In late October 2012, nearly 200 people from across the country gathered at the Federal Reserve Bank of St. Louis to discuss ways to improve access to financial services for the unbanked and underbanked, as well as to hear from those who have been generating ideas and innovations in building household wealth.
The two-day conference, titled “Promising Pathways to Wealth-Building Financial Services,” was co-sponsored by the St. Louis Fed, the Federal Reserve Bank of Kansas City, the U.S. Department of the Treasury’s Office of Consumer Policy, and the Center for Financial Services Innovation. The conference, organized by the St. Louis Fed’s Community Development department’s Household Financial Stability research initiative, brought together nonprofit organizations, financial institutions, and government agencies that are working to develop strategies to reduce the number of unbanked and underbanked consumers, as well as to rebuild American household balance sheets.
“When we help build strong balance sheets, we help build a strong economy. And never have we needed to do that more than in the last few years,” said Julie Stackhouse, senior vice president of Banking Supervision & Regulation with the St. Louis Fed. “Many people are in and out of the financial system; it’s a non-static, fluid population, which makes it hard to build a healthy balance. And, importantly, there’s not going to be a one-size-fits-all strategy that works, so we must be creative.”
To that end, addressing the needs of the unbanked and underbanked is one of the essential tools in helping Americans rebuild their household balance sheets, said Ray Boshara, policy officer at the St. Louis Fed, who leads the Bank’s work on Household Financial Stability. A recent survey by the Federal Deposit Insurance Corporation (FDIC) revealed that in 2011, 8.2 percent of households in the United States were unbanked, and 20.1 percent were underbanked.
The unbanked category covers people who don’t have access to a checking or savings account and rely instead on alternative financial service providers, while the underbanked category represents people who have bank accounts but still rely on alternative financial service providers for some of their needs.
Boshara explained the conundrum this presents for building up one’s household balance sheet: “If you’re doing your banking at check cashers and payday lenders and buying things through rent-to-own stores, you simply are not going to build long-term wealth.”
Keith Ernst, associate director for Consumer Research and Examination Analytics in Depositor and Consumer Protection at the FDIC, stressed that as the banking system invests in finding and developing ways to include the unbanked and underbanked, these actions instill more confidence in the system, which then encourages wealth-building behavior.
“As increasing numbers of households have access to safe transactions accounts and savings accounts, as they get exposed to responsible, low-cost, affordable credit options, their balance sheets are strengthened, their communities are strengthened,” Ernst said. “They experience success. Then, in turn, they see the banking system as their partner in that success.”
One of the conference’s keynote speakers, Clifford Rosenthal, assistant director of the Consumer Financial Protection Bureau’s (CFPB) Office of Financial Empowerment, spoke about his team’s visits with those working with unbanked and underbanked consumers across the country.
The primary responsibility of the CFPB, launched in 2011 as a result of the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010, is to regulate consumer protection for financial products and services. Its consumer bureau gathers and analyzes available information to better understand consumers, financial services providers, and consumer financial markets. Rosenthal said hearing front-line stories about financial barriers and innovations has been extremely helpful in determining how to best help at the federal level.
“Hopefully, what we can do is identify some of the most promising and emerging practices to see if there are some that we can help bring to the next stage, that we can provide some tailwind,” said Rosenthal. “Having the privilege of being at the federal level means we can work with our colleagues to bring some coherence and some coordination to the various agencies.”
Other experts talked about what they’re already doing to encourage wealth-building habits in the underbanked population.
Haydee Moreno, of the Center for Community Self-Help, described her agency’s “Micro Branch” initiative in California. These branches function as both check cashers and as credit unions. They draw underbanked customers through their check-cashing business, and then teach them about checking and savings accounts once they get them through the door. Customers are offered an easy-to-open savings account in which the branch will automatically deposit $5 from each check the customer cashes.
John Metz, financial services director for Walmart Stores Inc., talked about the company’s new Bluebird card, a checking and debit alternative through a partnership with American Express. He described the card’s many features: Opening a card doesn’t require a credit check, and the card doesn’t require an existing bank account. Users can deposit checks, including direct-deposit paychecks, as well as add cash to it at most Walmart stores. They can also pay bills, either online or with their smartphones, and can exchange money with anyone who has a Bluebird card. They can also withdraw cash at ATMs and open subaccounts to monitor family spending. “We’re not positioning this as something that will replace people’s bank accounts,” Metz said. “We think it will complement them well.”
Other speakers at the conference addressed mobile financial services, tax-time strategies for getting consumers to save, municipal strategies for promoting financial access, and policy barriers to financial access.
Tina Lentz, executive administrator for the Louisville Metro Department of Community Services and Revitalization, talked about the success of the Bank On Louisville campaign, one of many Bank On initiatives across the country that strive to connect low- and moderate-income consumers to quality financial services.
The Louisville group aimed for 500 new bank accounts for consumers in its first year in 2009, but it actually succeeded in opening 5,952 accounts that year.
Lentz said the key was establishing relationships and building trust.
“Not just relationships between financial institutions and potential clients, but also between financial institutions and the nonprofits who were recommending that their clients take advantage of these services,” she said. “They wanted to be able to trust what they were telling their clients.”
A common thread tied together many of the presentations: New and constantly changing technology, particularly in the form of mobile devices, provides unprecedented opportunities to reach the underbanked and help them learn wealth-building practices.
“It’s hard to predict where technology is going to lead us,” said Melissa Koide, Deputy Assistant Secretary for Consumer Policy at the U.S. Department of the Treasury. Koide gave the opening keynote address of the conference. “But it is our responsibility to really understand what these technology opportunities are, how we can leverage them, and how we can help facilitate innovation, alongside the appropriate consumer protections.”
Jennifer Tescher, president and CEO of the Center for Financial Services Innovation, echoed Koide’s points and emphasized in her keynote speech, which opened Day Two of the forum, that the consumer must remain at the center of these new opportunities.
“We cannot simply talk about innovation,” she said. “It has to be about high-quality innovation. And in defining high-quality, it has got to be about, ‘Is this a net positive to the consumer? Is this helpful to the consumer?’ It’s not about technology for its own sake; it’s about how technology can enable the kinds of things we want to see happen for the consumers we care about most.”
Many of the speakers’ presentations are now available on the Promising Pathways section of the HFS web site. Videos will also be posted soon.