The Customer Effect

‘Indian Country has been plagued by systemic red-lining’: Indigenous communities are the most unbanked in the U.S.

  • Indigenous people in the U.S. and Canada continue to face institutional discrimination in their banking experiences.
  • Indigenous-owned banks and enterprises are paving a path for economic autonomy and prosperity for their communities.
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‘Indian Country has been plagued by systemic red-lining’: Indigenous communities are the most unbanked in the U.S.

Indigenous communities in the U.S remain widely under represented in financial services. According to the FDIC’s 2019 survey of household use of banking and financial services, American Indian and Alaska Native communities had the highest rates of unbanked households at 16.3 percent. 

The survey, which was published in 2020, projected the rates of unbanked households to rise as a consequence of the coronavirus pandemic, which has disproportionately impacted Indigenous communities in the U.S. 

Historically high poverty rates, coupled with unemployment and systemic racism against Native American populations, have barricaded access to financial capital and credit. Research indicates that despite recent advances in per capita income, decades worth of economic development is still needed to equalize per capita income for Indigenous people on reservations to catch up to the per capita income of other Americans. 

Long distances between reservations to ATMs and banks or limited access to broadband hinder in person and online banking experiences for Indigenous people. According to a 2017 report from Native Nations Institute, the average distance from the center of a reservation to the nearest bank is 12.2 miles with an average distance of 6.9 miles to the nearest ATM. The national average to a bank is under 4 miles. Although physical accessibility to banks and ATMs has improved for many communities since 2001, broadband connectivity to high speed internet still remains low for tribal land residents. 

According to research from Iowa State University, individuals who grow up in “financial deserts” or areas with no or few financial institutions, are 20 percent less likely to have a credit report, have 7 to 10 point lower credit scores and 2 to 4 percent higher delinquency rates. The overall effect on their credit score is akin to the impact of reducing annual income by $6,000.

“Indian Country has been plagued by systemic red-lining and lack of access to capital and banking services for decades. This is one of the major contributing factors to the impoverished conditions that unfortunately continue to exist in many Native communities and on reservations,” said Joel Smith, the senior vice president and chief credit officer at Native American Bank.

30 Native American banks and credit unions in the U.S. have been working to address these concerns by providing much needed financial assistance to Native American communities that have been largely ignored by traditional banks. 

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“Tribes and Native American entrepreneurs have been historically grossly underserved by traditional banks that don’t have the knowledge of how to successfully bank and lend in reservation environments,” said Smith. “These challenges include navigating sovereign immunity, tribal jurisdiction, and the status of land held in trust.”

Native American Bank is the only national Native American owned community development bank majority owned by tribal interests in the country. The bank was created in 2001 when 12 founding tribes, including members from the Navajo Nation, the Blackfleet Nation and Alaska Native communities, rallied together to overcome historic economic, cultural and institutional hurdles to capital access. 

“Native American Bank specializes in overcoming these barriers, whereas still most conventional banks may not have the desire to devote the time it takes to understand lending in Indian Country and the cultural realities of serving the Native community,” said Smith. “The bank’s lending staff is largely composed of tribal members that understand the cultural and legal realities of working in Indian Country,” said Smith. 

Other prominent Native owned banks include Lumbee Guaranty Bank, Bank of Cherokee County, Turtle Mountain State Bank and Eagle Bank. The Native American Financial Services Association in Washington works towards economic development opportunities for tribal nations within the financial services industry. 

Although comprising around 1.7 percent of the U.S population, Native Americans retain tremendous buying power. In 2018, this was reportedly estimated to be around $115 billion and is predicted to increase by 7 percent in 2023. 

“Indian Country is not a vestige of the past but rather it is large and growing. It has immense needs for development, affordable housing, governmental services and correspondingly immense untapped potential,” said Smith. 

Across the border in Canada, First Nation, Metis and Inuit communities face similar economic challenges to those faced by Indigenous people in the U.S. In 2015, an estimated 15 percent of Indigenous people in Canada were unbanked. Many Indigenous Canadians continue to live on-reserve in remote locations with limited access to banking services.

Indigenous communities continue to face rampant discrimation in traditional banking experiences. In January of 2020, an Indigenous elder and his 12 year old granddaughter were handcuffed and detained after trying to open a bank account at a BMO branch in Vancouver. The BMO bank employee did not recognize the customer and his granddaughter’s government issued Indian Status cards. 

“While banking is essential, Indigenous communities are the largest unbanked population in Canada,” said Lawrence Lewis, founder of OneFeather, an Indigenous technology company. 

OneFeather started out by providing electoral services such as online polls and digital voting for Indigenous voters and has recently transitioned into providing digital banking solutions. Its products include the OneFeather APP which provides users with branchless banking services, especially for Indigenous customers living in remote areas. It also offers the OneFeather PAY card which is a reloadable, contactless payment solution that allows Indigenous people to make payments at point of sale or to shop online. 

“When a member opens an account with OneFeather, they can use the same login for all OneFeather services – including voting, banking, and soon our digital status card renewal and application service,” said Lewis. “Regardless of who you are, every relationship you have with an institution, like with a phone company or a bank, and the subsequent transactions reinforce our digital identity. We have created a trust center for Indigenous identity.” 

According to Lewis, traditional banks in Canada need to educate themselves on Indigenous sovereignty including improved awareness of the diversity of status cards that an Indigenous person may hold as valid pieces of government identification.

“Employees, from those greeting customers to those in management, should be better equipped to serve their Indigenous customers and work to break down the walls of discrimination often experienced by Indigenous Peoples,” said Lewis. 

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