How Banks Can Solve the Problem of the Unbanked

The tenacious problem of the unbanked may have a powerful opponent: a consumer-friendly checking account offered by banks across the country.

More than 7 million U.S. households didn’t have a bank account in 2019, according to the Federal Deposit Insurance Corp.; and a quarter of those households were “very or somewhat interested” in opening one. To close that gap, more than 100 financial institutions have certified one of their checking accounts as safe, affordable and transparent. The program, called Bank On, aims to leverage banks as a community partner to make it easier and cheaper to bring unbanked and underbanked individuals into the bank space.

The Bank On program pairs certified checking accounts issued by local banks to community programs that support financial empowerment and wellbeing. The account standards were created by the Cities for Financial Empowerment Fund, with input from financial institutions, trade associations, consumer groups, nonprofits and government parties. The accounts must be “safe, affordable and fully transactional,” says David Rothstein, who leads the national Bank On initiative as a senior principal at the CFE Fund. These accounts don’t carry overdraft fees or high monthly fees. They have a low minimum opening deposit and the account holder must be a full bank customer, with access to other services.

The standards address some of the concerns that unbanked households have about bank accounts or their experience with banking. Almost 50% of respondents told the FDIC that they didn’t have enough money to meet minimum balance requirements, 34% said account fees were too high and 31% said fees were too unpredictable (respondents could select more than one reason).

The FDIC found that not having a bank account translates into greater reliance on potentially costly nonbank financial services. Among unbanked households, 42% said they used money orders.

“People are far more likely to reach their savings goals when they have a bank account and they’re getting [financial] counseling. They’re much more likely to improve their credit scores and pay down debt as well,” Rothstein says.

Chicago-based First Midwest Bancorp recently decided to certify its Foundation Checking account, a product it has offered for decades that is at the crux of how the bank helps its customers find financial success and independence. First Midwest offers Foundation Checking customers financial counseling either in-house or through nonprofit partners; having a Bank On-certified account was a “natural extension” and puts the $21.6 billion bank on the radar of even more nonprofit partners that are focused on financial wellness within its Illinois, Wisconsin and Iowa markets, says Thomas Prame, head of retail banking. He adds that the application process was simple and smooth.

Millions of Bank On accounts have been opened in recent years. The Federal Reserve Bank of St. Louis maintains a data hub of account activity submitted by 10 participating banks, ranging from Bank of America Corp. and JPMorgan Chase to $2.9 billion Carrollton Bank, the bank unit of Carrollton, Illinois-based CBX Corp.

More than 5.8 million accounts have been opened at these banks to date; 2.6 million accounts were open and active in 2019. The Federal Reserve Bank of St. Louis found that almost $23 billion was deposited into Bank On-certified accounts at those banks in 2019, according to its most-recent report, with an average monthly balance of $345 per account. A little more than a quarter of the account holders used direct deposit; three-quarters were digitally active. In 2019, 85% of the customers who opened a Bank On-certified account at one of these banks was a new customer.

Adoption of these accounts is “greatest in areas with high concentrations of lower-income and minority households,” using zip code as a proxy, according to a July analysis of the data by the Bank Policy Institute, a big bank trade association. In 2017, nearly 60% of new Bank On-certified accounts were for customers residing in a zip code with more than 50% ethnically diverse populations, even though 30% of the participating bank branches were in these zip codes.

Banks that offer certified accounts are eligible to receive credit for the Community Reinvestment Act for the accounts themselves as well as volunteering or financially contributing to local coalitions that promote these accounts within their markets. Additionally, the accounts can attract new and younger customers to a bank, forging relationships that could deepen over time as the customer ages. More than 115 financial institutions have certified one of their accounts in the program.

Account certification is simple and straightforward. The CFE matches a bank’s account to the terms and conditions of the program and alerts the institution if it needs to make any changes. Certification can take as little as a week; the CFE can also pre-certify an account that hasn’t launched yet. Banks with qualifying accounts can use the Bank On seal of approval in marketing and other communications.

Once Stagnated, Banks Are Refreshing Checking Accounts to Compete

Once a staid and basic product offering, banks are reinvigorating consumer checking accounts.

