Notes on Scott et al. (2024) – Mitigating Racial Bias and Discrimination in Financial Services

Paper: “Revealing and Mitigating Racial Bias and Discrimination in Financial Services,” Journal of Marketing Research, 61 (4), 598–618.

Main Topic or Phenomenon

This paper addresses racial discrimination in financial loan services, specifically examining how Black customers experience inferior service processes and outcomes compared to White customers when seeking small business loans. The study investigates both the manifestation of discrimination and factors that can mitigate it.

Theoretical Construct

The paper draws on spontaneous inference making theory and the justification-suppression model of prejudice:

• Spontaneous inference making: Upon encountering another person, people form automatic impressions using easily interpretable information (like phenotypical characteristics such as skin color), which triggers associations and prejudices related to social categories.
• Justification-suppression model of prejudice: Prejudice can be suppressed by forces such as social norms, personal standards, and situational attributions, but emerges when justification exists or suppression fails.
• Cue inconsistency theory: When observers encounter counterstereotypical cues that don’t fit initial categorizations, they engage in more deliberate processing and individuate the target rather than relying on group stereotypes.

Key Findings

1. Main discrimination effects: Black customers receive inferior service outcomes (less likely to be offered favorable BLOCs vs. HELOCs) and inferior service processes (lower employee warmth and competence behaviors) compared to White customers, despite having objectively stronger financial profiles.
2. SES moderation: Higher socioeconomic status mitigates discrimination for Black customers - high-SES Black customers receive treatment similar to White customers, while low-SES Black customers experience significantly worse treatment.
3. Business structure moderation: More sophisticated business structures (corporations, LLCs vs. sole proprietorships) mitigate discrimination for Black customers in loan approvals and recommendations.
4. Process mechanism: For Black applicants, sophisticated business structures increase employee trust, which decreases perceived default likelihood, leading to higher loan offer rates. This process doesn’t occur for White applicants.
5. Customer loyalty impact: Black customers report lower loyalty intentions toward financial firms due to their discriminatory experiences.

Boundary Conditions and Moderators

SES (Socioeconomic Status):

• High SES eliminates discrimination effects for Black customers
• SES has no effect on White customers’ treatment
• Black customers must signal higher SES to receive treatment equivalent to any White customer

Business Structure Sophistication:

• Sole proprietorships (low sophistication) show maximum discrimination
• Joint proprietorships/partnerships (social capital sophistication) partially mitigate discrimination
• LLCs/corporations (business-legal sophistication) most effectively mitigate discrimination
• Effects only apply to Black customers; White customers unaffected by business structure

Building on Previous Work

This paper extends prior research by:

• Methodological advancement: Uses matched-pair mystery shopping field experiments to capture actual discrimination in marketplace interactions, addressing calls for covert studies of racial attitudes.
• Process revelation: Goes beyond documenting that discrimination exists (as shown in secondary data studies like Bartlett et al. 2022) to reveal “how discrimination happens” through specific employee behaviors and product recommendations.
• Mitigation focus: Identifies specific, actionable factors that can reduce discrimination, contributing to the “Mitigation in Marketing” literature stream.
• Comprehensive approach: Examines discrimination from multiple perspectives (customer experience, employee behavior, actual outcomes) across field and lab settings.

Major Theoretical Contribution

The paper makes several theoretical contributions:

1. Discrimination process illumination: Reveals specific mechanisms through which racial discrimination occurs in service encounters (selective product offerings, differential warmth/competence behaviors).
2. Counterstereotypical cue theory: Demonstrates that inconsistent cues (high SES, sophisticated business structure) can override initial racial categorizations and reduce discriminatory behavior.
3. Dual discrimination identification: Provides evidence for both taste-based discrimination (bias despite superior Black customer profiles) and statistical discrimination (mediated through trust and perceived default risk).
4. Service quality framework extension: Shows how racial bias systematically undermines established service quality dimensions (empathy, assurance, responsiveness).

Major Managerial Implications

Standardization and Training:

• Implement standardized processes and checklists to ensure uniform product offerings
• Provide fair lending compliance training and unconscious bias education
• Use technology and self-service options to reduce human bias opportunities

Cultural and Policy Changes:

• Develop inclusive organizational cultures with zero-tolerance discrimination policies
• Create special-purpose credit products for underserved populations
• Emphasize objective financial criteria over subjective assessments

Relationship Building:

• Focus on long-term customer relationships rather than single transactions
• Provide technical assistance and mentorship to minority entrepreneurs
• Partner with community development financial institutions

Unexplored Theoretical Factors

Several potentially influential factors were not examined:

Individual Difference Variables:

• Employee racial attitudes, implicit bias levels, or cultural intelligence
• Customer assertiveness, confidence, or negotiation skills
• Regional cultural differences or local demographic composition

Contextual Factors:

• Time pressure or workload effects on discrimination
• Presence of other customers or supervisors
• Economic conditions or lending quotas/incentives

Relationship Variables:

• Prior customer-bank relationship history
• Referral source effects (who recommended the customer)
• Industry type or business model complexity

Communication Factors:

• Customer communication style or cultural code-switching
• Non-verbal behaviors or appearance cues beyond race
• Technology-mediated vs. face-to-face interaction effects

Temporal Factors:

• Discrimination patterns across different times of day/week
• Seasonal lending cycles or economic uncertainty periods
• Employee experience level or tenure effects

Reference

Scott, Maura L., Sterling A. Bone, Glenn L. Christensen, Anneliese Lederer, Martin Mende, Brandon G. Christensen, and Marina Cozac (2024), “Revealing and Mitigating Racial Bias and Discrimination in Financial Services,” Journal of Marketing Research, 61 (4), 598–618.