic racism.

“Four of our six big Canadian banks own U.S. banks and have, for decades, followed the U.S. law in the U.S. but they have not done anything up here to track and disclose discrimination,” said Conacher.

He was referring to Bank of Montreal, Canadian Imperial Bank of Commerce the Royal Bank, and Toronto-Dominion Bank, which all own U.S.-based operations.

Herbert Schuetze, an economics professor at the University of Victoria, said disclosing such data would encourage more researchers to look at whether businesses owned by racialized people are getting the same access to credit and other services. He said U.S. studies have shown a discrepancy, but that research cannot easily be done in Canada.

“I wouldn’t be surprised to see that (here) but it’s something that, without data, we can’t identify how big of an issue it is in Canada,” he said.

The government announced up to $221 million for Black entrepreneurs in partnership with several Canadian financial institutions in September, but Conacher said this program is not enough to address the gap in funding for Black-owned businesses.

A spokeswoman for Finance Minister Chrystia Freeland said the Liberal government is open to adopting other measures, although did not commit to this one.

“The federal government is currently undertaking pre-budget consultations. We invite all Canadians to share their ideas and priorities,” said press secretary Katherine Cuplinskas.

“We absolutely know there is much more work to be done.”

RBC spokesman André Roberts said the bank does not collect information on race or gender when clients access services, noting the bank is participating in the Black entrepreneurship program.

Bank of Montreal spokesperson Jeff Roma did not say whether BMO would support the disclosure of data but said it is also participating in the federal Black entrepreneurship program. TD Bank and did not say whether it would back sharing data and CIBC did not respond to a request for comment.

“The banks are already collecting this data on all their borrowers, and can easily add one box on the form saying: do you want to identify as a visible minority?” Conacher said.

Vivian Kaye, who owns an online business selling hair extensions to Black women, said she has faced discrimination from her bank since she started eight years ago.

She said her bank’s agents repeatedly questioned money transfers she made and never offered her a line of credit, even though they could see her business had been growing.

Caroline Shenaz Hossein, a professor of business and society at York University, said disaggregating the data would show who gets access to banking services in Canada — and who does not.

She said many Black people, including herself, have turned to online banking, even before the COVID-19 pandemic, to avoid dealing with racism at bank branches.

“I hated the humiliation of going in to a bank, and them watching me up and down like I am some sort of like terrorist’s drug mule, because I’m of Black-Caribbean descent,” she said.

“We already know about systemic racism and it does exist. We do not need data to tell us that part. We want to know who actually gets the loans.”

She said also said minority communities often create alternative sources of funding.

“Chinatown and (Gerrard India Bazaar, in Toronto) have all been built on these informal collectives or co-operative groups that are really rooted in mutual aid,” she said.

Shannin Metatawabin, the CEO of the National Aboriginal Capital Corporations Association, which provides alternative funding for Indigenous businesses, said publishing data from the banks would allow organizations like his to create new products or advocate for better services.

“Historically, Black, Indigenous, people of colour have always been an afterthought,” he said. “The response to the needs of our community has always been after the mainstream population.”

He said policy-makers should change that, noting that banks are federally regulated.

“It’s integral for them to get involved to make sure that everybody receives equitable service,” he said.

Jason Rasevych, president of the Anishnawbe Business Professional Association, which supports Indigenous businesses in northern Ontario, said accessing race-based data would guarantee transparency and could prompt banks to make changes.

“It also puts the financial institutions in a position to explore a potential refresh (of their policies) and strategies related to Indigenous relations, or Black or people of colour relations.”

Schuetze, the University of Victoria professor, said creating a ratings system for financial institutions to encourage them to provide loans to minority-owned businesses, like the one in the U.S., would have a positive impact.

He said other policies could also help, including tackling discrimination in the labour market, reducing barriers to operating businesses and getting experience and providing startup grants for minority-owned businesses.

“If you can reduce those barriers then, obviously, access to capital from financial institutions will increase,” Schuetze said.

Spencer said governments and financial institutions should talk to business owners and ask them what they need.

“The No. 1 thing that the financial institutions can do is to look at each customer and client as a contributor to their revenue base and respect them in a way that they should,” she said.

Source: Ottawa should require banks to share race-related data on services: business groups

US: Trying to Correct Banking’s Racial Imbalance

Of note. Anyone have comparable Canadian data?

Wole Coaxum was a managing director at JPMorgan Chase in business banking when a police officer fatally shot the unarmed Michael Brown in Ferguson, Mo., in 2014.

The killing caused Mr. Coaxum to rethink his career goals.

“Everyone needs the opportunity to effectively participate fully in the economy, and I wanted to be part of the conversation,” he said. “The issues, including the lack of access to banking and financial tools, were hiding in plain sight. But for a community to have a social justice plan without an economic plan is like one hand clapping.”

Within the year Mr. Coaxum left JPMorgan to create Mobility Capital Finance, known as MoCaFi, a start-up focused on providing free or less expensive financial services to those with low-to-moderate incomes, “people like home health care workers, bus drivers and municipal employees,” he said, who frequently were underserved, discriminated against or shut out from traditional banks.

Now, the deaths of George Floyd, Rayshard Brooks and Breonna Taylor, coupled with the racial disparity in Covid-19 outcomes, have magnified the deep fault lines nationwide. Additionally, black-owned businesses have been more affected by the economic fallout from the pandemic. The confluence of these crises have laid bare another underlying issue: income inequality and a resulting loss of access to the financial system among communities of color.

