A Safecracker Explores the Nature of Security

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Dave McOmie starts every job staring down a locked door.

McOmie has been a safecracker for more than 50 years, having gotten his start watching a local locksmith help out a neighbor. He became the locksmith’s apprentice and quickly discovered the work of safecracking: breaking into vaults and safes for customers that had become inadvertently locked out of them.

That took him into the world of banking. Vaults have been a mainstay feature of bank branches, but anyone who has worked in a branch will know there are other physical safety mechanisms that occasionally lock up: lockers, cash safes, undercounter units and ATMs. He’s worked on all of them and knows the stakes: Whatever is behind that locked door is important, and someone wants it.

“When the bank or credit union cannot get into their vault, that situation tends to escalate quickly,” he says. There’s usually some urgency to the situation: Someone needs a wedding ring, a passport or a will, and there’s a tight timeline. McOmie is under pressure to open the vault. “[I]t’s stressful when you have an entire family sitting in the lobby, waiting to retrieve their passport so they can go to the airport. … You don’t want to be the reason they didn’t make their flight.”

In facing these locked and secured doors, McOmie says it’s key to prepare and research in advance. A mistake can trigger other safety mechanisms in a vault, quickly shutting down his entire progress. He carefully documents his progress and the products he works on to make the next job easier. 

“It’s all about the challenge and the conquest. You’ve got a locked door in front of you. What’s the problem? How can you overcome it? And can you do it efficiently? And quickly?” he says. 

McOmie joins Bank Director to discuss how he became a safecracker, how he approaches a locked door problem and what trends in bank branching mean for vaults, physical security and the future of safe cracking. Listeners interested in learning more about his experience can read his memoir “Safecracker: A Chronicle of the Coolest Job in the World,” which includes his experience opening the musician Prince’s vault at Paisley Park.

This episode, and all past episodes of The Slant Podcast, are available on Bank Director.com, Spotify and Apple Music.

Renew, Recharge and Reassess Customer Service

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As interest rates rise and the retail housing market cools down, lenders are bracing for an uncertain environment.

While banks cannot control the market, they can control how they respond and future-proof their business. Successful navigation in these unchartered waters requires institutions to reassess traditional product, service and industry boundaries in order to capture and create new sources of value. Digital transformation and innovation will remain an important strategic priority in 2023 and beyond — however, it is now equally important for institutions to provide lasting value to customers through personalized, highly tailored services.

The slowing housing market creates a unique opportunity for financial institutions to revisit and refresh these fundamentals, including exploring how they can deliver a more personalized experience. As banks remain focused on their roles as financial intermediaries, this time of challenge can also be a time of opportunity to strengthen existing relationships and expand loyalty with customers. Lenders can also take advantage of a slower market by implementing new automation strategies to further streamline their mortgage loan process. Successful institutions will recognize that this slower pace enables them to recharge, rethink and renew their focus on providing customers a superior experience.

Accelerating personalization and building loyalty is critical in today’s increasingly competitive financial services market. The answer isn’t just faster, more automated technology; financial institutions must adapt a hyper-personalized approach. According to a recent NCR study, 60% of U.S. banking consumers want their primary financial institution to provide personalized financial advice. Many Americans are facing an uncertain financial future and don’t believe their financial institution is providing the necessary support.

To successfully deliver that personalized experience, institutions must leverage data to provide more relevant, timely support. That means more effectively gathering and analyzing data to yield insights that ultimately help the bank connect with the customer. Banks should have the most accurate and complete picture of their customer’s economic health, which allows them to make meaningful suggestions and provide impactful advice. Consumers can then look to their data enabled and informed banker as a guiding force helping them build a more stable financial future.

Anticipating customer needs and catering to them with personalized offerings allows banks to generate increased revenue, all the while meeting customer expectations around personalized experiences. According to the 2019 Accenture Global Financial Services Consumer Study, one in two consumers wants personalized banking advice based on their circumstances. They want an analysis of their spending habits and advice on handling money. Additionally, 48% of respondents indicated that personalized banking data, such as spending, would help them change how they used their money.

