Robert Smith (Vista Equity Partners Founder) – Inclusiv Conference (Sep 2021)

Chapters

Abstract

Bridging Economic Divides: Robert Smith’s Vision for Financial Inclusion and Modernization (Updated)

In an era marked by technological advancements and persistent economic disparities, Robert Smith, an accomplished chemical engineer turned financial expert, stands as a visionary advocating for systemic change. Smith’s multifaceted approach, encompassing financial inclusion, digital transformation, and community empowerment, targets the heart of racial wealth disparities. His initiatives range from empowering software programmers and interns to redefining banking systems for underserved communities. This comprehensive article delves into Smith’s strategies, highlighting his innovative solutions like the Southern Communities Initiative, modernization of Community Development Financial Institutions (CDFIs), and the importance of collaborations to reshape the financial landscape.

Personal Pathway

Robert Smith’s journey from chemical engineering to a technology and finance expert underpins his unique perspective. He likens software programmers to modern alchemists, turning ideas into empowering tools across various sectors. This belief stems from his own transformative career path, where his grounding in engineering principles led to a broader vision of technology’s role in society.

Smith grew up in a segregated neighborhood in Denver, Colorado, and his parents were school teachers. He was exposed to desegregation during his early years, which had a profound impact on his worldview. His undergraduate studies in chemical engineering further shaped his analytical and problem-solving skills. Smith views chemical engineers as “modern-day alchemists” who transform matter, drawing parallels between their work and software programming, as both involve transforming ideas into products and services.

Importance of Interns

Smith champions the potential of interns, particularly from historically Black colleges and universities (HBCUs), through platforms like InternX. He sees these interns not just as temporary workers but as vital contributors to future technological and economic landscapes, deserving of investment and development.

Smith emphasizes the value of investing time and energy in interns. He highlights InternX, a platform that provides training modules for HBCU students to enhance their skills. He encourages credit unions to sign up for InternX to access talented interns. Additionally, utilizing intern networks, particularly STEM students, can provide credit unions with fresh perspectives on digital engagement. Interns bring a unique understanding of the digital world and can help credit unions innovate and adapt to changing customer preferences. Interns can assist credit unions in developing services and solutions tailored to young entrepreneurs and businesses, driving the growth of the new economy.

Advocacy for Financial Inclusion

At the core of Smith’s philosophy is his advocacy for financial inclusion. His initiatives, such as the Student Freedom Initiative and the Fund II Foundation, are direct responses to the racial wealth gaps he observed and experienced. These programs support underrepresented students and businesses, fostering a more equitable economic environment.

Smith’s passion for financial inclusion stems from his upbringing and experiences. He believes that everyone deserves an equal opportunity to achieve financial success. He aims to bridge the racial wealth divide and promote economic inclusivity. In addition, Smith emphasizes the importance of financial literacy and counseling. He believes that individuals should be equipped with the necessary knowledge and skills to make informed financial decisions. This can be achieved through partnerships with organizations like HBCUs, which have a strong track record of providing financial education and training.

Collaboration and Partnerships

Smith’s approach is deeply collaborative, urging partnerships between corporations, government, and communities. He advocates for policies that ensure economic inclusion and equal opportunities, understanding that collective efforts are essential in addressing systemic disparities.

During the pandemic, Smith recognized the challenges faced by businesses, especially in sectors like gyms and restaurants. His response was a blend of immediate action and long-term strategy, focusing on financial support and infrastructure modernization to aid recovery.

Historically, many black neighborhoods lack branch banks, making it challenging for businesses to access financial services. Communities without banks face obstacles in securing loans, purchasing homes, and financing vehicles. The COVID-19 pandemic severely affected businesses, particularly those in underserved communities. Gyms and restaurants, significant businesses in these communities, were forced to shut down, causing distress.

Identifying Underserved Communities

Smith’s personal experiences influenced his focus on communities lacking traditional banking services. He understood the challenges these areas faced, particularly during crises like the pandemic, and sought to provide targeted solutions.

Robert Smith, a finance and technology expert, realized the urgent need to address the lack of banking access in underserved communities. He observed that many of Finastra’s customers, facing financial difficulties due to the pandemic, belonged to communities without adequate banking infrastructure. Smith initiated discussions with Finastra’s team to explore ways to support underserved communities. He reached out to government officials, including Treasury Secretary Mnuchin, to raise awareness about the issue. Collaboration with the National Bank Association, led by Kenneth Kelly, Donna Gumbrell, and Bill Bynum, led to daily calls to develop a plan.

Addressing Financial Access

Collaborating with entities like the National Bank Association and tech giants like Microsoft, Smith worked towards improving financial access in underserved communities. His approach combined technological solutions with a deep understanding of local banking needs.

The most effective way to address the issue was identified as supporting the capillary banking system, which includes CDFIs (Community Development Financial Institutions) and MDIs (Minority Depository Institutions). CDFIs and MDIs are deeply ingrained in underserved communities, providing economic capital and financial services. However, many lacked the technological infrastructure and resources to adequately serve their customers. Smith and his allies, including Inclusive and government agencies, worked together to bring forth solutions. Technology providers like Finastra and Microsoft joined the effort to provide modernized infrastructure and support. This collective effort gained momentum, leading to positive changes in addressing the banking access gap.

