One-third of Americans are unbanked or underbanked, including 55 percent of African Americans and 50 percent of Hispanic Americans, according to former JP Morgan Chase executive Wole Coaxum.
Lower-income communities don’t provide banks with the opportunity they’re looking for from a return perspective, Coaxum said, leaving majority minority communities with one bank branch for every 1,000 households. In comparison, majority white communities have four bank branches for every 1,000 households.
Coaxum created a solution: financial inclusion platform Mobility Capital Finance, or MoCaFi, provides users with a low-to-no cost FDIC insured account and a Mastercard to go with it, as long as they’re able to verify their identity.
Thursday night, MoCaFi received the endorsement of famed hip-hop group the Wu-Tang Clan.
Wu-Tang members Power, RZA and Divine joined the MoCaFi advisory board to launch Triumph, a free start-up school for black and Latinx entrepreneurs to help spur innovation in cities like Newark, and to try to close the racial wealth gap.
New Jersey is one of the wealthiest states, but has the dubious distinction of having the biggest wealth gap, according to Newark Alliance President and Chief Executive Officer Aisha Glover.
“A white family in New Jersey has an average median net worth is $309,000. For black families, that’s $5,900,” Glover said.
“We know we can close the wealth gap. It’s whether or not we want to,” she said. “We’re all smart enough, entrepreneurial enough, innovative enough. We have the answers. It’s whether or not we have the institutional will.”
Lack of access to a bank perpetuates the socioeconomic standing of low income people. In communities without banks, pop-up pawn shops and check cashiers create a system where people trade their valuables for cash at a reduced rate and their paychecks for cash with a tacked on poor tax.
Banks aren’t able to be successful in low-income communities because they rely heavily on people leaving deposits in their account. Banks don’t pay much for these deposits — most people don’t see a high percentage of interest accruing in their account, but they lend that money out at much higher rates. In lower income communities, where bank customers aren’t leaving large sums of money in their accounts, banks are then only making money through transactions.
“If you’re a person [for whom] money comes in and money goes out, you don’t have $100,000 in your account. You don’t have $1,000. The money goes in, and then it’s spent by the time it gets to the accountant,” Coaxum said. “The only way the bank can make money is through transactions. They then create overdraft fees. And that’s become $40-50 billion industry. If it happens a lot they can shut down my account. As a result, the banks aren’t built. Some of my good friends run banks, work at banks…they’re just not built to serve everyone.”
We want to showcase everything the City of Newark has to offer, and incentivize the next generation of tech entrepreneurs.
– Joanne Lin, principal, Newark Venture Partners
What a lack of banks doesn’t create is a system for saving, or a system for building credit — low-income residents have fewer open trade lines, and therefore less of a chance to build credit. However, according to Coaxum, if those in low income residences were able to easily report their rent to the credit bureau, 30 percent of them would have a credit score of 700 or above.
This is because they regularly pay their rent, which is their biggest bill, on time, he said.
Another aspect of the racial wealth gap is the lack of access to funds. Forty percent of all venture capital funds go to graduates of Harvard or Stanford, despite the more than 5,300 universities and colleges in the country, according to VC Equal Ventures Richard Kerby in a blog post on Medium. Most of the money doled out goes to white men, and only .06 percent of venture capital goes to black women. Black men get 0.1 percent of venture capital, according to Kerby.
To address funding, MoCaFi has partnered with Newark Venture Partners, a $45 million early-stage venture capital fund investing in B2B technology companies.
According to Principal Joanne Lin, Newark Venture Partners has made 65 portfolio investments, 30 of which have space in NVP’s Newark office, and 14 have committed to headquartering their companies there.
“We want to showcase everything the City of Newark has to offer, and incentivize the next generation of tech entrepreneurs,” Lin said.