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A Guide to Bank On Western MA

UWPV Financial Stability Network: Bank On
Thomas Fox

2 What is Bank On? Bank On programs are voluntary, public/private partnerships between local or state government, financial institutions, and community-based organizations that provide low-income un- and underbanked people with free or low-cost starter or “second chance” bank accounts and access to financial education. Since its successful inception in 2006 in the city of San Francisco, the Bank On model has gained support from state and local officials across the U.S. as a way of bringing unbanked and underbanked consumers into the financial mainstream. In addition to connecting unbanked individuals to low-cost accounts, Bank On initiatives involve  Efforts to raise public awareness,  Provide targeted outreach, and  Expand access to financial education. The appeal of Bank On is straightforward: it addresses the widely-recognized challenge of financial access through interventions that are low-cost and responsive to the needs of both consumers and providers of basic financial services. These challenges are of particular interest to policymakers who view efforts to increase underserved consumers’ access to and use of basic banking services as an economic mobility strategy. Most respondents’ programs have similar baseline financial product features as the original Bank On San Francisco model.  Low- or no-cost account  No minimum monthly balances  Forgiveness of at least one non-sufficient funds/overdraft charge in the first year  Flexibility in opening accounts for individuals who have been in ChexSystems  Acceptance of alternative forms of ID  Clear and thorough disclosure of bank product features and policies Additional features may include:  A free ATM or debit card  Offer of a savings account  Free online banking  Encouragement of direct deposits Overall Need  Research conducted by the Federal Deposit Insurance Corporation (FDIC) in 2009 found that more than a quarter of U.S. households rely on alternative financial services to manage their money. o Of these 30 million households, nine million are “unbanked” – they do not have a checking or a savings account. o Twenty-one million are “underbanked” – they may have a checking or savings account but still use costly alternative financial services.

Bank On Western Massachusetts – UWPV Financial Stability Network: Bank On

3  Without access to mainstream financial services, individuals may spend tens of thousands of dollars over a lifetime on the high fees associated with check cashing, money orders, and other alternative financial services. o According to a study by the Brookings Institution, the average unbanked worker spends an estimated $40,000 throughout his or her life just to cash paychecks. Unbanked and underbanked individuals may also fall prey to short-term, high-interest “payday” loans offered at check cashing outlets and other fringe financial institutions, becoming trapped in endless cycles of debt.

Western Massachusetts Need
Hampden County % Unbanked Households # Unbanked Households % High Unbanked Census Tracts % Underbanked Households # Underbanked Households Total Households 7.90% 13,975 47.30% 15.90% 28,128 176,909 Hampshire County 3.00% 1,739 7.40% 12.50% 7,248 57,987 Franklin County 3.30% 988 12.50% 13.70% 4,102 29,948 Berkshire County 3.70% 2,042 10.30% 13.00% 7,176 55,200 46,654 320,044 18,744


Agawam % Unbanked Households # Unbanked Households % Underbanked Households # Underbanked Households Total Households 1.80% 202 12.80% 1,442 11,273

Chicopee 7.00% 1,606 15.70% 3,603 22,951

Holland 2.10% 13 15.10% 93 6,213

Holyoke 13.80% 2,171 17.00% 2675 15,737

Longmeadow 0.00% 0 7.40% 403 5,453

Palmer 4.00% 75 13.60% 265 1,888

Springfield 14.70% 8,240 20.70% 11,603 56,055

West Springfield 4.70% 556 13.90% 1,645 11,839

Westfield 4.10% 605 13.60% 2,009 14,775

Wilbraham 0.00% 0 8.80% 90 1,026

TOTAL 13,468

23,828 147,210

NOTE: Bank On website does not contain data for all towns in Western Massachusetts Bank on Benefits  Consumers benefit from access to a safe place to keep their money, savings generated by using less-expensive services, more affordable credit products, and improved financial knowledge and capability. o Additionally, the establishment of emergency savings to weather financial distress is beneficial to consumers.  Private sector partners in a Bank On program gain access to new customers (many of whom have the capacity to transition into more frequently used and profitable products and services) and community goodwill.  Communities benefit from more economically stable residents and can have additional positive outcomes from building collaboratives among financial institutions, non-profit organizations, government agencies and other entities.

