Radical Generosity, Conscious Capital, And How The New Category of “Justice Deposits” Is Dismantling A Racist Banking System
Dear Friend, Subscriber, and fellow Category Pirate,
Category designers create abundance.
Metaphorically speaking, while the rest of the world fights over bananas, category designers take it upon themselves to plant more banana trees.
They subscribe to the belief that “When We All Do Well, We All Do Well,” underscoring prosperity is not a zero-sum game where one person wins and everyone else loses.
Most importantly, they bring new things into the world, create new demand for new “solutions” to new or reimagined problems, and make it a priority to be generous in the process—not just to their customers, but to their employees, value-chain partners, investors, and of course, the community and society overall.
Because savvy category-defining companies (intuitively or consciously) understand that radical generosity is not only good for the world, but also good for business.
Netflix is a great example of a category creator who is radically generous with their breakthrough products, business model, and data flywheel.
They are generous with their products, dropping episodes of an entire season all at once so customers can binge them. They are generous in their business model, giving content creators free rein and huge checks to create as they see fit. And their data flywheel is generous, since the more a customer uses Netflix, the more Netflix knows what other content to create and acquire to best serve them.
However, their generosity also goes beyond normal business boundaries.
Netflix is leading by example in addressing systemic racism in America.
In June of 2020, Netflix announced it was moving 2% of its cash, or $100 million, to bolster Black-owned or Black-run banks, allowing those banks to lend more. Since then, Twitter has announced its plan to move 1% of its cash, or $100 million, to Community Development Financial Institutions (CDFI), which are institutions where 60% of total lending, services, and activities are targeted toward low-income people or places.
Similarly, Costco has pledged to move $25 million, Biogen has pledged $10 million, and PayPal has announced plans to move $500 million. All told, early-adopters of justice deposits have pledged to move nearly $800 million, an amount equal to nearly 20% of the total assets held today at Black-owned and Black-run banks.
But this is not just a business movement.
Community Christian Church, a large multi-site church in Chicago, has moved 5% to 10% of its cash holdings to Broadway Federal Bank, the soon to be largest Black-run bank in the U.S. after its merger with City First Bank—which we wrote about extensively in Harvard Business Review. In addition, Crossroads Church in Cincinnati, one of the largest churches in the country, has committed to moving a meaningful amount of its cash holdings.
We (the Pirates) have moved some of our own money as well to both Broadway Federal and OneUnited Bank (the largest Black-owned bank in the US). Teri Williams, the President and Chief Operating Officer of OneUnited Bank, just went on Pirate Christopher’s podcast, Follow Your Different, to discuss how she and her husband bought a community bank and niched down to position itself as a leading “Black Bank.” They have been so successful that OneUnited has been able to lend over $1 billion dollars to African Americans and their local communities. You can listen to her telling her incredible origin story with Christopher starting with her great grandmother, “Ma Honey,” who was a mini-business tycoon instilling in Teri key lessons and business acumen that would serve her well as she went to Brown, then Harvard Business School, and eventually becoming Co-owner of the largest Black-owned bank in the country.
Both are calling attention to this action on social media with the hashtags #justicedeposits and #justicecapital, and more faith institutions of all denominations across the nation are moving forward to follow suit—including several in the top 10 largest and most influential churches in America.
So, why is this move to “justice deposits” happening?
First, executives and leaders of these organizations have clearly recognized the horrific injustices and economic inequalities endured by African Americans.
Home equity is 35% of the average household’s net worth, yet African Americans face mortgage denial rates that are twice as high and pay more for their mortgages than white Americans.
Black-owned banks are a great solution, given that 67% of their loans go to African American households vs. the average of 6% of home loans from all other banks. Yes, you read that right. A shocking 6% of home loans issued by White-run banks goes to black people. Meanwhile, African Americans make up 13.4% of the U.S. population.
This is what systemic racism looks like in 2021 America.
Which means organizations and individuals making justice deposits are literally changing a racist system.
Second, justice deposits are a relatively easy and risk-free way to drive change, especially once people realize how robust the FDIC is in its protection of deposits up to $250,000.
There is zero risk that consumers will lose their justice deposits—up to $250,000.
All of this is good for business. As previously noted in HBR, 60% of Americans said how a brand responds to racial protests will influence whether they buy or boycott that brand. The same percent said brands should take steps to address the root causes of racial inequality.
To better understand how consumers view the issue of justice deposits, we recently polled a nationally representative sample of consumers, which showed that one fourth of all consumers were willing to ask the company they work for to follow the early adopter companies above and make justice deposits.