A 2021 Capco research report found that 72% of customers say personalization is highly important in today’s financial services landscape. This number increases for younger generations: 79% of Gen Z customers say it is critical their financial institutions provide more personalized offers and/or information to help them reach their financial goals.

Customers provide banks with a lot of information about themselves across their interactions. Banks can use this data carefully, employing technology like artificial intelligence to anticipate customer needs. Anticipating and then proactively acting on those needs is crucial to creating an effective, personalized experience. Banks can also position products with sensitivity, effectively demonstrate their understanding of their customer’s unique needs or suggest curated products that demonstrate a knowledge of that customer’s specific financial needs and ultimately, build lasting loyalty.

Banks should also consider the way they approach economic distress in a manner that doesn’t weaken customers’ future foundation. Institutions should examine their interactions with both the rental market and the single-family ownership market. Banks need to think in terms of households, not consumers. Consider the household and heads of households instead of thinking of them as consumers.

There is an opportunity in this moment for institutions to create more personalized offers that are relevant to their customers. To succeed, banks must take operational steps to authentically personalize offerings to their customers, using technology in a way that’s fair and compliant.

Why Some Savers Don’t Pay Down Debt

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In an era of rising interest rates, it would make good financial sense for consumers to pay off costly credit card debt before stashing money in a low-interest savings account. But a new paper from the Federal Reserve Bank of Boston finds many consumers acting irrationally. These so-called “borrower-savers,” as Fed economists term them, carry revolving credit card debt while simultaneously holding liquid assets in their bank accounts. Understanding their motivations for doing so could help bankers identify new opportunities to connect with their customers. 

Based on 2019 survey data, Boston Fed economists identify 42% of respondents as borrower-savers, meaning they carry $100 or more in revolving credit card debt while also holding at least $100 in liquid assets, defined as cash, money in checking and savings accounts, or prepaid cards. 

Just 40% of these consumers have liquid assets that exceed their credit card debt. The average borrower-saver carries around $5,400 in liquid assets and nearly $6,400 in revolving credit card debt, according to the researchers. On the whole, borrower-savers are financially worse off than savers, who pay down revolving credit card debt every month. 

“On the surface it would seem like there is a paradox here. You get paid a fraction of a percent on your deposits in the bank … That’s nothing compared to the interest rate that credit cards charge,” says Joanna Stavins, a senior economist and policy advisor with the Boston Fed. “If you have money in the bank, why not pay down that credit card debt?” 

But scratch the surface, and that behavior actually starts to make a lot more sense: Researchers also find that over 80% of consumers’ monthly bills need to be paid out of a bank account and can’t be charged to a credit card. 

Still, that imbalance between savings and paying down pricier debt is one of those quirks of human behavior that has myriad implications for banks. For those banks not in the credit card business, it could mean an opportunity to sell their customers on cheaper consolidation loans. It could also represent an opportunity to build goodwill with customers by offering assistance with managing bills or automating savings. 

Ron Shevlin, managing director and chief research officer with Cornerstone Advisors, notes that younger generations could be likelier to use technology to get a handle on their finances. “I think that resonates especially with a lot of younger consumers who have had it drilled into them that they have to be better at managing their finances,” Shevlin says. “You get somebody who’s 25; those habits have not been ingrained yet. And so the technology, the tools, and I think more importantly, the philosophies and approaches to managing their finances have not been solidified yet.”  

For most banks, offering the right solutions will have them working with their digital banking provider or another third party. Fintechs such as Plinquit work with community banks to help their customers set savings goals and earn rewards for achieving them, according to Bank Director’s FinXTech Connect platform. 

The Boston Fed’s paper doesn’t delve into the effect of higher incomes on saving and borrowing behaviors. Or in other words, the researchers could not say that higher income enables consumers to start saving more and avoid carrying a credit card balance in the first place. Yet, savers tend to have higher incomes, averaging about $98,000 per year compared to less than $76,000 for borrower-savers. On average, savers hold about five times more liquid assets compared to borrower-savers, as well as higher credit limits and lower mortgages due to more equity in their homes. And just a third of borrower-savers could cover a $2,000 emergency expense using liquid assets, compared to two-thirds of savers.

