Plus, a bad day for ‘buy now, pay later’ and a Q&A with co-founder of the open-banking app Banked
Greetings, FintechFT readers, and happy Valentine’s Day!
2022 is going to be a busy year for “buy now, pay later”. Today, the UK Financial Conduct Authority said it had forced four BNPL firms to redraft their terms of service, which had previously allowed them to terminate accounts without notice.
The FCA’s action reflects growing concerns around the market and the potential impact on consumer wellbeing. A paper released earlier this month, which studied BNPL spending on credit cards, is likely to add fuel to the fire. Its authors estimated that between 40 and 50 per cent of UK BNPL is on credit cards, which would cancel out the payment programme’s interest-free appeal.
It also found young consumers and those living in the most deprived areas were most likely to use credit cards for BNPL.
In today’s newsletter I dive into diversity in the industry and our Quickfire Q&A features account-to-account payments platform Banked.
As ever, reach out to Imani (firstname.lastname@example.org) or me (email@example.com) with your thoughts. Happy reading!
Fintechs face calls for diversity
Environmental, social and governance themes are cropping up in nearly every sector — and fintech is no different.
Anecdotally, it’s the environmental aspect which gets mentioned the most in conversations I’ve had since starting my position as the FT’s banking and fintech correspondent; it’s also common to find fintechs that say they’re supporting social causes such as debt relief.
One discussion which has made less of an appearance, however, is gender and racial diversity within the sector.
Research by government-backed entrepreneur network Tech Nation released last October paints a picture that is, in some ways, quite rosy. Black, Asian and other under-represented ethnic groups made up 20 per cent of the workforce in 2021, according to Tech Nation.
That’s slightly higher than the 17.5 per cent of the entire banking and finance sector that identifies as Bame, according to Office for National Statistics data, and close to double that of the UK labour market.
But the reality is more nuanced. The proportion of black people working in fintech is still just over 3 per cent, with a far bigger gain made by Asians and other minority ethnic groups. And the higher up the food chain you go, the proportion of ethnic minority employees drops — 90 per cent of employees with more than 15 years of experience are white.
The problem is also intersectional. The Tech Nation report found that men outnumber women in UK fintechs by a ratio of at least two to one, regardless of their ethnicity.
Ahmed Badr, chief legal and risk officer at recurring payments company GoCardless, pointed to a 2021 report by executive search company Erevena that found 34 per cent of start-up boards had no women.
To serve a wide range of consumers, prioritising diversity must come from the top down. “I suspect that the limited diversity of founders means that we are not seeing fintechs that provide for the needs of all subsets of the population,” Badr said.
When done correctly — this approach works, said Zeiad Idris, co-founder and chief executive of ethical finance app Algbra: “There is clear evidence that shows companies with greater gender and ethnic diversity produce products that cater to more diverse audiences.” Algbra itself has staked its brand on “inclusivity, ethics and sustainability”.
But information on the scale of the problem is also limited, said Badr. “A lot of companies are not actively collecting diversity data. It’s hard to drive change — and also to champion outcomes of change — when you don’t have the base data to drive the action and connect to the outcomes.”
Improving diversity requires a number of steps, said Idris, including fostering support networks for communities and targeted fund growth which helps to overcome issues such as nepotism, as well as improving training for the media to understand the nuances of diversity.
Badr recommends changes from the bottom up, when it comes to education and recruitment, and the top down — including diversity among venture capitalists who provide vital funding to fintechs. Deloitte’s 2021 VC Human Capital survey found that in the US, only 4 per cent of venture capital firm employees were black and 4 per cent were Latino.
Idris and Badr both emphasised the importance of better data reporting, and the potential role which regulators and policymakers can play.
“At the bare minimum, there should be a requirement for transparency of data around staffing and board representation and the salaries that accompany them,” said Idris. “This data will ensure future workforces and consumers have good data before deciding whether these are institutions they want to work for, or engage with.”
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