Hey Fintech Friends,

Happy Women's History Month. For every dollar that a white man owns in the US, the average woman owns 32 cents. Black and Hispanic women own a fraction of a penny.

Across the globe, women face higher barriers to accessing credit, investing in assets– even opening a bank account– than their male counterparts do. We are light years away from closing the gender wealth gap, but retooling financial solutions to serve everybody equally seems like a good place to start. We spoke to fintech leaders about addressing the challenges that women face across financial services, and asked investors to weigh in on how representation in venture capital can make a difference.

The gender gap spans across financial services

Most of us are familiar with the major factors driving the financial gender gap– relative to men, women earn less income, take on a greater share of childcare responsibilities, leave the workforce earlier on in their careers, and occupy far fewer leadership positions (all of these worsened during COVID, btw).

These issues on their own are a call for reform, but they only tell a fraction of the story. Being in a weaker financial position creates consequences that channel into every other area of women’s financial lives, and existing financial services won’t address the gender gap until they start accounting for these far-reaching, systemic challenges.

Savings & credit

“There are 1.4 billion people in the world without a bank account. Out of those 1.4 billion, nearly 1.3 billion are women,” according to Emma Smith, Founder and CEO of Jefa, a mobile platform offering financial services to women in Latin America and the Caribbean.

In building the product, Jefa’s team identified a number of challenges women face in accessing financial products in this region– for one, the fact that traditional bank accounts require minimum balances that are prohibitively high given that women statistically earn less than men do. Opening an account often also entails going to a physical branch, which restricts women who don't have the capacity to do this on top of managing their household responsibilities. In response, Jefa is offering accounts with no minimum balances and a quick, fully-digital signup process. Jefa’s users can also leverage credit, investing, and educational tools to build their financial health holistically. The need for these solutions is clear– over 115,000 women have already signed up for Jefa’s waitlist.

The savings gap echoes in the US, where Kristen Anderson, Co-Founder and CEO of Catch, points out that only ​​59% of women have an emergency savings fund compared to 72% of men. “Lack of savings can lead to usage of dangerous alternative credit products,” Kristen says, “This bears out as 60% of payday loans go to women.”

“Building assets (savings and investments!) is a critical part of financial health. Having a safety net protects you from unexpected expenses, which is particularly important if you earn income independently and don’t have employer benefits to fall back on.” Self-employment can be an empowering option for women to earn money in a way that accommodates their lifestyle (especially for single mothers, who lead 86% of single-parent households). On top of this, the gender pay gap is smaller for freelancers than it is for the overall workforce.

Kristen and her Co-Founder Andrew Ambrosino are helping freelancers strengthen their finances with Catch. Catch enables independent workers to manage their finances and affordably access benefits like health insurance, retirement plans, and savings tools. Solutions like Catch’s pave the way for more people to make a living independently, and women– who only account for 24% of freelancers globally– stand to make some of the largest gains.

Accessing credit

The modern credit system is similarly modeled on men’s financial patterns, making it difficult for women to gain equal access. Vrinda Gupta encountered this first-hand when she was rejected for the Chase Sapphire Reserve credit card– the one that she helped develop as a Product Manager at Visa. This catalyzed Vrinda to found Sequin, a fintech startup addressing three key issues that hinder women from accessing credit:

1. Women tend to have weaker credit histories than men do

"70% of women's spend is on non-credit building products like cash, debit cards, and credit cards in other people's names," as Vrinda relayed, “this is almost twice as much as for men. Even though statistically women are better to lend to and slated to control 75% of discretionary spend by the end of the decade, we’re having disproportionately negative credit experiences.”

It's perhaps unsurprising that in the US, where women were not legally entitled to credit cards in their own name until 1974, credit models don't account for the fact that women earn less income than men do. Women are then charged higher interest rates and given lower credit lines. This increases women’s credit utilization (proportion of spend relative to total credit line), further harming their credit scores.

1. Mainstream credit cards are tailored towards men's spending behavior

"Most credit cards reward categories are dominated by male spend," Vrinda says. Rewards schemes tend to ignore purchases of household goods, personal care, and healthcare– areas where women spend more relative to men. Women also pay more for items in these categories as a result of the Pink Tax, which is conservatively estimated to cost a woman over $1,350 yearly.