A number of banks, taking a page from the challenger bank playbook, are adding features to their accounts to please consumers: early access to a direct-deposited paycheck, free overdraft and short-term loans. These changes attempt to match the offerings from financial technology platforms such as Chime and Current, which have been growing exponentially and attracting billions in venture capital funding.

The default consumer checking account is easy to take for granted. Most banks offer them without cost to customers in exchange for a deeper relationship such as a monthly direct deposit or a minimum balance. The hope is that a customer is profitable through noninterest fee income such as debit card interchange fees or through other products the bank can cross-sell to the customer.

But the Durbin amendment, part of the 2010 Dodd-Frank Act, reduced interchange income for banks with more than $10 billion in assets. The Durbin amendment made checking accounts less profitable while digital account opening made it easier for consumers to open an account with a competitor. Checking accounts stagnated, says Alex Johnson, director of fintech research at Cornerstone Advisors. Joining the fray were online-only neobanks like Chime, Digit and Varo Bank, N.A., a fintech that received approval for a bank charter in July 2020 and now has $403 million in assets. They customized their checking accounts with valuable features to gain new customers — including customers willing to pay for some features.

Investments in digital are not the same as investments in deposits, but they were treated as the same a lot of times,” Johnson says. “Banks said ‘We’re keeping pace, we let people open up these accounts on their phone.’ That’s great, but … are you doing anything new to improve the value proposition there? The answer is no.”

Now, a number of banks are reconsidering their deposit offerings to drum up interest from new customers and deepen relationships with existing ones. Many of them leverage technology, require direct deposit information and are consumer friendly, helping customers avoid overdraft fees. Capital One Financial Corp. and SoFi Technologies— a fintech that has applied to acquire a community bank — offer access to direct deposits paychecks two days in advance, following Chime’s lead. Pittsburgh-based PNC Financial Services Group launched a feature called “Low Cash Mode” within its digital wallet in April; Columbus, Ohio-based Huntington Bancshares rolled out a cash advance product in June for checking account customers with a history of monthly deposits. The offering from the $125.8 billion bank takes a page from Varo’s Varo Advance product and is addition to the bank’s overdraft grace period. Ally Financial, which has $181.9 billion in assets, did away with overdraft fees altogether.

The intense focus on reinvesting in deposit products relates directly to the importance of primacy. Consumers define their primary bank as the institution that holds their checking account, versus the institution with the car loan or mortgage, says Mike Branton, a partner at StrategyCorps.* StrategyCorps works with banks to add services to checking accounts using a subscription model.

Measuring primacy — the number of households or customers that genuinely consider an institution to be their primary one — is hard for banks. Branton says many banks don’t have a set definition or use a definition based solely on banking behavior, such as account balance or debit card swipes; others look at the sheer number of other accounts linked to a checking account. StrategyCorps uses a financial definition for primacy that considers banking behavior and account activity in terms of revenue generation: Primary customers generate $350 or more a year for their bank.

That kind of revenue can be a tall order when banks have offered free checking for decades. Results from cross-selling may prove elusive. But free doesn’t have to be a showcased feature of checking accounts, especially if customers think the services and benefits are valuable. Digit, a fintech that helps customers save money by analyzing their spending and automatically moving funds when they can afford it, charges $5 a month. The fintech Current charges $4.99 per month for a premium account, which includes up to $100 in overdrafts and early access to direct deposits such as paychecks, a benefit for low- and moderate-income Americans who are living paycheck-to-paycheck.

“Products are more important than ever,” Branton says. “I think what banks are learning from the pandemic is that because people are not coming in the branch and experiencing the human touch as frequently, but are interacting with the banking product, they must make their products better than ever.”

*Bank Director founder Bill King is also a founding partner of StrategyCorps.

Reimagining Small Business Checking

If you could start your own bank and design it from the ground up, what would it look like?

And if you’re a business banker with a focus on small business clients, how would your reimagined bank, and its core product offerings, differ from your current ones?

This is the challenge plaguing banks today. For the most part, business banking products have become a commodity — it’s virtually impossible to differentiate your bank’s offerings from the ones being sold by your competitor down the street. For that matter, it may be hard to draw meaningful differences between your various accounts, such as with your retail and commercial offerings. That’s one reason why 27% of business owners rely solely on a personal account. And it’s also why only 38% of small to medium business owners believe that business banking services offer extra benefits compared to their personal account.

