A study by the New York Federal Reserve found that many Black business owners made heavy use of fintech platforms, rather than traditional banks, to get pandemic aid, which the central bank said indicated inequalities in credit access in major institutions.

While in terms of absolute numbers, Black business owners patronized traditional banks more, in terms of proportions, they were more than twice as likely to access aid through fintech platforms such as Kabbage and Square than anyone else. New York Fed data showed that about 45 percent used a large bank; about 30 percent used a medium-size bank; and about 25 percent used a fintech company. In contrast, the second most likely group to use fintech platforms was Hispanic business owners, and only a little less than 10 percent of them did so. Further, said the Fed, fintech lenders approved the highest percentage of applications from Black-owned small employers as compared to firms owned by persons of other races and ethnicities.

Most of those who went the fintech route, said the Fed, had no prior relationship with the company, in contrast with the business owners who turned to traditional banks, who often did. This is congruent with previous research that found that banks generally tended to prioritize their existing customers when guiding them through the aid process. Overall, the central bank believes that Black business owners turned to fintech platforms in such great numbers due to existing inequalities in credit access.

"Applicants who approached fintech lenders for PPP [Paycheck Protection Program] loans were more likely to lack banking relationships, be minority owned, and have fewer employees," said the Fed study. Moreover, a higher share of applications by Black-owned businesses were approved by fintech lenders as compared to firms with white, Asian, or Hispanic owners. Since Black owners were approved for loans by fintech lenders at a higher rate even before the pandemic, our results suggest that historical factors that prevent Black owners from receiving bank credit continued to operate with the PPP."