One third of all members of a religious faith-based community were willing to ask their faith organization to follow suit.
Additionally, 57% of accredited investors—consumers with over $200,000 in annual income or $1 million or more in investable assets—were willing to move at least 1% of their investable assets or at least $10,000 to Black banks.
If faith communities (10% of estimated giving), corporations (2% of cash holdings), and accredited investors (1% of investable assets) shifted their deposits, this could result in more than $125 billion in justice deposits shifted—or more than 25x the deposits that every Black owned and Black-run banks holds today.
Conscious capitalism is even more important to younger consumers.
In this same study, consumer motivation toward conscious capital is 3-4x higher among Americans under the age of 45 vs. older Americans. Fifty-six percent of Americans under the age of 45 who are part of a faith-based community said they would ask their faith communities to follow the Netflix example, versus 13% of those over 45. This was true regardless of the type of faith community.
This is even more extreme among wealthy Americans.
Eighty percent of accredited investors under the age of 45 said they would personally shift at least one percent of their assets or $10,000 in justice deposits to follow the Netflix example, versus a sad 13% of those over 45.
The age disparity might give some organizations pause—because most organizations don’t want to make waves.
What is notable about this movement is that it is not a redistribution of wealth but rather the path to a more equitable level of access to capital and opportunity.
This comes with near-zero opportunity cost, given the universally low-interest-rate scenario we are in economically—and zero risk thanks to the FDIC insurance.
Consumers or members of a faith community will not notice any negative impact. Some of the disparity of the age divide may simply be inertia. “Consumers tend to be very sticky to their banks over time,” said Teresa Tanner, the former Chief Administrative Officer for Fifth Third Bank, and the current CEO of Reserve Squad. “Especially if they have multiple products at the same bank, including services like bill payment where no one wants to re-enter all of that information.”
A second barrier might simply be unfamiliarity of alternative options.
According to Jeannine Jacokes, the CEO of the Community Development Bankers Association, there are 145 Community Development Financial Institutions (CDFIs) nationwide. There are also 143 Minority Depository Institutions (MDIs), which have either 51% or higher minority ownership, or a board of directors with 51% or more minorities. Thirty-four institutions are both CDFIs and MDIs. Of those, four banks are focused on African Americans and have more than $400 million in deposits and attractive return on equity and net income growth, which are key indicators of a bank’s health, according to the financial services expert John Rolander, a partner at Incandescent.
A final likely barrier are the capital requirements of these banks.
For banks to take on more deposits, companies, institutions, and individual investors need to invest more in the banks to maintain key balance-sheet ratios.
To justify those investments, companies with corporate social-responsibility initiatives and ESG (environmental, social & governance) mutual funds may need to expand their scope to include racial economic injustice. As Margaret Anadu, the head of Urban Investment at Goldman Sachs, put it, “To close the racial wealth gap, private capital has to be part of the solution, because it sits at the center of wealth creation in our country.”
Now, let’s go back to our example of accredited investors moving 1% of their assets or at least $10,000.
What if there was meaningful innovation by either a new category creator in financial services/payments or a legacy competitor decided this was an opportunity to not only do the right thing, but also take advantage of their competitors being asleep at the wheel?
What if the dollars moved were actually $100,000 per accredited investor?
Here we see Bank of America losing ~$180B in deposits out of a total of $1.8 trillion dollars.
Don’t you think Bank of America would sit up and take notice if they lost 10 percent of their retail deposits?
What happens if the rest of the investable assets also go out the door with these accredited investors? Are these banks secure enough in their product and business model differentiation that their best customers won’t leave? What happens if the category creator who goes all in on #justicedeposits is not a top 10 bank? What happens to legacy banks if $0.5 trillion dollars in retail deposits shift to an entirely new category queen in making?
Given how U.S. white banks have long treated Black people, we’re hoping this happens.
Businesses, faith communities, and other organizations that fail to lead the way here will likely lose out on the next generation of consumers and members—and as a result, risk irrelevance.
Netflix’s leadership, on the other hand, likely helps ensure its relevance with younger consumers as they come off their parent’s Netflix plan, take control of their finances, and inevitably buy their own. Similarly, the largest churches in America have twice as many attendees under the age of 45 as other churches.
Which brings us back to radical generosity and the role it plays in category design.
In order to grow, every organization must have a strategy to win the next generation of consumers.
Radical generosity is a legendary place to start.