One way for banks to break out of this current dilemma may be to shift their focus. This approach is already working for fintech challengers. Instead of focusing solely on transactional products or in-person services, they worked on understanding customer workflows and solving digital pain points. In the process, they have captured the imagination and the pocketbooks of small business owners.

If your bank has prioritized small business customers, or plans to, the best way to make this shift is by focusing on the business owner. Start with this simple question: What do you need from your bank to make meaningful progress with your business?

Their response likely won’t have anything to do with your existing products or services. Instead, they may share a problem or pain point: I need help tracking which customers have paid me and which have not.

There’s no mention of products or account features like fees, balance requirements and e-statements. A response like this reminds us of the quote popularized by Harvard Business School Professor Theodore Levitt: “People don’t want to buy a quarter-inch drill. They want a quarter-inch hole.”

In our case, it goes something like this: Business owners don’t want a list of transactional ranges, fees or digital banking tools. They want to know if their bank can help them better track and accept customer payments, so they can maximize their time running their business.

Increasingly, the process of accepting payments is moving from in person to online. But when small business owners turn to their financial institution for assistance, the bank lacks a simple solution to meet this fundamental need.

This leaves the business owner with four options for moving forward — options that require either minimal involvement or no involvement from a bank.

  1. If a small business decides that it’s not worth dealing with cards, they can simplify their receivables by only accepting cash and checks, closing themselves off to customers who prefer to pay in other ways.
  2. If a small business decides to accept credit cards, it can accommodate more paying customers, but must now track payments across bank statements (for checks) and external payment tools (for credit cards).
  3. If a small business relies on external invoicing or accounting tools, it can invoice and accept digital payments, but must now track payments across multiple platforms and reconcile those funds back to its bank account.
  4. If a small business consolidates all of its financial needs with one provider like a fintech challenger, they can resolve the complexity of dealing with multiple tools and/or platforms but lose out on the expertise and high-touch support of a business banker.

The two middle options involve a bank at the outset but can often lead to reduced deposits over the long term. Over time, fintech challengers may disintermediate banks by offering similar, competing products like integrated deposit accounts. The fourth option, born out of frustration, removes the bank entirely from the relationship.

Clearly, no option listed above is ideal. Nevertheless, it is still possible to help the business owner make progress with accepting digital payments. And, even better, there is an emerging  solution for small business owners that may lie with your most straightforward business product: your small business checking account. Watch out for part two to learn more.

How Community Banks Compete on Digital Account Openings

In 2019, over half of all checking accounts were opened via digital channels. In 2020, this number rose to two-thirds.

In 2019, megabanks and digital banks were responsible for 55% all checking applications. In the first three months of 2020, this figure reached 63% — and climbed to 69% in the next three months.

Meanwhile, community banks and credit unions accounted for 15% of applications in 2019, and even fewer than that in the six months of 2020. What’s happening here?

It’s a trend: More accounts are being opened online. But digital account openings are only one piece of a steady shift in the financial services industry, one where consumers do more over online and mobile channels. Megabanks and digital banks are riding this wave, using powerful online offerings to draw consumers away from smaller institutions.

Moneycenter banks have strong digital operations that allow them to expand into communities where they may not have a single branch. Digital offerings have also opened the door for new players like online-only challenger banks, big tech companies and fintechs that are successfully luring in younger customers with payments, investing and even cryptocurrency services. Make no mistake: if community banks aren’t already in direct competition with these digital players now, it’s only a matter of time before they are.

Who Are The New Players?

In the past, community banks’ primary competitors were primarily each another or a nearby regional bank. Today, technology is redefining what it means to be a financial institution, and thereby reshaping the competitive landscape.

Big tech heavyweights like Facebook, Alphabet’s Google, Apple, and Amazon.com have become increasingly involved in financial services in recent years. Their efforts are growing in scope: Google, for example, launching Google Plex, which includes a checking account. Most likely, these firms believe that over time, their expertise in the areas of data and software development will yield a natural advantage over incumbent financial institutions.

Online-only startup banks (also known as challenger banks or neobanks) like Chime and Varo Money are also proving to be a legitimate concern. While Varo’s strategy included obtaining a full-fledged banking charter, which it received in July 2020, Chime relies on partner banks to manage their deposits. And just because they’re startups, doesn’t mean they’re small; Chime boasted 12 million users as of the end of 2020 — 4.3 million of whom identified it as their primary bank.