The proportion of borrower-savers fell from 42% to 35% in 2020, note the Boston Fed researchers, likely due to pandemic-related federal assistance programs as well as increased saving by people who kept their jobs but cut back on spending. 

With the employment picture still relatively strong, borrower-savers are generally in decent shape at the moment. But Stavins notes that many of the borrower-savers studied in the paper also have other kinds of debt; she worries how the picture could change if economic conditions further deteriorate. 

The imbalance between savings and spending could worsen. “What I’m worried about,” she says, “is that people are going to start relying on credit card debt more as the economy gets potentially worse.”  

Overdraft Fees Are Getting a Much-Needed Overhaul

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Overdraft fees have been a significant source of noninterest income for the banking industry since they were first introduced in the 1990s. But these “deterrent” fees are on the chopping block at major financial institutions across the country, putting pressure on smaller banks to follow suit. 

Overdraft and non-sufficient funds (NSF) fees brought in an estimated $11 billion in revenue in 2021, according to the Financial Health Network, significantly down from $15.5 billion in fee revenue in 2019. As the industry responds to ongoing regulatory pressure on top of increased competition from neobanks and disruptive fintechs, that downward trend is expected to continue. 

For larger banks, those with more than $10 billion in assets, overdraft fee income has trended downward since 2015. Christopher Marinac, director of research at Janney Montgomery Scott, reported on this back in December 2021 after noting overdraft fees had declined for 23 quarters and expects this trend to continue into 2022. Despite the decline, regulators continue to focus on them, citing their role in the growth of wealth inequality. 

“[R]egulators have clearly sent a signal that they want those fees to either go away or be less emphasized,” Marinac says. “Like a lot of things in the regulatory world, this has been an area of focus and banks are going to find a way to make money elsewhere.”

For an industry that has evolved so rapidly over the last 10 years, overdraft fees represent a legacy banking service that has not adapted to today’s digital banking customer or the realistic cost to service this feature, says Darryl Knopp, senior director of portfolio marketing at the credit rating agency FICO. Knopp believes that an activities-based cost analysis would show just how mispriced these services actually are. It’s one reason why neobanks such as Chime have attracted customers boasting of lower fees. If banks were to think about overdrafts as access to short-term credit, that would change the pricing conversation to one of risk management. 

“Banks are way more efficient than they were 30 years ago, and they need to understand what the actual costs of these services are,’’ Knopp says. “The pricing has not changed since I got into banking, and that’s why [banks] are getting lapped by the fintechs.” 

Overdrafts aren’t going to disappear overnight, but some banks are getting ahead of the trend and taking action. Bank of America Corp., Wells Fargo & Co., and JPMorgan Chase & Co., which together brought in an estimated $2.8 billion in overdraft and NSF fee revenue in the first three quarters of 2021, recently announced reduced fees and implemented new grace periods, according to the Consumer Financial Protection Bureau. Capital One Financial Corp. announced the elimination of both overdraft and NSF fees back in December and Citigroup’s Citibank recently announced plans to eliminate overdraft fees, returned item fees, and overdraft protection fees. 

In April, $4.2 billion First Internet Bancorp of Fishers, Indiana, announced the removal of overdraft fees on personal and small business deposit accounts, but it continues to charge NSF fees when applicable. Nicole Lorch, president and chief operating officer at First Internet Bank, talked to Bank Director’s Vice President of Research Emily McCormick about the decision to make this change. She says overdrafts were not a key source of income for the bank and the executives wanted to emphasize their customer-centric approach to service. First Internet Bank’s internal data also found that overdraft fees tended toward accidental oversight by the customers, whereas NSF fees were more often the result of egregious behavior. 

“In the case of overdrafts,” says Lorch, “it felt like consumers could get themselves into the situation unintentionally, and we are not in this work to create hurdles for our customers.”

