Bridging The Financial Inclusion Gap, Via Incubator

In an effort to bridge what is increasingly being known as the “inclusion gap” for minorities, Visa is finding promise in supporting products for financial inclusion in the credit union and community bank portfolio. The goal? To hurdle the financial gap that exists for these underserved populations in North America.

In an interview conducted by Karen Webster with Rob Meloche, Senior Director of Global Financial Inclusion at Visa, the conversation focused on the payment company’s research, conducted in partnership with Filene Research Institute, that revealed the spending power that exists within the minority community in the U.S. and the ways credit unions are tapping into that potential. Thus, the development of a product incubator with Filene that is geared toward testing and scaling financial products. “We now have products being tested in more than 30 community banks and credit unions around the country,” Meloche said.

Filene’s research showed that return on assets for minority credit unions and non-minority credit unions showed similar results to peers, Meloche said, and in developing the incubator, they put together an advisory panel of experts from academia, the financial industry and the nonprofit sector.

“We went out to credit unions — specifically, credit unions focused on minority households — and asked them what they found to be the most effective ways to reach underserved populations,” Meloche said. The answer came back that targeted programs are most effective and to “not just assume your usual stuff would work.” That led to the product incubator.

“We came across many credit unions that were having success reaching minority households, even though those credit unions were quite small [in assets].” The idea of the incubator, he added, was to take best practices within credit unions focused on minority populations “and see if we could replicate and scale them” — to study if products stemming from institutions with $50 million–$100 million in assets would transfer to enterprises with a few billion dollars on the balance sheet. The goal is also to support credit unions as they expand their fields of membership, said Meloche, especially as that membership has grown beyond being, for example, employer-based, to embracing whole communities, regionally or statewide.

The opportunity to grow beyond traditional bases and include minority households is a potential model that would attract credit unions.

The first round of the incubator includes community microfinance, non-citizen lending, data-mined auto loans and two products designed to help minority households avoid or transition out of high-cost payday loans. When asked about the existence of thin files or even the absence of credit files overall for these populations, Meloche said that the incubator is testing products that score credit risk using nontraditional data, a necessary tactic in light of the fact that 45 million consumers do not have credit histories (according to the CFPB) that would be considered by the big agencies.

The common perception has been that a “thin file or no file means poor credit risk or subprime, when, in fact, it just means ‘no file,’” said Meloche. A number of credit unions, Meloche pointed out, are using data mining, nontraditional data and alternative scoring models, and “the advantage of the incubator is that it allows us to bring together these different approaches, test the models in a variety of contexts and share the results with the broader financial services community.”

For more information, or to view the research, visit