Bank On — Financial Inclusion To Benefit Individuals, Banks And Credit Unions

Bank On is a pretty simple concept that now has over 3.8 million accounts across the U.S. It offers certified bank or credit union accounts which have none of the fees that have driven many people away from bank accounts.

Bank On accounts feature low costs, no overdraft fees, robust transaction capabilities such as a debit or prepaid card, and online bill pay. The program is sponsored by the Cities for Financial Empowerment Fund (CFE Fund) which helps cities and mayors to deliver large-scale, high-quality financial empowerment services, often by providing government payments through bank accounts, so recipients have to open an account to receive the payment.

“Let’s get people into the banking system because it offers fundamentally stabilizing financial tools,” said Jonathan Mintz, president and CEO of the Cities for Financial Empowerment Fund. “So many of our other efforts to stabilize are hamstrung if people are outside the financial system.”

Bank On grew out of an FDIC pilot program to get more of the country’s estimated 36 million unbanked to open and use bank accounts. The CFE Fund realized that an effective program needed to work with banks and credit unions and develop a single nation-wide standard for a safe bank account.

It’s been successful with financial institutions — Bank On certified accounts are available through more than 200 financial institutions and just under half the branches in the country, said Mintz, and the financial institutions offering them make up 56% of U.S. market share.

Getting unbanked people to open an account can be very direct — simply require them to have a bank account to receive government funds.

“At the local level, in summer youth employment or other work programs where the government is paying people salaries and the population has a high degree of unbanked, as they sign up for the programs and salary you tell them direct deposit is how they get paid and give them a list of approved accounts. People say yes,” Mintz explained.

Some states are starting to require direct deposit into a bank account for unemployment benefits, instead of sending checks or cards to recipients. For stimulus payments during the pandemic, the IRS said it could pay into bank accounts quickly, but checks could take several months to print and mail, another incentive to open an account.

Because so many banks and credit unions have accounts that meet the Bank On standard, government agencies don’t have to steer people to specific institutions — they can offer them a list to choose from. Several provide online account opening.

The Bank On program does not work with fintech firms because they aren’t regulated and VCs can change the rules at any time, Mintz said.

“Where are the consumer protections, where is the stress testing? We are steering people to regulated financial institutions. We don’t believe that banking access is just about getting people the best transactional product, we think it is about connecting.”

Certification is free and some financial institutions are approaching the CFE Fund to get accredited — another 30 are in the approval pipeline, he said.

Bank On builds on Dodd Frank’s Reg E which requires banks to get a user’s approval for overdraft fees. In the Bank On safe accounts, if a person tries to make a payment and doesn’t have the funds, the payment is simply stopped without incurring NSF fees.

The FDIC is promoting safe accounts through #Getbanked campaigns “focused on areas where research finds that a significant number of Black and Hispanic households are unbanked. The goal of this targeted campaign is to encourage unbanked consumers to consider opening a checking account. Many banks offer a variety of accounts, including low-cost accounts. Last year, the FDIC launched this campaign in Atlanta and Houston.

“Through a series of English- and Spanish-language digital, audio, and video advertisements, the FDIC hopes to reach unbanked consumers, particularly during the tax filing season, when they can benefit from early and direct deposit of their refund,” the FDIC said in a press release.

In addition to the new accounts signing up because of advertising, the Fund is working with three dozen cities and counties who have completely changed the way they pay their summer employees, Mintz added.

“We start with the premise that nobody can get screwed with these accounts. The FIs won’t be disadvantaged by people over-spending with money they don’t have, and the customers won’t find themselves with a bunch of fees racked up because they tried to buy a coffee and were a dollar short. The structure of the accounts has facilitated positive relationships between banks and people who wanted to join the mainstream banking system that the middle and upper class enjoy but were frozen out.”

Banks and credit unions have a ton of technology they can deploy to educate customers and help them save with budgeting and savings buckets, he said.

Mintz said the FDIC campaign is the reason the number of Bank On account has been exploding. And they are reaching people who previously didn’t have a bank account. The Federal Bank of St. Louis, which tracks the Bank On program, said that 82% of the new accounts are by people who are new to the financial institution. The safe accounts do 64 million debit transactions per month, he added.

“These are robustly used accounts with account holders who make deposits and operate online. We are creating a robust market of genuinely affordable transaction accounts.”

Banks tell the Fund these are good customers — some are taking out loans and starting businesses.

“A lot of financial institutions are pleasantly surprised that an account that they thought was a give turns out to be a get. Credit unions face aging out of members, so new members are the life blood of the industry. If these accounts were a money loser we would not be where we are today.

“Even without bank accounts unbanked people are transacting, often in expensive ways outside the banking system, he said. “They have bills to pay — many are earning money or receiving benefits and they ought to be able to use that money in an efficient manner.”