For banks that are grappling with the increased pressure to tackle this issue, there are other ways to get creative with overdraft and NSF fees. Last year, PNC Financial Services Group introduced its new “Low Cash Mode” offering, which comes with the Spend account inside of PNC’s Virtual Wallet. Low Cash Mode alerts customers to a low balance in their account. It gives customers the flexibility to choose which debits get processed, and provides a grace period of 24 hours or more to address an overdraft before charging a fee.

Banks that want to keep pace with the industry and are willing to take a proactive approach need to find ways to offer more personalized solutions. 

“The problem is not the overdraft fee,” says Ron Shevlin, chief research officer at Cornerstone Advisors. “It’s a liquidity management problem and it’s bigger than just overdrawing one’s account. Banks should see this as an opportunity to help customers with their specific liquidity management needs.” 

He says it’s time for the industry to move away from viewing overdrafts as a product and start thinking of it as a solutions-based service that can be personalized to a customer’s unique needs.

  • Bank Director Vice President of Research Emily McCormick contributed to this report.

Key Considerations for Measuring Customer Loyalty

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Retail banking has particularly been affected by the shift to the digital delivery of products and services, given its sheer magnitude and importance.

The global coronavirus pandemic significantly accelerated banks’ adoption of digital channels and led to critical behavioral changes for customers. Banks now need to determine which shifts are here to stay and which could revert, to some degree, to pre-pandemic levels.

Strategic Resource Management conducted a detailed survey in July 2021 that offers a snapshot of customer attitudes at a particularly interesting moment in time. Sixteen months of dealing with Covid-19’s realities had created a degree of equilibrium; thoughts of a return to “normal life” had begun to enter the conversation. This cross-section provides a view into the likely permanence of customer mindsets, helping financial institutions better understand customers’ perceptions of, and feelings toward, the institutions with which they bank.

Several noteworthy takeaways:

  • US financial institutions performed well in loyalty and engagement, though credit unions performed the best. Although the roughly 5,000 credit unions in the United States comprise a small number of overall banking assets (8% based on June 30, 2021, data from the credit union and banking regulators), its member ranks remain exceptionally loyal and engaged. While some community banks enjoyed similarly high ratings, other institutions should take note of credit unions’ success and consider following some of their tactics.
  • Charlotte, North Carolina-based Truist Financial Corp. ranked very high for customer perceptions of care, value for money and understanding customer needs. The product of a 2019 merger between BB&T Corp. and SunTrust Banks, the $541.2 billion bank embarked on a significant brand awareness campaign that emphasized financial wellness and a holistic level of care for the customer’s financial life. While the largest banks often excel in terms of resources and digital tools, they are frequently viewed as more transactional. Truist does not fit this stereotype – its customer ratings demonstrate that they place great importance on emotional connection, similar to credit unions and community banks.
  • Chime ranked poorly on engagement and loyalty. While other digital brands lagged in this area, Chime ranked at the bottom of both dimensions. It has done an excellent job of building market awareness and initial enrollments but has fallen short converting new customers into more meaningful relationships. The company faced backlash last summer following reports that it suddenly closed several customer accounts. Few respondents treat Chime as their primary transaction account; the absence of a branch network may be a contributing factor. But the company could still shift public perception. By teaming with a brick-and-mortar presence — mimicking PayPal Holding’s approach in partnering with Discover Financial Services to achieve point-of-sale ubiquity — Chime might overcome concerns about access. 
  • Great service remains the biggest factor behind customer loyalty. When asked for their top reason for choosing and staying with a given institution, great service led the pack. It outpolled product quality, ease of use and personal recommendations. Beyond that, subtle yet interesting differences emerged. Location, value for money and loyalty programs moved up the pecking order when customers decided to stay with a provider. The order of “reputation and trust” and “doing what they say” swapped positions — arguably because customers can now assess an institution’s behavior firsthand rather than relying on reputation. This may also explain why brand values gained prominence in the research.