1. There's a credit knowledge gap between genders

... and it starts early on in our lives. "Little boys are twice as likely to have gotten a lesson on credit by the time they reach high school," Vrinda found. This is significant coming out of the gate; as Vrinda puts it, "If you don't know the rules of the game, you're less inclined to play." As we grow older, financial services companies reinforce this gap by disproportionately aiming their marketing efforts at men– according to one study, spending 13 times more on advertising financial products in male-skewed magazines than in female-skewed ones.

Sequin is tackling these issues head-on by offering women credit-building tools and community-based education. Their flagship product, the Sequin Card, builds users' credit by making a line of credit available and reporting spend to the bureaus (while automatically managing credit utilization), rewards categories where women actually spend, and offers cash credit to soften the Pink Tax. Early results are staggering– in the pilot, Sequin increased users' credit scores by an average of 20 points per week, and as high as 118 points within the first 2 weeks. Sequin is currently in private beta, with thousands of women on a waitlist available at www.sequincard.com.

Investing

Studies on investing behavior find that women are far less active as investors, despite the fact that they generate higher returns than men. Stock trading services report that women make up only 25% to 40% of users on their platforms. On top of this, women tend to hold a larger share of their portfolios (68%!!) in cash that they don’t plan to invest, meaning that they will lose more money in real terms against inflation.

While women own a smaller share of retail portfolios, Fidelity reports that they beat men’s returns here too– by .4% overall. What gives?

“Even though women invest less and report to feel much less confident about it, research shows that they tend to achieve higher returns than men do, as they trade less frequently. This indicates that the very insecurity holding women back from investing is actually what makes them such great investors,” according to Anna-Sophie Hartvigsen, Co-Founder of Female Invest

This lack of confidence in large part stems from how investing is positioned to women (or rather, not positioned at all). In their offerings, investment companies use messaging and imagery that is designed to resonate primarily with male investors, with three-quarters of asset managers admitting that their organizations’ products are primarily aimed at men. Female investors report that they would be inclined to invest more if the impact of their investments aligned with their personal values, and that they are far less inclined than men to invest in companies that aren’t considered socially responsible. Women also report being that they would be more likely to invest if investment language better spoke to their long-term goals and prosperity, yet all of these themes conspicuously take a backseat in the mainstream investment world.

Female Invest works to make investing more inclusive and transparent by offering learning tools and a private community where women can discuss their experiences. They currently have over 40,000 members across 77 countries, underlining the glaring need for financial education across the world.

Student debt

Women hold two-thirds of student loan debt in the United States, yet on average a woman with a bachelor's degree earns only 74% of what a man does upon graduation. Black women, on average, carry the highest student loan debt relative to all other demographics. With more loans come longer repayment periods and higher costs of debt servicing, meaning that women also pay more for their student loans. Getting more advanced degrees doesn't equalize the situation– in fact, women on average need to earn a master’s degree to exceed the lifetime earnings of a man with an associate degree.

“For many, this is the first opportunity to begin managing their money, and it takes an average of 20 years to pay off student loans on top of navigating confusing policy changes. Women take an additional 2 years on average to pay off their student loans,” according to Tanya Menendez, CEO of Snowball Wealth. Tanya and her Co-Founder Pamela Martinez harnessed their own experiences with student loan debt and years of working in financial services and early-stage startups to help student debt holders pay down their loans and ultimately build generational wealth.

“It’s been so exciting to see how our users have been getting unstuck from debt and starting to save and invest,” says Tanya, “It shows how behavior can change when people are given the right tools and context to make decisions.”

We need more female founders and investors

New solutions are driving financial inclusion for millions of women, but meaningful change won’t come until women are represented at the top of fintech companies and within the venture capital firms backing them. Of the nearly 300 fintech unicorns around the world today, less than 10% are female-founded. To make matters worse, female founders across tech receive a dismal share of venture capital funding, seeing only 2% of VC funding in 2021– the lowest percentage since 2016. The dearth of women in venture capital compounds the issue, as female VC partners are twice as likely to invest in startups with at least one female founder and more than three times as likely to invest in startups with female CEOs. AND YET, women make up a grand total of… 5% of VC partners. The majority of female partners are white; 0.2% are Latinx women, and 0.2% are Black women.

As if we needed more reasons for more women to rise in venture capital, it turns out that female VC partners also generate stronger results than their male counterparts, with one study finding that firms that increased the number of female partners by 10% experienced a 1.5% increase in fund returns each year, plus 9.7% more profitable exits.

