Black businesses turned to fintechs to get PPP loans, per a working paper

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Economy, Wealth Gap

12/1/2021 8:55:00 PM

Fintechs helped Black-owned small businesses get access to PPP loans during the pandemic more than banks did. It's weird.

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.Marvin Owens, former senior director of economic programs for the NAACP and ​​chief engagement officer at Impact Shares, told Insider that being denied access to credit means Black business owners"aren't given the ability and capacity to grow their businesses and to expand their operations and to be able to take advantage of new markets and new opportunities. That contributes significantly to the Black-white wealth gap." 

The fintech research is promising, then, but it's also strange because in, artificial intelligence and automation are shown to actually exacerbate racial bias.That's where fintechs come in"I think the [NYU] Stern report kind of points to the fact that the use of automated underwriting helped Black business owners get access to the program in higher numbers," Owens said."So I think that we have to look at that as a real positive and look at that as a real sort of call to these sort of smaller banks to utilize automated underwriting." 

Although Owens added he doesn't know what the cost of automated underwriting would be at small banks,"clearly, fintech firms and these large financial institutions have been using it pretty effectively."The researchers who looked at fintech-enabled PPP loans found that the top four banks — JPMorgan Chase, Bank of America, Wells Fargo, and Citibank —"exhibited little to no disparity after including controls," possibly also due to higher levels of automation at those banks than at smaller institutions.  headtopics.com

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Fintechs may have especially been a lifeline in places with higher"racial animus," the researchers said."We find that the tendency of Black-owned businesses to borrow from fintech lenders instead of smaller conventional lenders is consistently higher in areas with more racial animus, even after controlling for firm and loan characteristics," the authors wrote."These results suggest that preference-based discrimination might explain at least some of the substitution of Black-owned businesses towards fintech and away from smaller banks."

The study authors also found that when small banks automated the loan process during PPP, their rate of lending to Black business owners increased relative to their peers. Owens said automated underwriting may allow for"being more race-neutral in the process." Although Owens said he had been skeptical about automated underwriting because he had seen how it"could in some cases early on contribute to the lack of access to credit for Black families."

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金融科技公司在流感大流行期间比银行更能帮助黑人所有的小企业获得PPP贷款。真奇怪。

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