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The Gender Gap in Financial Services

Earlier this year, multiple news outlets reported headlines on how female leaders were handling the coronavirus crisis significantly better than their male counterparts. Female-led countries experienced both fewer cases and fewer fatalities and the report by the Social Science Research Network (SSRN) posits that “to some extent, this may be explained by the proactive and coordinated policy responses adopted by them.”

Yet, for all the progress it seems society has made towards acknowledging, supporting and championing the role of women in both the workplace and wider economy, there are a series of challenges that still persist.

We’ve taken a look at the latest research and studies on how the gender gap in the financial services is being addressed. From evolving the products on the market to globally increasing access to capital investment for female entrepreneurs, there are a number of steps that FS organisations can take to address the imbalance.

Financial Products for Women

An article in Sifted by Head of Strategic Design at Digital Horizons, Victoria Dmitrenko discusses the fact the Financial Services industry loses $700 billion a year by not catering to the needs of a female audience. Despite women possessing just under half of the world’s wealth, they typically are not the target audience of investment products despite the significant contribution they have to make.

It is here that the purpose-driven banking approach of fintechs and digital banks may have an edge over traditional financial institutions. Digital services and apps are able to sophisticatedly analyse a customer profile and tailor banking and investment solutions to their specific needs.

As Dmitrenko states, “Traditional financial strategies assume that a person’s income will constantly grow over many years, but this development is more common for men than women. Women often sacrifice careers altogether or take breaks to take care of children and loved ones, so there are times when their income falls or is completely absent.”

This is where women may benefit from a growing trend of emerging fintechs towards hyperpersonalisation (you can read our article on this here)  and the ability to select financial products that best fit in with their ever-changing lifestyle.  The Sifted article references fintechs that are specifically targeted towards female consumers, a seemingly positive stepping stone to change. However the problem lies in the struggle these businesses have in fighting for a spot in the marketplace compared to their male counterparts.

The Investment Gap

There is also considerable research available which points to a lack of available capital and investment in female entrepreneurs themselves.  According to website Diversity Q, last year just over 8% of venture capital money went to teams composed of female-only members. A British Bank report revealed that for every £1 of venture capital investment in the UK, all female teams received less than 1p with all male teams receiving 89p and mixed-gender teams 10p. It is hardly surprising that there is an absence of financial products designed around women’s requirements when they are do not hold key decision-making roles in the first place.

A fantastic in-depth report from the European Commission entitled “Gender Smart Financing” talks about this at length revealing how women entrepreneurs are held back by gender bias, reduced social capital and a tax system and family policies that do not favour a dual-earner model.

All this leads to a cyclical system. The fewer women who hold prominent positions within venture capital firms, the less likely the firm is to invest in women-led enterprises, hence reducing the diversity of the products being brought to market. And the cycle perpetuates.

Gender inequalities in developing countries

The gender gap is even more severe in developing countries. Lack of access to finance, including a basic bank account, is a huge obstacle to female entrepreneurs across the globe. The World Economic Forum looks at the $1.7 trillion financing gap across the world and the fact that “80% of women-owned businesses with credit needs are either unserved or underserved.”

It posits the idea that reducing a need for collateral in return for financial loans could play a huge part in closing this gap. In many cultures, collateral such as property is still primarily owned by men and hence women are at an immediate disadvantage regarding access to finance.  The article suggests that loan criteria could instead be based on other factors such as “cash flow, savings group history, mobile phone transaction history or a track record of enterprise performance” hence unlocking a potential $330 billion in annual global revenue.

How can we close the gap?

Wealth managers must acknowledge the fact that a woman’s career trajectory may not match her male counterparts and become more attuned to individual client’s attitudes and requirements. An article by the Financial Times quotes Charlotte Ransom, chief executive at Netwealth, who claims that women typically are more cautious in their investments due to an innate ‘risk-averse mentality’. Such an approach can alienate them from traditional wealth management practice.

A report by CityAM by Barbara and Duncan Stewart of the CFA suggests a different story claiming “fewer than one in 10 women said they were risk averse, while nearly three quarters said they were risk aware, not risk averse.” In this scenario, certain stereotypes of the typical female investor as risk-averse or overly cautious may negatively influence the advice and opportunities given regarding their investment portfolios.

These two differing interpretations of women’s attitude to finance and risk emphasises the importance of not pigeonholing their requirements and individual scenarios. Tailoring advice and solutions to individual customer profiles is vital

Regarding capital investment for new start-ups, there is a duty in the established fintech community to support and represent women through mentorship networks and gender-diversity initiatives. There is also a responsibility for investors to be aware of unconscious bias that may affect their assessment of female entrepeneurs – a goal that would benefit from an increase in women in such senior decision-making positions. Female-led digital banks and fintechs such as Starling and Tala demonstrate the significant returns for investors that could be missed if women are not adequately represented.

Regarding women as both entrepreneurs and consumers, the financial services industry has a duty to ensure they are represented and valued to unlock potential for the global economy.

About FSP Partnership

We have extensive experience working with financial institutions across a diverse range of clients. We provide marketing strategies, internal and external communications and digital media management to strengthen and differentiate individual brands.

Our social media channels provide the latest research across the financial services industry each day. We’d be happy to have a chat about your marketing plans. Please get in touch here.

Sources

https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3617953

https://ec.europa.eu/info/publications/gender-smart-financing-investing-and-women-opportunities-europe_en

https://sifted.eu/articles/women-investing-gap/

https://www.oliverwyman.com/content/dam/oliver-wyman/v2/publications/2019/November/Women-In-Financial-Services-2020.pdf

https://diversityq.com/gender-investment-gap-why-male-venture-capitalists-come-out-on-top-1509713/

https://www.cityam.com/what-motivates-women-to-invest-our-survey-results-are-in/

https://british-business-bank.co.uk/uk-vc-female-founders-report

https://www.ft.com/content/585cc928-764d-11e9-bbad-7c18c0ea0201

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