Bank On Western Massachusetts – UWPV Financial Stability Network: Bank On

4 Who Are The Unbanked? The unbanked population is diverse, with different groups facing their own unique barriers to entering the financial mainstream. The section below describes the largest, most underserved segments of the unbanked population.
 Low-income households comprise a large proportion of the unbanked population. o Many low-income individuals distrust or are unfamiliar with mainstream financial institutions and instead use costly alternative financial services. o Mainstream financial service providers often fail to meet the needs of low-income consumers. Minorities are more likely to be unbanked than white Americans. o Overall, almost 54 percent of African American households, 44.5 percent of American Indian/Alaskan households, and 43.3 percent of Hispanic households are either unbanked or underbanked.

Only 63 percent of immigrant heads of household have a checking account compared to 76 percent of native-born household heads. o Many immigrant groups face similar challenges in attaining accounts, including limited English proficiency and communication barriers, distrust of banks due to weak institutions in their country of origin, and the tendency to locate in immigrant enclaves, which can create unique cultural orientations toward alternative financial institutions.
o Immigrants also have distinct financial needs, most notably low-cost remittance products that enable them to send money back to relatives in their home countries.  In 2004, Latin American and Caribbean immigrants sent a total of $34 billion in remittances to their home countries at a cost of approximately $2.4 billion in fees, and more than 40 percent of all immigrants remit money to their countries of origin.  Annual remittances have only climbed in the years following, with Latin American and Caribbean migrants sending $58.8 billion to their home region in 2009.

Many unbanked individuals have made financial mistakes or had negative experiences with financial institutions in the past. o Nearly 8.3 percent of unbanked households have had problematic banking histories, such as overdrafts or poor credit.  These individuals are likely to have been reported to ChexSystems, a national database for banks that provides information based on check verifications about a potential customer’s banking history.  Most financial institutions have policies against opening accounts for individuals placed on the ChexSystems list.  According to Fidelity National Information Services, Inc. (FIS), the company that owns the database, a ChexSystems record lasts for five years.  Financial institutions are under no obligation to report that customers have “settled up” their accounts or to request the removal of a negative report from the system. Therefore, customers may be affected by a report to ChexSystems for the full five years, even if they have paid any outstanding balances.

Bank On Western Massachusetts – UWPV Financial Stability Network: Bank On

5 Why Are People Unbanked? There are many reasons why individuals do not have transactional accounts in a financial institution, or opt to use alternative financial services even if they do have one. The FDIC survey identified some common reasons:  High costs or perceived high cost: Many individuals believe they do not have enough money to maintain an account and are often deterred by “hidden” fees such as high minimum balance requirements, monthly service charges, and overdraft fees.  Convenience: Banks and credit unions are often not accessible to low-income individuals due to their limited hours of operation and the lack of branches in some low-income neighborhoods.  Need for immediate access to funds: For residents that do not use direct deposit, depositing a check into a checking account can take several days to clear.  Lack of knowledge: Many individuals lack sufficient financial knowledge to navigate through the often complicated mainstream financial system.  Identification requirements: Residents may believe they cannot open an account because they do not have a state issued driver’s license  Previous banking problems: Individuals may be barred from opening an account due to mistakes they made in previous banking relationships.  Overall perceptions of banking: Many low-income residents hold a general belief that banks are not for them.

Bank On Western Massachusetts – UWPV Financial Stability Network: Bank On

6 Key Steps to Bank On Program Implementation Step One: Identify and Develop Partnerships: A successful Bank On campaign relies on partnerships with city officials, regulatory agencies, financial institutions, and community-based organizations.  Community organizations typically play an outreach role and provide financial education to participants. These partners not only provide expertise in research, financial education and other key aspects of the program, but also are often the most connected to the unbanked and under-banked communities.  Financial institutions provide the baseline Bank On accounts that meet the needs of unbanked consumers.  Local or State Government Leaders provide the initial spark for a Bank On campaign and their support helps the program garner clout and attention from financial institutions. Members of the state legislature can advocate for policies that protect consumers and expand access to mainstream financial services.  Financial Regulators such as the FDIC, Federal Reserve Bank, and Office of the Comptroller of Currency can clarify regulations and provide strategic advice about financial products or services and offer guidance on issues that affect Bank On programs.  National Experts and Resources such as the National League of Cities Institute for Youth Education and Families, the US Department of the Treasury, CFED and other organizations provide communities with direct assistance or by conducting research on underserved populations. Step Two: Conduct Preliminary Research: Research on how many local residents lack bank accounts, barriers to the financial mainstream and residents’ financial services needs is key to developing measurable goals and information to guide program development.  Many research tools are available on the Bank On website ( Step Three: Establish Steering Committee and Subcommittees: Bank On initiatives should have a clear organizational structure.  Many programs use a two-tiered committee structure to plan and inform their Bank On activities. o A steering committee works to provide oversight, develop goals and identify specific tasks needed to achieve desired results. o Subcommittees or working groups are usually chaired by community leaders and they help programs engage a wide network of stakeholders with needed expertise and resources. Step Four: Securing Funding: A successful Bank On campaign draws upon a wide array of resources available within the community, including in-house resources, in-kind donations, dedicated staffing from partnering non-profits or city agency, pro-bono services and contributions from financial institutions.