It intuitively makes sense that investors are more inclined to invest in founders with whom they personally identify, but gender bias can pervade even when women are in the room. One study on VC interactions observed that 67% of the questions that investors posed to male entrepreneurs were promotion-oriented– focused on hopes, achievements, advancement, and ideals– while 66% of those posed to female entrepreneurs were prevention-oriented– concerned with safety, responsibility, security, and vigilance– a bias exhibited by both male and female investors.

“We need to give female founders the chance to share their visions rather than start them on the back-foot. This comes down to all of us, regardless of gender, being more cognizant of our biases and intentional with our diligence,” says Jenny Johnston, a Venture Partner at Better Tomorrow Ventures and Rally Cap Ventures.

So, how do we get more women into founder and investor roles?

For women rising up through venture capital, it's all about having a leading seat at the investment table. As Gabby Cazeau, a Principal at Harlem Capital, explains: "One strong way to elevate more women to partner roles is in supporting and enabling women to build strong investment track records. At funds, that looks like ensuring women are in partner-track roles, and can lead deals, have check writing or decision-making ability. On the LP side, that means ensuring that first-time or emerging fund manager initiatives actively seek out and invest in women fund managers. Getting more women on cap tables is the best way to expand diversity in this industry."

Christina Melas-Kyriazi, a Partner at Bain Capital Ventures, points to angel investing as another way for women to get involved on cap tables. Christina also promotes joining scout programs and encouraging VC firms to ensure gender balance within their programs– making sure that underrepresented groups can partake equally. VC scouts work part-time to discover potential investment opportunities and connect them with funds, getting exposure to the VC industry in the process.

Once female investors do join VC funds, the work to get equal footing is far from over. Jillian Williams, a Principal at Cowboy Ventures, details, "Environment at funds is also extremely important. At many funds, the senior leadership is predominantly male and we need to make sure we are equally empowering women and male investors to make sure we give each a fair chance to be promoted. In my experience, I’ve seen women hyper-focused on quality over quantity of deals. When bringing a deal forward, women feel pressured to make sure it’s the best deal we can find, which often means we will present or do fewer deals. This can hurt women in terms of being seen as less active, when in reality it’s perfectionist paralysis that doesn’t necessarily impact their male counterparts the same way."

Looking to the future, we also need to equip the next generation of would-be founders with the technical skills to propel them as tech leaders. As Stephany Kirkpatrick, Founder & CEO of Orum, told us: "What I see holding a lot of people back - and what put me at risk - is that the vast majority of women don't have technical backgrounds. Even at Orum where 56% of our director level staff is female, it’s still excruciatingly hard to find women with CS backgrounds. We need to have STEM backgrounds in place from early on, so everyone gets to explore career paths in those fields. I’m on the board of a STEM program that helps expose underrepresented and minority kids in our school district to have access to computers and coding. To me, this is where the change starts to happen."

Looking forward

The financial system won't be truly inclusive until both genders are participating equally in financial services– as income earners, savers, borrowers, investors, founders, and company leaders. Everyone in financial services has a role to play in erasing these financial gender gaps by becoming informed about existing barriers, building solutions that are cognizant of systemic bias, and elevating women's roles in the industry.

For women looking to get more involved, here are a few organizations to check out:

• All Raise arms female founders and funders with access, guidance, and support to exponentially accelerate their success and propel the entire industry forward.
• The Cap Table Coalition aims to diversify the VC ecosystem by creating investment opportunities for Black, Latinx, LGBTQ+, Native American, women, and other traditionally marginalized investors.
• Women in VC is the world’s largest global community for women in venture capital to connect, collaborate, and create new opportunities.
• NYC Fintech Women is a fully volunteer-run organization with 8,000+ members across startups, traditional finance and VCs, with the mission to connect, promote and empower women to advance their careers in FinTech.
• Black Women in VC, recently launched by Veronica Reeves, is a community of Black Women investors across 12 cities in the US.

Now that everyone’s on the same page, let’s move forward from this Women’s History Month by building towards a more financially-inclusive future.

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Thanks go out to all the incredible individuals who contributed their insights, and to Cristina Ciaravalli, Nik Milanović, and Michelle Dhansinghani from the TWIF team for their help with this piece.