At the time Mr. Coaxum left traditional banking to become an entrepreneur, close to 30 percent of households in the United States had no bank accounts or, even if they had them, still resorted to significantly more expensive alternative systems like check cashing centers or payday loan businesses.

While those numbers have improved incrementally since then — as of 2017, roughly 25 percent of U.S. households had limited or no access to the traditional financial system, a racial divide remains. Most of those who are the so-called un-or-under-banked live either in communities of color or rural areas. Close to 17 percent of black households and 14 percent of Hispanic families lack basic financial services, compared with 3 percent of white households in 2017, the last year for which statistics are available from the F.D.I.C.

The loss of access means that “black and Hispanic people are spending 50 to 100 percent more per month for basic banking services, which, over a lifetime, can cost $40,000 in fees,” Mr. Coaxum said.

While the technology sector has been criticized for its lack of diversity, Mr. Coaxum and a handful of other founders are hoping that fintech — the frequently used term for financial technology — can lead to successful business models that can help correct the imbalance in the financial system.

Marla Blow had worked in start-ups and financial institutions after graduating from the Stanford Graduate School of Business. But it was through her experiences at the Treasury Department and the Consumer Financial Protection Bureau that she thought about focusing on those without access to banks and credit cards.

“Financial services companies have a long history of redlining and declining to serve communities of color,” she said.

While the economy recovered from the financial crisis, she said, the subprime market — often the only credit available to households with low-to-moderate income — lagged behind.

As a result, she started FS Card, a company that provided the Build credit card with a $500 spending limit, offering a lower-cost alternative to a payday loan. To get this done, FS partnered with Republic Bank to gain access to the credit-card system. She had traction: At the time she sold the company to Continental Financein late 2018, FS Card had issued more than 100,000 cards and extended $50 million in credit, she said.

Ms. Blow joined Mastercard as the senior vice president for social impact, North America, at the company’s Center for Inclusive Growth last October, where she focuses on closing economic disparities.

Mr. Coaxum and Ms. Blow were also aware of another problem facing people with low-to-moderate income: the inability to get personal or small business loans. Traditionally, banks use three credit rating bureaus — Equifax, Experian and TransUnion, which rely on indicators like checking-account performance and mortgage payments, among others, to compute the important FICO scores.

But that often leads to a dilemma for those who have had overdrafts or pay rent. These people may have very low scores, or sometimes none at all. About 20 percent of consumers have insufficient credit history to secure loans from traditional means.

James Gutierrez, the chief executive and co-founder of Aura Financial and the grandson of immigrants, was driven by this imbalance, which, he said, left “customers with only two options — payday loans or auto title loans.” His first company, Progreso Financiero, opened in 2005 before smartphones became widespread.

It offered loans through supermarkets and storefronts. Both companies, Mr. Gutierrez said, took a risk on people who were “sometimes invisible but make the economy go round. And they paid us back.”

After he left in 2012, he began Aura, which offered loans to people often unbanked and underbanked, but this time through smartphones and in locations like supermarkets. To determine credit risk — and the interest rate for the loans — Aura “uses proprietary data, in addition to credit bureau data, that include income and expenses, bank account information” and whether the borrower gives money to relatives in other countries, he said.

Progreso was renamed Oportun after Mr. Gutierrez left. Under the current chief executive, Raul Vazquez, Oportun has an “omnichannel approach” of mobile, branded storefronts and grocery store availability and is now publicly traded on Nasdaq. Mr. Vazquez, the son of Mexican immigrants, said Oportun was not only providing financing, but was also trying to provide “relationship banking services” to customers who often worked multiple jobs with little time to spare.

All the founders emphasize that while they focus on low-to-moderate-income households, they are for-profit companies that can succeed as they scale.

MoCaFi, for example, which offers Mastercard debit cards, relies on the fees merchants pay credit-card processors for revenue. MoCaFi recently announced that it would expand significantly this summer by offering free deposit accounts at 55,000 A.T.M.s in five countries, 40,000 of which will be in the United States, in stores like CVS and Rite Aid, Mr. Coaxum said.At those A.T.M.s, customers can deposit checks or cash into their accounts and, as a result, avoid checking-cashing businesses.

For companies like Oportun and Aura that focus on lending, the revenue source is from the interest rates on loans that often hover around 36 percent (when including origination fees, the annual percentage rate, or APR, can exceed 50 percent). While that seems high when compared to bank loans or even credit-card financing, it is far lower than the effective rates for small payday loans — those that offer money to be repaid with the next paycheck — which can exceed 400 percent.

Mr. Vazquez said that the higher rates applied to first-time loans from borrowers with no credit history; he estimated that half of Oportun’s customers lacked credit scores. If they repay on time, a second loan might be offered at a lower rate, and ultimately, the borrower could establish a credit rating that would enable even better rates.

Leonard Chanin, the deputy to the chairman of the F.D.I.C., said that those short-term rates should be viewed as just that. An annual interest rate of 36 percent on a $100 loan could amount to about $3 if repaid in a month, he said, while in comparison a bank could charge a flat fee of $30 for an overdrawn $100 check.

He said that if online lenders and banks were prohibited from charging those interest rates, then lending could dry up, leaving some borrowers with no recourse apart from payday or auto-title loans.

While these companies are expanding, there is room for more, said Linda Lacewell, superintendent of New York State Department of Financial Services.

“Many are not participating in the financial system the way middle class and rich understand,” she said. “We want to help generate the opportunity to participate in a way that is efficient, but not discriminatory.”

Source: Trying to Correct Banking’s Racial ImbalanceEntrepreneurs are working on new business models to address income inequality and a resulting lack of access to the financial system for communities of color.By Ellen Rosen