Attracting and retaining customers is instrumental to a financial institution’s relevance. It’s what ultimately fuels its success. Banks must determine why customers partner with organizations, why they stay with them and why they leave. Taking this into consideration and keeping a close pulse on what behavioral changes are permanent will help financial institutions form stickier, longer-lasting customer relationships.

How to Give Cardholders Digital Self-Service, Fraud-Fighting Capabilities

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Despite the dramatic changes in consumer spending habits over the last 18 months, an unnerving constant remains: Fraudsters are ever-present, and financial institutions and consumers must stay on guard.

To address fraud issues and enhance safety, credit and debit card payments are being reimagined and increasingly conducted via digital channels. By deploying digital self-service card capabilities, banks can better protect their consumers and allow them to keep transacting securely.

Recent research by Raddon, a Fiserv company, shows the ongoing primacy of credit and debit card payments. In a typical month, 77% of U.S. households use a debit card for purchases and 80% of household use a credit card for purchases, according to the research.

 

Card usage among varying demographic consumer segments remains robust, with millennials, Generation X and baby boomers all reporting significant reliance on card-based payments.

However, the definition of a “card payment” is changing. Consumers are increasingly using their cards digitally, with 40% saying at least half of their monthly transactions are done digitally on their mobile phones or computers, according to Raddon.

Mobile card applications are the answer to these changing trends. Today’s digitally minded consumer needs card apps that help them manage their accounts when and how it suits them. Banks can keep customers satisfied and safe by implementing a comprehensive mobile card management solution.

Digital wallet participation enables banks to give cardholders the ability to add a card to their smartphone or wearable. If cards can be digitally issued at the time of account opening, all the better. This process enables immediate card access via the digital wallet and provide an easy, secure and contact-free way to pay. Card apps can also provide control features designed to keep cardholders safe and their financial institution top-of-mind. Consumers can use these apps to protect their accounts, manage their money and take charge of card usage. Their increased peace of mind will drive transaction volume and cardholder engagement, empowering users to fight fraud through alerts for card transactions and personalizing usage controls.

Consumers are concerned about their spending patterns. Providing cardholders with detailed spend insights and enriched transaction information makes it easier for them to understand their spending and make informed spending decisions. An enriched transaction can make the difference between a panicked consumer who is worried about fraud and someone secure in knowing that each purchase is one they’ve made. The transactions should include real merchant names, retail locations for physical purchases, transaction amount and purchase date. It should also include contact information for the merchant, so consumers can make any inquiries about the purchase directly with the merchant.

Every interaction with consumers is a chance to make a great impression, especially on mobile. Consumers appreciate fresh app designs and features that focus on simplicity, including one-touch access to functions. For example, consumers should be able to quickly and easily lock a misplaced card to prevent fraud and unlock it when located. These digital-first, self-service capabilities create an efficient and safe cardholder experience. Banks can leverage existing marketing resources and creative assets to keep their consumers informed about and remind them of secure self-service aspects of the payments program.

Consumer expectations continue to rapidly evolve and drive change. Banks must respond by staying focused on consumer needs and regularly delivering new app features and interconnected payment experiences. The institutions that do will succeed by continuing to provide consumers with convenient and safe digital management capabilities for their credit and debit cards, whenever and wherever consumers transact.

The Road Ahead for Digital Banking

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DigitalBanking.pngThe largest bank in the United States, the $3.4 trillion global behemoth known as JPMorgan Chase & Co., hesitated to put a retail bank in the crowded and competitive United Kingdom in the past.

That changed in 2021. JPMorgan Chase CEO Jamie Dimon announced a digital retail bank with headquarters in London and a customer center in Edinburgh. But no branches.

International expansion was cost-prohibitive in the past, Dimon admitted, but the economics of banking have changed. Even the biggest U.S. banks, which haven’t abandoned branches, know that.

“What we always said is we’re not going to do retail overseas … I can open 100 branches in Mumbai or 100 branches in the U.K., and there’s no chance I’d gain enough share to make up for the additional overhead,” he said at a Morgan Stanley conference in June of 2021. “Digital changes that.”

