Banking recruits | Bath Savings joins an FDIC pilot program to bring affordable online banking services to the underserved
Glenn Hutchinson, president and CEO of Bath Savings Institution, winces when he sees young people come into his bank, cash their paychecks and leave, foregoing conventional savings and checking accounts that form the basic foundation of financial literacy.
“It’s a tough way to manage your money, when you still use cash,” he says.
The Federal Deposit Insurance Corp. agrees. Research conducted by the national bank agency estimates 25% of Americans forego conventional bank accounts, in part because of perceived excessive fees. That constitutes a huge underserved population and prompted the FDIC to launch a one-year pilot program, Model Safe Account, to recruit new banking customers with nearly free, online savings and checking accounts. Bath Savings was one of nine banks chosen nationwide to participate in the program.
“For us, this is a starter account, a viable alternative to help customers keep costs down and manage their finances,” says Hutchinson. “It gives us the opportunity to reach some new customers, which means the chance to develop a relationship with people that will grow, hopefully, along with their financial needs.”
The pilot online checking account offers free services, including transfers from savings, online and mobile bill paying, statements, two money orders per month, ATM access, debit cards and check cashing. The minimum balance required for the account is $1 and the only fee is a $2 per month maintenance fee, says Hutchinson. No paper checks are offered, reducing processing costs and the chance of overdrafts.
“This is very similar to what we were offering anyway, except for the no-paper-checks part,” says Hutchinson. “It made sense to us, since checks are far less utilized these days.”
Bath Savings already offers a free savings account and had to make only modest software modifications to accommodate the checking account option. The bank receives no financial support from the FDIC for marketing the pilot program or for tweaking its software, although it may receive some consideration for Community Reinvestment Act credits, according to the FDIC. Hutchinson says Bath Savings decided to apply for the program because it seemed like a good way to reach out to underserved customers. Only well-capitalized and well-managed banks qualified for the program, according to Sherrie Rhine, FDIC senior economist and liaison for the Model Safe Accounts program.
“All of the financial institutions chosen showed in their applications that they are dedicated to providing financial services to underserved populations and a willingness to move more in that direction,” she says.
The FDIC decided to launch the pilot after studying outreach efforts at banks around the country. Researchers were particularly interested in the features and fees of successful programs targeted to the underserved, culling best practices to form a template for the model account program, Rhine says. Then the template was put out for comment to banking associations and trade groups.
“What surprised us was the overwhelming response that people are gravitating to all-electronic services and the need for the pilot to include paperless checking,” says Rhine. “The message was, ‘If you want to keep costs down and make it sustainable, we should look at a card-based account,’ not a traditional check-writing account.”
According to a 2009 FDIC study undertaken with the U.S. Census Bureau, 7.7% of American households (roughly 9 million households) have no bank account, and one in five households earning less than $30,000 a year is unbanked. Additionally, about 18%, or 21 million households, are underbanked, meaning they have an account at a federally insured institution, but rely on other sources for services like check cashing and loans, including pawn shops and places that offer payday loans and rent-to-own agreements.
According to the study’s findings, underbanked people often feel they don’t have enough money to warrant opening conventional accounts, and cite the convenience, speed and cost of using non-bank service providers.
The FDIC intends to publish the results of the pilot program, which rolls out Jan. 1, after a year and assess its use, success and profitability of the accounts.
“The idea is to share the information with banking associations, with the goal of making this a scalable program,” says Rhine.
Carol Coultas, Mainebiz editor, can be reached at ccoultas@mainebiz.biz.
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