As challenger banks seek to acquire more customers of color, Black-owned banks say the value they provide to traditionally underserved communities goes beyond what the online upstarts can offer.

These more traditional, minority-owned banks "take a broader role in people's lives and a broader role in communities," Kevin Cohee, owner, chairman and CEO of OneUnited Bank, the nation's largest Black-owned bank, said in an interview. "These are institutions that are helping you to grow, teaching you how to build net worth, how to protect yourself and your family," the CEO said.

His comments come at a time when neobanks and financial technology companies are vying for minority customers by offering almost instant, mobile banking services that many traditional banks cannot match.

"They're really turning banking on its head," said Stephone Coward, co-founder of BankBlackUSA, a group supporting the ability of Black-owned banks to compete at a time of disruption in the financial industry. "Customers are not traditionally attached to the brick-and-mortar locations as they once were," he told S&P Global Market Intelligence.

But for all the modern amenities that challenger banks may offer, there are intangibles that Minority Depository Institutions provide that are not easily replicated, according to Dominik Mjartan, president and CEO of Black-owned Optus Bank.

"You cannot deliver compassion instantly and electronically, with accountability to that customer," Mjartan said in an interview. "We are mission-driven, and we aspire to get a lot of people out of trouble."

Still, Mjartan said Optus has partnered with fintechs to create a basic platform that runs all the bank's transactions, as well as a platform that helps Optus provide Paycheck Protection Program loans to its customers.

But Optus has been careful to pick fintech companies that are aligned with the bank's core mission of helping its customers, the CEO said.

"If you use financial technology well, you can use it for the greater good, rather than exploitation," Mjartan said.

As an example of such exploitation, the Optus official said "disruptive" banks may put their customers in a worse long-term financial position by instantly approving loans.

"It's appealing to someone to log into their phone or computer and in a minute have $5,000," Mjartan said. "That's a hole that's coming in their financial condition, a gap in their net worth."

Rise of the challengers

Paybby is a new challenger bank working to attract minority customers. In January, Paybby said it was acquiring digital banking app Wicket, taking on its Paycheck Protection Program loans to Black and Brown communities in the process.

CEO Hassan Miah said in an interview that Paybby wants to build a "trust engine" to reach people of color who are underbanked or unbanked.

Such customers may be shying away from traditional banks due to practices like overdraft fees "that makes them not trust the banking community," according to Miah, whose bank offers deposit accounts with no minimum balances or monthly fees, no overdraft fees and early access to wages, according to a report in American Banker.

He added that Paybby will be able to reach more customers than traditional MDIs.

"There are hardly any Black banks in this country, and they are very, very small," Miah said.

However, it is not strictly a competitive relationship between Paybby and MDIs, the CEO said. In one instance, the challenger partnered with Black-owned Carver Federal Savings Bank to provide PPP loans.

"It's part of the idea that we're going to be a full bank," Miah said.

Balancing act for MDIs

OneUnited CEO Cohee said his bank is striving to provide the technology that its customers want while still assisting Black and other minority communities on the ground.

"We have proprietary technology that protects our business model," Cohee told S&P Global. He noted that OneUnited has products that allow customers to automatically receive money from working for Uber or Lyft and access their paychecks early through direct deposit.

But the bank still works with its customers on individual transactions, "coaching, motivating and inspiring," and takes an active role to combat racism, Cohee said. In February, the bank launched its "OneTransaction" campaign, which encourages its customers to partake in a single transaction "in 2021 that will increase your net worth and create generational wealth," such as buying a life insurance policy, creating a will or taking steps to improve one's credit score.

Ultimately, it is the customers of color who stand to benefit the most from the emergence of challenger banks in the space, one stakeholder said.

"To the extent that competition results in a wider range of opportunities, especially for communities of color, competition is a good thing," said Mark Chorazak, a partner in Shearman & Sterling's global financial institutions advisory and financial regulatory practice.