The Role of Capillary Banking Systems

Recognizing the value of local financial institutions like CDFIs and MDIs, Smith pushed for their modernization and capacity building. These institutions, with their local knowledge and relationships, are pivotal in distributing economic capital effectively.

Modern banks are essentially technology companies, and their lending capacity is tied to their digital infrastructure. Upgrading digital infrastructure will increase lending capacity and ability, particularly in communities that lack access to traditional banking services. Getting capital into tier one and tier two banks will enable them to lend effectively to communities, businesses, and individuals in need. Studies have shown that larger banks and arterial banks often do not view providing physical infrastructure in communities as economically viable. CDFIs and MDIs play a crucial role in providing financial services to underserved communities. Digitizing the infrastructure of CDFIs, MDIs, and small businesses will increase visibility and allow for improved credit and loan recovery. An analysis conducted with Microsoft and McKinsey revealed that modernizing every CDFI and MDI in the United States would cost approximately $524 million. This investment would create more economic impact than other infrastructure projects by increasing the modality of opportunity in communities and driving capital into them.

Challenges and Progress

Despite the challenges, Smith remains optimistic about the progress made in enhancing the effectiveness of local banking systems. He cites increased collaboration and solution implementation as signs of positive momentum.

There has been a surge in activities and implementation to address the banking access issue. The focus on the capillary banking system resonates with community development credit unions. Smith emphasizes the importance of community members collectively raising their voices to bring attention to the problem. Additionally, the need for modernizing capillary banking systems and investing in CDFIs and MDIs should be emphasized to policymakers and the administration. This is essential for driving economic recovery through small and medium businesses, which are the backbone of the economy.

Importance of Unifying Voices

Smith believes in the power of a unified voice among community development organizations. By speaking together, these groups can amplify their impact and drive significant changes in the financial sector.

The need for modernizing capillary banking systems and investing in CDFIs and MDIs should be emphasized to policymakers and the administration. This is essential for driving economic recovery through small and medium businesses, which are the backbone of the economy.

Capitalization of CDFIs and MDIs

The modernization of these institutions, crucial for their effectiveness, requires substantial investment. Smith points to the relatively modest cost of this modernization compared to larger economic packages, highlighting its potential high impact.

FinTech solutions can empower financial institutions to focus on their core strengths, such as connecting with members and designing products that meet their needs. The upcoming panel on FinTech will explore how technology can enhance the services provided by financial institutions.

Benefits of Infrastructure Modernization

Modernizing financial infrastructure offers immense benefits, including expanded opportunities for small and medium businesses, capital infusion for growth, and overall economic recovery.

Injecting Capital into Tier One and Tier Two Banks: Getting capital into tier one and tier two banks will enable them to lend effectively to communities, businesses, and individuals in need. Studies have shown that larger banks and arterial banks often do not view providing physical infrastructure in communities as economically viable.

The Role of CDFIs and MDIs in Digitizing Small Business Infrastructure: Community Development Financial Institutions (CDFIs) and Minority Depository Institutions (MDIs) play a crucial role in providing financial services to underserved communities. Digitizing the infrastructure of CDFIs, MDIs, and small businesses will increase visibility and allow for improved credit and loan recovery.

The Cost of Modernization and its Economic Impact: An analysis conducted with Microsoft and McKinsey revealed that modernizing every CDFI and MDI in the United States would cost approximately $524 million. This investment would create more economic impact than other infrastructure projects by increasing the modality of opportunity in communities and driving capital into them.

Addressing Challenges in Traditional Banking

Smith notes the limitations of traditional banking models, particularly in communities without physical bank presence. He advocates for alternative criteria and methods, like FinTech solutions, to better assess and support local businesses.

FinTech Solutions for Financial Institutions: FinTech solutions can empower financial institutions to focus on their core strengths, such as connecting with members and designing products that meet their needs. The upcoming panel on FinTech will explore how technology can enhance the services provided by financial institutions.

Digital Inclusion and Economic Equity

In the face of a talent war and a rapidly evolving digital landscape, digital inclusion plays a pivotal role in bridging wealth, income, and opportunity gaps rooted in historical biases. Ensuring broadband access for all citizens is critical for economic participation and competitiveness in the modern world.

Addressing economic disparities in the U.S., which have resulted in a staggering $23 trillion economic loss, is essential for the nation’s economic competitiveness. The focus should be on providing access to technology and capital to all Americans, enabling them to participate in the digital economy.

Creating sustainable ecosystems and communities that foster equitable opportunities for all is the ultimate goal. This vision ensures that every individual has the chance to thrive and live a fulfilling life.

Collective efforts and a unified voice are crucial to driving change and achieving the goal of digital inclusion. Collaboration among various stakeholders is essential for advancing the cause of digital equity.

Notes by: MatrixKarma