This shifting landscape means digital platforms hold a lot of promise for banks seeking to grow profitably. This report, sponsored by Nymbus Labs, will focus on these business models, return on investment and elements of success of digital-first banks and banking platforms.

Of course, terms such as neobank, challenger bank and digital bank get thrown around a lot these days. Some of the newcomers are chartered and regulated banks. Others are offshoots of a bank. Most are financial technology companies that rely on banks to access payment rails, compliance programs or deposit insurance. For simplicity’s sake, we’ll call them digital banks. Whether they are banks or just call themselves a bank, we’ll include them in this report. The goal is to reveal how they are changing the banking marketplace.

To learn more, download our FinXTech Intelligence Report, Digital Banking: Profit and Purpose.

How Banks Can Solve the Problem of the Unbanked

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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.

How Fintechs Can Help Advance Financial Inclusion

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Last year, the coronavirus pandemic swiftly shut down the U.S. economy. Demand for manufactured goods stagnated while restaurant activity fell to zero. The number of unbanked and underbanked persons looked likely to increase, after years of decline. However, federal legislation has created incentives for community banks to help those struggling financially. Fintechs can also play an important role.

The Covid-19 pandemic has affected everyone — but not all equally. Although the number of American households with bank accounts grew to a record 95% in 2019 according to the Federal Deposit Insurance Corp.’s “How America Banks” survey, the crisis is still likely to contribute to an increase in unbanked as unemployment remains high. Why should banks take action now?

Financial inclusion is critical — not just for those individuals involved, but for the wider economy. The Financial Health Network estimates that 167 million America adults are not “financially healthy,” while the FDIC reports that 85 million Americans are either unbanked or “underbanked” and aren’t able to access the traditional services of a financial institution.

It can be expensive to be outside of the financial services space: up to 10% of the income of the unbanked and underbanked is spent on interest and fees. This makes it difficult to set aside money for future spending or an unforeseen contingency. Having an emergency fund is a cornerstone of financial health, and a way for individuals to avoid high fees and interest rates of payday loans.

Promoting financial inclusion allows a bank to cultivate a market that might ultimately need more advanced financial products, enhance its Community Reinvestment Act standing and stimulate the community. Financial inclusion is a worthy goal for all banks, one that the government is also incentivizing.

Recent Government Action Creates Opportunity
Recent federal legislation has created opportunities for banks to help individuals and small businesses in economically challenged areas. The Consolidated Appropriations Act includes $3 billion in funding directed to Community Development Financial Institutions. CDFIs are financial institutions that share a common goal of expanding economic access to financial products and services for resident and businesses.

Approximately $200 million of this funding is available to all financial institutions — institutions do need not to be currently designated as a CDFI to obtain this portion of the funding. These funds offer a way to promoting financial inclusion, with government backing of your institution’s assistance efforts.

Charting a Path Toward Inclusion
The path to building a financially inclusive world involves a concerted effort to address many historic and systemic issues. There’s no simple guidebook, but having the right technology is a good first step.

Banks and fintechs should revisit their product roadmaps and reassess their innovation strategies to ensure they use technologies that can empower all Americans with access to financial services. For example, providing financial advice and education can extend a bank’s role as a trusted advisor, while helping the underbanked improve their banking aptitude and proficiency.

At FIS, we plan to continue supporting standards that advance financial inclusion, provide relevant inclusion research and help educate our partners on inclusion opportunities. FIS actively supports the Bank On effort to ensure Americans have access to safe, affordable bank or credit union accounts. The Bank On program, Cities for Financial Empowerment Fund, certifies public-private partnership accounts that drive financial inclusion. Banks and fintechs should continue joining these efforts and help identify new features and capabilities that can provide affordable access to financial services.

