Source: Bank on San Francisco Bank on San Francisco provides outreach and marketing tools, such as this, for participating banks and other partners.

'Bank On' Programs Create Civic Partnerships that Reach the Unbanked

Heidi Goldberg, Program Director for Early Childhood & Family Economic Success, National League of Cities

Financial institutions in cities around the country have a unique opportunity to work with their local governments and local community groups by participating in Bank On programs. These programs provide starter accounts, financial education, and other financial opportunities to consumers who have had little or no connection to banks or credit unions.

Supported by technical assistance from the National League of Cities (NLC), Bank On Cities initiatives are modeled after the successful Bank on San Francisco program launched two years ago by San Francisco Treasurer José Cisneros, the Federal Reserve Bank of San Francisco, and the nonprofit group, Earned Assets Resource Network (EARN).

Bank on San Francisco has more than met its original goal to bring 10,000 of the city's estimated 50,000 unbanked residents into the financial mainstream. During the first two years of the Bank on San Francisco program, 15 participating financial institutions opened 18,500 accounts. With an average monthly customer account balance of just below $800, Bank on San Francisco customers have created $14 million in new deposits.

In 2008, the National League of Cities conducted the Bank On Cities campaign, a technical assistance project with 10 cities to help city leaders connect residents to the financial mainstream. Although some of the cities have developed different models, most will follow the Bank on San Francisco model. The cities that participated in the NLC project include Boston, Houston, Los Angeles, Miami, New York, Providence, San Antonio, San Francisco, Savannah, and Seattle. NLC will be conducting a second round of technical assistance to a new cohort of cities in 2009.

Programs modeled after Bank On are in the planning stages in at least 40 to 50 jurisdictions nationally, including projects supported by the William J. Clinton Foundation, the Federal Deposit Insurance Corporation, and the U.S. Department of the Treasury.

Financial institutions partnering in the Bank on San Francisco initiative agreed to

• Offer a low-cost, checkless bank account product to unbanked customers;
• Offer accounts to those who have had a troubled banking history and need a second chance;
• Accept alternative forms of identification, such as the Mexican Matrícula Consular (consular registration), an identification card that Mexico issues through its consular offices; and
• Partner with nonprofit community groups to identify customers who are ready to open accounts.

For more information on customer identification requirements, see Customer Identification Requirements for New Accounts.

Other cities implementing Bank On initiatives have developed similar criteria for their starter accounts. The individual cities publicize the program with the news media and provide marketing materials. Community groups refer consumers to financial institutions offering Bank On accounts and may also offer financial counseling.

Partnering for Results

One of keys to success in the Bank On model is the partnerships among participating financial institutions, community groups, and city officials. Each partner brings a valued commodity to the table and comes away with benefits.

Banks offer financial services products that could save unbanked customers money and help them build assets. The average Bank on San Francisco client is a 25- to 40-year-old who earns $800 a week and spends $1,000 a year for using check cashing services and money orders in lieu of checks, says EARN Asset Services Manager Marco A. Chavarin.

Synergy with Current Programs

According to Mia Mabanta, a senior associate at Pew Charitable Trusts working on the Safe Banking Opportunities project, many banks already have a footprint in the areas where fringe financial service providers operate, and they do not have to build new branches to reach unbanked customers.

Nor does participation always involve creating a new banking product. Christopher Hammond, Senior Vice President and Business Development Director for Wells Fargo & Co. in the San Francisco Bay area, says that Wells Fargo found that the accounts that it was asked to offer in the Bank on San Francisco program were consistent with products and services already in its community development banking arsenal. The performance of Wells Fargo's Bank on San Francisco accounts has mirrored the performance of its second-chance Opportunity Package checking and student checking accounts, Hammond adds.

Bank On advocates say that the programs give banks access to a new customer base for consumer credit products, although the data to support that assertion is limited this early in the program's history. Wells Fargo has seen "some positive indicators," but it is still evaluating how much migration is occurring.

Banks benefit indirectly from the positive publicity they receive from the Bank on San Francisco program. Chief Executive Officer David Joves of Mission National Bank, a $150 million institution targeting business customers in San Francisco's Mission District, explains that the program has been most useful to the bank's small business customers, who have sent their employees to Mission National to get Bank on San Francisco accounts.

Community Benefits

Community groups bring to the program their connections to residents in targeted areas. In exchange, their clients receive financial education, learn to use the American banking system, avoid paying excessive fees to check cashing and payday loan operations. As a result, the clients may eventually build assets.

Patty Avery, Director of Employee Communications for Old National Bank in Evansville, Indiana, observes that civic leaders benefit politically when Bank On programs successfully raise financial literacy and increase the assets held by their constituents.

Avery, who served as a loaned employee to the city of Evansville to manage the 2009 launch of the Bank on Evansville program, recommends that financial institutions estimate the potential business benefits of Bank On participation by exploring the size and reach of local market payday lenders and check cashers and by defining the population of unbanked consumers in their markets. Evansville, for example, has a population of about 121,000 people, but its payday lenders earn about $6 million a year in fees, she says.

Overcoming Barriers

Bank On programs face challenges as they seek to reduce the defined unbanked population. Some consumers simply don't understand how bank accounts work; others fear that financial institutions either aren't safe places for their funds or will charge excessive fees. Recent immigrants, in particular, may perceive banks as unstable financial institutions where funds can be expropriated through nationalization. With the recent economic crisis, confusion, misunderstanding, and mistrust of financial institutions have increased.

While community groups can help dispel some myths, bank participants have to plan and implement programs so that staff members at every level—from those who greet the customers to those who support operations—know how to treat Bank On customers.

The Bank on San Francisco financial partners that experienced the greatest success shared some common traits, which included:

• Continual training for their staff to position themselves as financial advisers;
• Communicating information about the program to all levels, so that the back office knows that Bank On customers are to be treated differently;
• Regularly sending out e-mail or training reminders that keep the program goals on everyone's radar;
• Collecting data about Bank On customers so that program results can be measured and analyzed; and
• Having a source where they can send customers whose financial track records go beyond the bank's acceptable risk profile (in San Francisco, credit unions and United Way filled this need).

To help banks move into the unbanked market, Pew created Safe Banking Opportunities. A part of that group's purpose is to support the Bank On initiatives by providing strategic advice to local coalitions and detailed data describing local unbanked markets. It offers advice on serving these markets.

Market Opportunity

Bank On-type programs, when correctly implemented, can benefit for banks, community groups, government officials, and consumers. As the Bank On model spreads to new communities, unbanked persons will begin saving money that they're currently spending on fringe financial service providers, and financial institutions will see that this is a market that's profitable to access.

For more information about Bank On Cities, visit the National League of Cities Web site or e-mail Heidi Goldberg.