Bank On Western Massachusetts – UWPV Financial Stability Network: Bank On

7  Financial Institutions. For many Bank On programs, the largest cost involves marketing and outreach to consumers. o Since the financial institutions benefit from the increased advertising that a Bank On campaign can produce, most initiatives request that participating banks and credit unions contribute funds toward the marketing campaign. o When approaching the financial institutions, it is important to emphasize that a Bank On program will generate new business by helping them reach untapped markets. Local Foundations and Community Organizations. Program facilitators often present the establishment of a Bank On program to local foundations as an investment in the community. Business Partners. Other businesses, besides financial institutions, may be interested in offering resources to a Bank On program. o A variety of businesses see value in a Bank On program, since expanding access to mainstream banking may help residents keep more of their money and become more responsible consumers. o Business partners can provide in-kind contributions from envelopes and stamps for mailings, to coupons or door prizes that can be used as incentives for opening a Bank On account or taking a financial education class.

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Step Five: Product Development: By researching financial service needs of the community, engaging financial institutions in product development and utilizing the resources of community-based organizations that work with unbanked families, cities can facilitate the creation of appropriate financial products that provide pathways to asset building and protection. Individuals do not have traditional checking accounts for a variety of reasons. A large minimum deposit, monthly fees, or monthly balance requirements can be an immediate barrier for many lower income families who cannot meet these requirements. Additionally, consumers who have struggled to successfully manage a checking account in the past, or who lack traditional forms of identification, are a special focus of Bank On programs. Step Six: Data Tracking and Reporting: An effective Bank On campaign includes a data tracking component that helps facilitators measure the success of the initiative, identify challenges, make improvements and inform the future growth of the program. The ability to demonstrate that the program generates positive outcomes is key to sustainability and continued funding. Step Seven: Marketing and Outreach: Program leaders should develop a targeted marketing strategy to reach the under-banked and unbanked communities. Marketing messages not only encourage use of the product, but also incorporate important public service messages about the importance of saving and keeping money safe. Step Eight: Financial Education: By designing financial education to meet the unique needs of the target audience, program leaders prepare these residents to avoid predatory lending, manage their income safely and efficiently, and develop long-term plans for saving and investing. Financial education may be delivered in a classroom setting or through individualized coaching.

Bank On Western Massachusetts – UWPV Financial Stability Network: Bank On

8 Step Nine: Training and Customer Service: Before launching a Bank On initiative, all partners, especially financial institution employees, should be trained appropriately to discuss the program and product with potential account holders and to understand their role in referring customers, providing financial education, and tracking data.  An appropriate subcommittee must develop a training program for branch staff, set a schedule for trainings and ensure that all bank and credit union staff receive training before the launch of the initiative. Step Ten: Launching and Sustaining a Bank On Program: As we transition into implementation, one individual may be designated to be the program manager.  Program managers must decide how to expand or improve the program and how to continue the momentum and monitor program performance.  The launch event itself is a vital part of the success of the campaign.  By hosting a public launch, program leaders can formally introduce the program to the public and showcase its high level of support among local elected officials and other important partners.  Most important, the launch event signals that the Bank On program is now available to consumers. Six Core Components of a Successful Campaign At the core, all Bank On programs share similar goals. However, every program works and operates differently; they are constantly evolving and developing innovative new ways to reach their goals. While acknowledging these differences, experts have identified six key factors to increase program success: 1. Include local government leaders to add credibility to Bank On. 2. Engage strong partnerships as the backbone of an effective Bank On initiative. 3. Involve all partners early and often to plan your program. 4. Develop a data collection strategy in the early stages of the initiative. 5. Learn from programs across the country. 6. Leverage your Bank On program into further financial empowerment efforts.

Bank On Western Massachusetts – UWPV Financial Stability Network: Bank On