How Community Banks Compete

As the marketplace evolves, so do consumer expectations. With Amazon and other on-demand services at their fingertips, consumers have become accustomed to digital experiences that are fast, seamless, and personalized.

To compete with megabanks, tech companies and challenger banks for digitally-savvy customers, it’s essential that community banks consider the following strategies:

Invest in speed and reliability
Digital banking solutions need to be fast and reliable to satisfy the high standards that consumers have come to expect. This means efficient processes, minimal to no downtime and speedy customer service. Technology that integrates with your core in real time is key to accelerating customer onboarding and boosting overall user experience.

Play to key strengths
Community banks should lean into the areas where they shine by catering to customers’ personalized needs. Banks should also position their products according to market demand and digital best practices, and configure them for strong customer experience and institutional outcomes.

Seek out the right technology partners
The difference between a good and bad technology partnership is significant; banks often end up disappointed with the performance of a digital solution. To avoid this, it’s important to extensively reference-check technology providers and inquire about the actual delivered (and not theoretical) return on investment of a solution.

Building a Digital Transformation Strategy

As digital banking becomes the norm, it has prompted a massive shift in the competitive landscape. Yet with the daunting task of digital transformation ahead of them, what’s the best place for community banks to start?

One impactful area to focus on is digital account opening. In fact, 42% of banks and 35% of credit unions say they are very interested in fintech partnerships that prioritize digital account opening solutions. Partnering with an account opening provider can help small and mid-size financial institutions position themselves favorably as consumers continue to adopt digital banking.

Retail Checking Realities



Forty percent of retail checking relationships are unprofitable, so crafting retail checking accounts that deepen customer relationships, drive deposit growth and enhance the bottom line is a challenge faced by most financial institutions. How can bank leaders tackle this issue? In this video, StrategyCorps’ Mike Branton shares two common mistakes banks make regarding their retail checking products. He also shares his thoughts on enhancing the appeal of checking products and explains technology’s role as a deposit driver.

  • Driving Deposit Growth
  • Why Big Banks are Winning Customers
  • Making Checking More Profitable

 

What if Amazon Offered a Checking Account?


Amazon Prime, Video, Music, Fresh, Alexa—all loved by many, but would consumers also care for an Amazon checking account? One recent survey says that, yes, a subscription based, value-added checking account is the best thing since free two-day shipping.

In a study conducted by Cornerstone Advisors, consumers were asked about their banking attitudes and behaviors and presented with this account option:

Amazon is thinking of offering a checking account. For a fee of $5-10 a month, the service will include cell phone damage protection, ID theft protection, roadside assistance, travel insurance and product discounts.

Forty-six percent of “Old Millennials” (ages 31-38) and 37 percent of “Young Millennials” (ages 22-30) say they would open that account. Of those who say they would open the account, almost a quarter say that they would close out their existing checking accounts—most likely with a traditional bank.

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When the same responders were asked about a free checking account from Amazon, without the bundled services, interest in opening the account is lower.

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“This is music to Amazon’s ears,” says Ron Shevlin, Director of Research at Cornerstone Advisors. “Why would they want to offer a free checking account when they can bundle the services of various providers on their platform—merchants and financial services providers—and charge a fee for it. A fee that consumers are willing to pay for.”

When asked about the hypothetical Amazon account stated above, 73 percent of 30-somethings say they would definitely switch or would consider switching accounts if their primary financial institution offered a checking account with those valuable services. Sixty-four percent of 20-somethings said the same.

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Which of the age segments has the most fee based accounts—millennials, Gen Xers or boomers?
About three in four (77 percent) of all survey respondents have a free checking account. Of the millennial segments, 31 percent have a fee-based account. That number is actually less among Gen Xers and boomers—22 percent of Gen Xers are in a fee-based checking account, and boomers report in at only 12 percent.

As loyal users of subscription services, millennials are accustomed to—and willing to pay for—value in order to get something valuable in return. They recognize that you usually get what you pay for, so what you get for free probably isn’t worth much. Even worse, many associate free accounts with the fine print fees you’ll inevitably end up with anyway. And customer reviews on hidden fees will always be 0 out of 5 stars.