Understanding the Needs of the Underbanked
Recent research we’ve conducted highlights the extent of the financial inclusion challenge. The key findings suggest that the underbanked population require a nuanced approach to address specific concerns:

  • Time: Customers would like to decrease time spent on, or increase efficiency of, engaging with their personal finances.
  • Trust: Consumers trust banks to secure their money, but are less inclined to trust them with their financial health.
  • Literacy: Respondents often use their institution’s digital tools and rarely use third-party finance apps, such as Intuit’s Mint and Acorns.
  • Guidance: The underbanked desire financial guidance to help them reach their goals.

Financial institutions must address both the transactional and emotional needs of the underbanked to accommodate the distinct characteristics of these consumers. Other potential banking product categories that can help to serve the underbanked include: financial services education programs, financial wellness services and apps and digital-only banking offerings.

FIS is committed to promoting financial inclusion. We will continue evaluating the role of technology in promoting financial inclusion and track government initiatives that drive financial inclusion to keep clients informed on any new developments.

Why ESG Will Include Consumer Metrics

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Imagine a local manufacturer, beloved as an employer and a pillar of the community. The company uses 100% renewable energy and carefully manages its supply chain to be environmentally conscious. The manufacturer has a diverse group of employees, upper managers and board. It pays well and provides health benefits. It might be considered a star when it comes to environmental, social and governance (ESG) parameters.

Now imagine news breaks: Its product causes some customers to develop cancer, an outcome the company ignored for years. How did a good corporate citizen not care about this? You could say this was a governance failure. Everyone would agree that it was a trust-busting event for customers.

ESG, at its root, is about looking at the overall impact of a company. The most profound impact of banks is the impact of banking products. Most bank products are built for use in a perfect world with perfect compliance, but perfect compliance is hard for some people. Noncompliance disproportionately affects the most vulnerable customers ⎯ people living paycheck-to-paycheck and managing their money with little margin to spare. That isn’t to say that these individuals are all under or near the poverty line: Fully 18% of people who earn more than $100,000 say they live paycheck to paycheck, according to a survey of 8,000 U.S. workers by global advisory firm Willis Towers Watson. There is growing recognition that bank products need to reflect the realities of more and more Americans.

Years ago, Columbus, Ohio-based Huntington Bancshares started working on better overdraft solutions for customers whose financial lives were far from perfect. Currently, the $123 billion regional bank will not charge for overdrafts under $50 if a customer automatically deposits their paycheck. If the customer overdrafts $50 or more, the bank sends them an alert to correct it within 24 hours.

Likewise, Pittsburgh-based PNC Financial Services Group recently announced a new feature that gives PNC Virtual Wallet customers 24 hours to cure an overdraft without having to pay a fee.  If not corrected, an overdraft amounts to a maximum of $36 per day.

“With this new tool, we’re able to shift away from the industry’s widely used overdraft approach, which we believe is unsustainable,” said William Demchak, chairman and CEO of the $474 billion bank, in a statement. The statement alone reframes what sustainability means for banking.

The banks that become ESG leaders will create products that improve the long-term financial health of their retail and small businesses customers. To do so, some financial institutions are asking their customers to measure their current financial realities in order to provide better solutions.

For example, Credit Human, a $3.2 billion credit union in San Antonio, is putting financial health front and center both in their branches and digitally. Their onboarding process directs individuals to a financial health analysis supported by FinHealthCheck, a data tool that helps banks and credit unions measure the financial health of customers and the potential outcomes of the products they offer. The goal of Credit Human is to improve the financial health of their customers and eventually make it a part of the overall measurement of the product’s performance.

Measurement alone will not build better bank products. But it will provide banks and credit union executives with critical information to align their products with customer well being. With the implementation of overdraft avoidance programs such as PNC’s Low Cash Mode, the bank expects to help its customers avoid approximately $125 million to $150 million in overdraft fees annually. PNC benefits its bottom line by driving more customers to its Virtual Wallet, nabbing merchant fee income and creating customer loyalty in the process. PNC’s move makes it clear that they believe promoting the long-term financial health of their customers promotes the long-term financial health of the company.

Banks need to avoid appearing to care about ESG, while failing to care about customers. The banks that include customer financial health in their ESG measurement will survive, thrive and become the true ESG stars.