U.S. Bank's consumer products team led by Lynn Heitman spent several years researching and designing a checking account that would be helpful to the millions of Americans without one.
The result: A checkless, online- and mobile-friendly account with no overdraft fees and a wealth of financial education tools. U.S. Bank launched the Safe Debit Account two months ago and it's off to a promising start.
"Two-thirds of accounts we've opened are for new customers to the bank, meaning we’re bringing people into the banking system," said Heitman, an executive vice president in consumer banking. "And the other one-third is important, too, possibly keeping consumers in the system" rather than falling into the unbanked or underbanked population.
Heitman shared those early results and spoke more broadly about the account on Oct. 20 as part of a panel hosted by the Federal Deposit Insurance Corporation (FDIC), which also broke down the results of its biennial survey of unbanked and underbanked households.
The survey found that more Americans are taking advantage of the banking system than when the country emerged from the recession, but that there’s still work to do. Seven percent of U.S. households were unbanked in 2015, a figure that has dropped steadily from 7.7 percent in 2013 and 8.2 percent in 2011. However, when combined with underbanked – those who have a bank account but also use expensive nonbank services such as check cashers and payday lenders – more than a quarter (27 percent) of U.S. households still stand with at least one foot outside of traditional banking.
"Developing a relationship with a bank helps consumers build assets and create wealth, makes them less susceptible to discriminatory or predatory lending practices, and can provide a financial safety net against unforeseen circumstances," FDIC Chairman Martin Gruenberg said. "The decline in the share of households who do not have a banking relationship is a positive development, and the FDIC will continue working to help ensure households have access to safe, secure, and affordable banking services."
Inside the FDIC's survey
Nationally, the survey found that African-American and Hispanic households were most likely to be unbanked, at 18.2 and 16.2 percent, respectively, figures that decreased from 2013 but were still substantially higher than white, 3.1, and Asian, 4.0, households. Among all ethnicities, those households with low and/or volatile incomes were also more likely to be unbanked.
Why are so many Americans avoiding or underutilizing banks? In the survey, unbanked households said mistrusting banks, account fees or simply feeling like they don’t have enough money were the three primary reasons for remaining outside the banking system. In fact, the majority of unbanked households believe banks "have no interest in serving households like theirs."
But, as evidenced by the Safe Debit Account, that’s not the case everywhere. Heitman explained on the FDIC panel that the account comes with a debit card and no checks, and no overdraft fees. But like a traditional account, it gives customers the ability to deposit money, pay bills and manage their account through mobile or online banking. In line with the bank’s longtime focus on financial education, the account comes with free access to their credit score and a credit score simulator, as well as the bank’s online financial education toolkits.
Following the Bank On National Account Standards
In the Safe Debit Account, U.S. Bank incorporated all of the required and many of the recommended features of the Bank On National Account Standards, which were created by the Cities for Financial Empowerment (CFE) Fund alongside regulators, municipalities and other organizations.
"Our Bank On National Account Standards offer aspirational, yet attainable, guidelines to connect [unbanked or underbanked consumers] to products that meet their needs," said CFE Fund President and CEO Jonathan Mintz when rolling out the standards in late 2015. Mintz, during the FDIC panel, also noted recent success working with several cities and banks to help connect teens, coming from unbanked households, with bank accounts through summer jobs programs.
Working hand-in-hand with community partners
To launch the Safe Debit Account, Heitman said during the panel that U.S. Bank required its branch bankers to develop a deep understanding of its features so they’re able to present it to customers in equal visibility to longer-standing account options – making sure the account selected by the customer is the right fit for them. The bank also reached out to more than 100 nonprofit and community organizations to spread the word to people they serve, including many unbanked and underbanked households.
Among those 100 organizations, Twin Cities-based nonprofit Project for Pride in Living (PPL), which helps lower-income individuals and families become self-reliant through affordable housing and employment readiness services. Henry Rucker, housing and financial coaching coordinator for PPL, explained that many of his clients have trouble with budgeting, a money management fundamental, because without a banking relationship there’s no paper trail to track spending on groceries and other day-to-day expenses. "It's expensive to be unbanked," Rucker said.
Another organization was microlender and economic empowerment nonprofit Accion. Metta Smith, a regional vice president of lending and client relations, said she was impressed with the Safe Debit Account’s features and that such an account would be a useful tool for many of Accion’s clients and their families. She cited one of her clients; a small business owner who had a bank account but had racked up hundreds of dollars in personal overdraft fees which, if instead put toward savings, could’ve been invested in his business.
During the panel discussion, Gruenberg of the FDIC pointed to U.S. Bank’s implementation approach as a valuable model for other financial institutions.
In light of the promising early success at U.S. Bank and others discussed at last week's panel, just how widely can safe accounts reach in helping unbanked and underbanked Americans? Banks, regulators and community organizations will work hard to get the word out and anxiously await the FDIC’s next report in a couple of years.
"The discussion we have at this committee every two years on the survey findings is the highlight of the work we do here," Gruenberg concluded.
Pat Swanson is a member of U.S. Bank's corporate communications team.