Turns out, among those surveyed with a free checking account, nearly every account holder paid at least one fee in the prior year.

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Recommended for You
When survey respondents were asked how many friends and family they have referred to their primary FI over the past year, results show that more people with fee-based checking accounts are referring their primary FI than those with free checking accounts. This is true across each generational segment as well as each type of institution (megabank, regional bank, community banks and credit union). Plus, they grew their relationship by adding non-deposit products.

“Among fee-based account holders, 58 percent referred friends/family, and 43 percent added non-deposit products,” says Shevlin. “In contrast, among free checking account holders, 44 percent referred friends/family, and just 27 percent added non-deposit products.”

In short, the results of customers’ relationships with fee-based accounts are positive, for them and the bank:

  • Nearly half of the millennial age segment say they’d opt for a fee-based account with value added services from Amazon.
  • Less say they’d open a free account from Amazon.
  • Almost 75 percent would at least consider switching accounts if their primary FI offered this same Amazon-type checking account.
  • Millennials beat Gen Xers and boomers in having the most fee-based accounts.
  • More people in fee-based accounts are referring their bank than those in free accounts.

According to Shevlin, “The prescription for mid-size banks and credit unions is simple: Reinvent the checking account to provide more value to how consumers manage their financial lives.

For more insights about how to reinvent your checking accounts and thrive in the subscription society, download Shevlin’s free white paper, commissioned by StrategyCorps, at strategycorps.com/research.

How Green Dot is Helping Uber Drivers Access Cash on the Go


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For just about anyone participating in the on-demand economy—from Uber drivers to Airbnb hosts—there’s always one major question: When will I get paid?

And in many cases, it’s more a matter of having access to funds they’ve already earned than customers paying them for their services. Between ACH transfer delays and bank clearing policies, it can be days (or sometimes weeks) before on-demand workers gain access to their money. This can negatively impact workers’ ability to budget, pay bills and meet their daily living expenses.

That’s precisely when Uber recently decided to partner with Green Dot, a financial services provider specializing in the issuance of pre-paid debit cards. In March 2016, Green Dot and Uber announced the introduction of “GoBank,” a mobile checking account solution for Uber drivers that provides them with access to cash from their Uber accounts almost instantaneously.

At its core, the GoBank concept allows Uber drivers to withdraw cash from their Uber accounts while the transactions are clearing. Green Bank is basically fronting drivers the funds until the transactions have cleared. Drivers can spend the money using an Uber Debit Card wherever Visa is accepted, or withdraw cash from any GoBank’s 42,000 ATMs nationwide without incurring any fees. The debit card is also linked to a small business checking account provided by GoBank, which focuses on mobile banking functionality first and foremost. Another feature called Instant Pay allows drivers to link a GoBank checking account with their Uber account and transfer money immediately into their checking up to five times per day.

These kinds of solutions are in line with Green Dot’s over-arching goal, which is to service the underbanked and low credit score sector of the population by partnering with major brands. For example, Green Dot recently teamed up with Wal-Mart to offer the Wal-Mart Everyday Visa Card. The goal of deals with the likes of Uber and Wal-Mart, according to Green Dot CEO Steve Streit, is to deepen the company’s ties with at least half of all U.S. households that earn less than $50,000 per year. Increasingly, Green Dot is focusing on enhancing its traditional mix of products and services with mobility and mobile solutions, which is one of the reasons that partnering with Uber makes so much sense.

Green Dot’s commitment to mobile goes all the way back to 2012 with the acquisition of a mobile app development company called Loopt. The underlying Loopt technology was utilized to develop the GoBank mobile banking solution. Outside of the ATM network, GoBank has no brick and mortar locations, making it a completely digital bank focused on mobile as its primary distribution channel. That means users can perform unique functions like check their account balance without having to log in, send money via SMS and open a new account solely through the mobile app. This focus on mobile solutions for the underbanked positions GoBank to be an extremely useful partner to Uber and its drivers moving forward. Drivers can even open a GoBank account from within the Uber app itself.

Uber, as the world’s leading ridesharing service, is pushing to streamline its relationships and processes with both drivers and customers, and overcome recent public relations issues. Competition for drivers has been heating up with major rival Lyft, which announced its own proprietary driver cash-out solution called Express Pay, shortly before Uber and Green Dot unveiled the Uber Debit Card by GoBank. Express Pay experiences heavy volume, with upwards of $40 million being cashed out by drivers in any given month. Uber no doubt is expecting Instant Pay to eclipse that number rather quickly, since it still has the lion’s share of drivers signed up to its app nationwide.

