The economic costs of structural racism are too high to ignore

September 16, 2020 | By Marla Blow

Inclusive growth ensures that the benefits of a growing economy extend to all segments of society, and research suggests that productivity is determined less by a person's skills and abilities, and more by their access to the vital networks that power the modern economy. But access to these physical, virtual and social networks is not equally available, and Black people have been deliberately excluded from these networks.

My own firsthand experience of confronting this disparity came when I started a company in 2013. I was seeking funding for FS Card, a subprime credit card venture designed to make small loans more affordable for underserved consumers. With a business model that was informed by my years of experience as an executive and as a key federal regulator in this space, I met with more than 100 potential investors to raise capital for this business. And yet, at the end of each pitch, I was met with looks of bewilderment. These well-heeled individuals had never met anyone without access to credit. To them, easy credit was the root of economic problems, not a solution. Nor were they accustomed to writing checks to people who looked very different from them.

It dawned on me that my experience in raising capital for my business mirrored the experience of the customers we were looking to serve. Faced with scarcity of access and deeply ingrained skepticism due to systemic bias, we know that accessing capital and credit requires outsize persistence and clearing a much higher bar.

Predominantly African American neighborhoods average roughly one bank per 1,000 residents, a quarter of the number found in other communities. Many residents cannot find a bank nearby at all. They are living in “banking deserts” and are often relegated to borrowing at sometimes exorbitant rates from storefront organizations — pawn shops, payday loan providers or check-cashing businesses. 

This is a contributing factor in the lifetime average of $40,000 in incremental costs paid by Black people in connection with using financial products and is also an underlying contributor to the racial wealth gap (Black families possess one-tenth the wealth of white families). And while I was well acquainted with the research, it was only after hearing investors tell me no hundreds of times that I understood the visceral pain and paralysis of capital scarcity and high-priced financing options.

Through the combination of the pandemic and bearing witness to horrifying acts of police brutality, many Americans have become newly concerned with our social context. Not only did George Floyd’s killing inflame racial tension in our nation, but the pandemic revealed, in stark contrast, how vulnerable we all are and how integral race is to our personal health.

COVID-19 presents a juxtaposition of human commonality and disparity. On the one hand, the virus does not discriminate, nor is anyone immune to the wrenching pain that comes with watching a loved one suffer. However, our ability to protect ourselves hinges on access to healthcare, where we live and how we earn a living. As a result, Black Americans are contracting the coronavirus at a rate 2.5 times higher than whites and are twice as likely to die.

At Mastercard, we realize that the time to act is now. We have worked for years to promote inclusion and equity, realizing our goal of bringing 500 million people into the financial mainstream and expanding our commitment to bring 1 billion people and 50 million small businesses into the digital economy by 2025. However, our work will be diminished if we do not strive to dismantle the systemic racism that has barred Black Americans from prosperity for centuries. Racism and economic disparity go hand in hand. Our solutions must reflect this.

That is why Mastercard is making a five-year, $500 million commitment to address the wealth and opportunity gaps and the persistent financial inclusion challenges facing Black communities. This is a companywide endeavor that will tackle racism with the full force of our assets, be it our expertise, capital, digital products or extensive network of partners.

Given the importance of place to our well-being, we will initially focus our efforts on seven specific cities: New York, Los Angeles, Atlanta, New Orleans, St. Louis, Dayton, Ohio, and Birmingham, Alabama. Each one possesses great potential for change, whether it’s ensuring African Americans can participate in New York’s diverse economic landscape or working with visionary leaders in Birmingham to enact real change.

Substantive change can occur when people are included in the digital economy, and we know that small business can be a powerful engine for economic growth. However, in Black communities, that engine is often stalled due to lack of access to capital, leaving local corner stores, barbershops or pizza parlors with fewer assets to fall back on when times get tough. 

And times are tough — a recent report by the Federal Reserve Bank of New York showed that Black-owned businesses were twice as likely to have shuttered as small firms overall during the first three months of the pandemic, in part because Black business activity is highly concentrated and more likely to be located in pandemic hotspots. Black businesses saw a 41% decline, the highest closure rate among any racial or ethnic group. 

Our commitment will help by connecting small business to community development financial institutions (CDFIs), such as Accion Opportunity Fund and the Community Reinvestment Fund, so these local businesses have the funding to thrive and keep local business in local hands.

Unlocking capital for local businesses can make a dramatic difference. For instance, shortly after Hurricane Katrina ravaged New Orleans, a public-private initiative, the Claiborne Corridor Cultural Innovation District, began working to rejuvenate the historic Black neighborhood by jump-starting locally owned businesses while retaining the area’s cultural traditions. Between 2015 and 2018, indexed consumer spending in the area’s retail businesses was 12 times greater than spending growth in Greater New Orleans, according to an extensive study from the Mastercard Center for Inclusive Growth

The benefits of this kind of economic resurgence can accrue to local residents when there is access to affordable financial tools and services. Mastercard Money Connect Solutions will provide products that allow people to send money to relatives affordably, enable simple real-time bill payment, deposit checks, and help manage wage fluctuations and unexpected bills through early wage access.

Make no mistake about it: The economic costs of structural racism are too high to ignore. Experts have calculated that full economic participation for Black communities represents a $1.5 trillion opportunity over the next 10 years! Consistent with this long-term GDP growth opportunity, our work is not a one-off effort. We are building solutions that are scalable and can deliver impact over the long term.

After selling my business in 2018, I was drawn to Mastercard because this is a company with decency at its core. My colleagues and I constantly ask ourselves: How can we empower individuals and businesses with the resources and tools to increase their financial security?

Now more than ever, this is the hard work worth doing.

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Marla Blow, Senior Vice President of Social Impact, North America, Mastercard Center for Inclusive Growth