The Inclusive Economy
Why Bank On Programs Need Financial Institutions
By Michelle Nguyen on 04/11/2012 @ 11:30 AM
Last week, CFED released a report called Partnerships You Can Bank On: Sustainable Financial Institution Engagement in Bank On Programs, which, for the first time, investigates the sustainability of Bank On programs from the perspective of the financial institution.
Before we get into what that means, let’s step back a second. To unpack that sentence, we need to know what Bank On programs are, why they are important and why financial institutions are integral to these programs.
With approximately 8% unbanked households and another 18% classified as underbanked, there are about 30 million American households that are financially underserved. (Side note: Data on the number of un- and underbanked households at the city/county/metro level can be accessed through a new online data tool at JoinBankOn.org.) Financial access initiatives aimed at connecting unbanked consumers to mainstream banking products have proliferated in recent years, and Bank On programs have become the fastest growing strategy to address concerns about the number of households operating outside the financial mainstream. These are voluntary, public/private partnerships between local or state government, financial institutions, and community-based organizations, and the goal is to provide low-income un- and underbanked people with low-cost starter or “second chance” bank accounts and access to financial education.
Bank On programs are almost primarily locally based and operated, though, in recent years, several state and regional programs have formed. While local government and nonprofits provide marketing for the campaign, offer financial education, and connect unbanked consumers to the program, participating financial institutions agree to create affordable, mainstream checking accounts for unbanked consumers in their communities. However, a key assumption underlying the Bank On model is that financial institutions can serve these consumers in a way that is sustainable to their business operations. This assumption is critical to the success and longevity of the Bank On approach.
As more municipalities and states start Bank On programs, some facets of the model that have been key to its strong local appeal – local innovation and decision-making authority – are also becoming challenges to further scale and sustainability. In particular, as the volume of requests to develop unique, customized products and data tracking reports for multiple local markets increases, and as funding requests continue to mount, it is becoming increasingly challenging for national and regional financial institutions to negotiate, coordinate and manage their participation in Bank On.
The report explains in more detail about specific challenges that financial institutions face in terms of product design and program requests, along with the value of participating in the program. To read the full report, click here.