Uber began piloting the Uber Debit Card by GoBank shortly after announcing its partnership with Green Dot, and the solution managed to gain significant usage amongst drivers in a relatively short amount of time. This led Uber to open the program to all its drivers nationwide in June 2016, with over 100,000 drivers signed up for the Uber Debit Card by GoBank by August. The positive feedback is leading Green Dot and Uber to extend the functionality of the solution, with the availability of Instant Pay for any checking account (GoBank or otherwise) being one new feature in the development pipeline.

Getting paid in a timely manner has been a longstanding issue for drivers who rely on income from ride-sharing apps like Uber. And it’s clear that Uber understands this by aligning itself with an industry leader in financial services for the underbanked like Green Dot. By allowing these drivers to easily open an account, access funds and make payments (all on the go via mobile), Uber is likely to go a long way towards improving its relationship with drivers. It’s a boost the company could use to alleviate some recent friction with drivers, with some filing lawsuits and others wanting to be recognized as full-time employees. However, the Uber Debit Card by GoBank is already incentivizing drivers to remain on the platform, and should also help make their financial lives a lot easier.

This is one of 10 case studies that focus on examples of successful innovation between banks and financial technology companies working in partnership. The participants featured in this article were finalists at the 2017 Best of FinXTech Awards.

Stop Trying to Talk Your Customers Into Liking Your Checking Accounts


Recently I was reading an article from Chris Nichols, chief strategy officer of Winter Haven, Florida-based CenterState Bank, entitled Public Perception of the Cost of Checking.

Nichols shares how CenterState interviewed 200 randomly selected potential customers about what they thought about the bank’s pricing and value of its checking accounts. The pricing ranges from a fee of $5.95 to $9.95 per month with a variety of ways to avoid this monthly fee (balance waivers, minimum transactions, etc.) The accounts also have the typical features included—online banking and bill pay, mobile banking and an expanded ATM network. It was also noted that this pricing was lower than competing banks and within the range of 75 percent of banks nationwide. Therefore, the pricing was reasonable and the features, while undifferentiated, were comprehensive.

The feedback from these consumers was that 34 percent of them had negative comments about CenterState’s checking line-up. Clearly, this is a number with lots of room for improvement.

Nichols didn’t go into much detail about the negative comments, but the essence of those comments are similar to StrategyCorps’ own consumer market research about consumers’ attitudes about checking account products.

Fees on Checking Accounts

First, almost unanimously, consumers don’t like to have requirements with a penalty fee structure for not meeting these requirements to access to their own money, especially when those requirements are not fully and clearly disclosed. Very few consumers have a basic understanding of the banking business model, thus don’t understand the business need for these requirements. Even those who do understand banking don’t like these requirements. The reason is the same, they don’t like to pay for access to their own money.

Second, despite the intrinsic value of a consumer checking account—the fact that it’s insured, customers have zero liability debit cards and a myriad of choices on how to bank, including online, mobile, ATM, and in branch, just to name a few—consumers feel it should be “fee-less” to have all this. Why? In short, financial institutions intentionally “sold out” this intrinsic value with free checking. Why pay for these things when they can be had at another financial institution in most cases, literally down the street? Selling out and totally diminishing this intrinsic value was the ante to get to the extremely lucrative source of nonsufficient funds and overdraft (NSF/OD) revenue. While it was the financially right thing to do at the time, the free checking hangover continues to plague financial institutions as they try to get customers to accept monthly recurring account fees to replace declining NSF/OD fees.

How does a financial institution restore the underlying value of a checking account in the eyes of consumers to warrant a more positive perception? At StrategyCorps, what we’ve seen work is NOT to spend time, money and marketing dollars trying to persuade customers that the checking account with traditional bank benefits is worth paying for. Trying to persuade consumers that traditional checking is valuable enough to pay for it, when it has been free for nearly two decades, is a tough proposition.

Instead, spend time, money and marketing on offering new product benefits that consumers will view positively. Which benefits are these? In general, these benefits have to be ones that are already proven in the marketplace that consumers view positively and are willingly and gladly paying for. Examples of these new types of benefits are cell phone insurance, roadside assistance and mobile merchant discounts. Nearly two of every three consumers already view these types of benefits positively enough to pay for them every month (think Verizon, AAA and Amazon Prime). These new product benefits either save consumers money when they have to spend it (effectively making them money) and/or provide protection to everyday items or situations.

So, stop trying to talk your customers into liking your traditional checking account with undifferentiated, traditional benefits they don’t appreciate despite the inherent value of the account. Rather, modernize your checking accounts by adding some new product benefits that are already viewed as valuable.

To see more of our consumer research videos including a variety of topics in banking, mobile apps and more, visit strategycorps.com/shape-your-story.

Taking a Chance on the Unbanked


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Financial inclusion is a hot topic in our community, and for good reason. The banking industry faces a real challenge serving those people who don’t have access to traditional banking services.

According to the Federal Deposit Insurance Corp.’s latest annual survey on underbanked and unbanked, 7 percent of Americans didn’t have access to banking services in 2015. That represents nine million U.S. households. The number gets even bigger when you consider underbanked households, which are defined as those that supplement their bank accounts with nonbank products such as prepaid debit cards.

Some banks look at this market and only see the risks; others deem it outside of their target audience demographic. In either instance, the outcome is avoidance. Fintech leaders, by contrast, see an emerging opportunity and are proactively developing innovative solutions to fill the gap. Which poses the question: Is it possible for banks to do the same?

Deciding to move forward with this type of initiative must start with the data. One of the areas that we pay close attention to is application approval rates. We’ve been opening accounts via our digital platform since 2009, and we were initially surprised by lower-than-anticipated account approval rates. Why was this happening? As the number of consumers who want to open a bank account online increases, there are inherent risks that must be mitigated. From what we’ve learned, identity verification and funding methods for new accounts, for example, pose heightened challenges in the anonymous world of digital banking. As such, we have stringent controls in place to protect the bank from increasingly sophisticated and aggressive fraud attempts. This is a good thing, as security is not something we are willing to compromise.

However, we realize that not everyone we decline is due to potential fraud, and that therein lies a major opportunity. A large portion of declinations we see are a result of poor prior banking history. Here’s the kind of story we see often, which may resonate with you as well: A consumer overdrew their bank account and for one reason or another didn’t fix the issue immediately, so they get hit with an overdraft fee. Before long those fees add up and the customer owes hundreds of dollars as a result of the oversight. Frustrated and confused, the customer walks away without repaying the fees. Perhaps unknowingly, the customer now has a “black mark” on their banking reports and may face challenges in opening a new account at another bank. Suddenly, they find themselves needing to turn to nonbank options.

I am not excusing the behavior of that customer: Consumers need to take responsibility for managing their finances. But, shouldn’t we banks be accountable for asking ourselves if we’re doing enough to help customers with their personal financial management? Shouldn’t we allow room for instances in which consumers deserve a “second chance,” so to speak?

At Radius we believe the answer to that question is “yes,” which brings us back to my earlier point around opportunity. Just a few weeks ago we released a new personal checking account, Radius Rebound, a virtual second chance checking account. We now have a way to provide a convenient, secure, FDIC-insured checking account to customers we used to have to turn down. In doing so, we’re able to provide banking services to a broader audience in the communities we serve across the country.

Because of the virtual nature of the account, I was particularly encouraged by the FDIC’s finding that online banking is on the rise among the underbanked, and that smartphone usage for banking related activities is rapidly increasing as well. Fintech companies are already utilizing the mobile platform to increase economic inclusion; we believe that Radius is on the forefront of banks doing the same, and look forward to helping consumers regain their footing with banks.

Let me be clear, providing solutions for the unbanked and underbanked is more than a “feel good” opportunity for a bank—it’s a strategic business opportunity. A takeaway from the FDIC report is that the majority of underbanked households think banks have no interest in serving them, and a large portion do not trust banks. It’s upon banks to address and overcome those issues. At the same time, nonbank alternatives are increasing in availability and adoption. Like anything worth pursuing, there are risks involved and they need to be properly scoped and mitigated. But while some banks still can’t see beyond the risks, I think ignoring this opportunity would be the biggest risk of all.