I’m an efficient guy. Or, to be more accurate, I’m a lazy guy. Not only do I prefer to kill two birds with one stone, it’s difficult for me to summon the energy to kill just one bird. I like to wait until two of them are standing next to each other and there’s a large rock nearby and handy.
Perhaps I share this personality trait with at least two of the nation’s leading financial institutions. They’ve found a single stone with which to slay two of the more troubling birds in the money world — how to serve the underbanked and how to boost revenue in a Dodd-Frank world.
Consider, if you will, the similarity between two pieces of banking news this week:
- Regions Bank announced it had partnered with Chexar to create services aimed at turning the underbanked into customers — not by selling them “traditional” products, but by bringing underbanked-focused products into bank branches. The Birmingham, Ala.-based bank is now rolling out prepaid cards, check-cashing and Western Union bill-pay and money-transfer services at branches across 16 states. The product suite is called “Regions Now Banking.”
- American Express announced it would track the money habits of its prepaid-card users. Folks who meet some undisclosed standard would then be invited to apply for a traditional American Express charge card. The program addresses one of the great shortcomings of prepaid cards — using one doesn’t help your credit score. American Express dubbed its program “Make Your Move.”
There’s an elegance and logic about these programs that is worth applauding.
Imagine the stereotypical underbanked customer — living from small paycheck to small paycheck — wandering into the branch of any giant bank, talking to a teller, and being told about minimum checking account requirements.
Now contrast that with that same customer wandering into a Regions Bank branch, where there are products he’s familiar with and that make sense for him. Then imagine that same customer just a few years later. He’s saved a bit. He’s landed a better job. It would seem a pretty small step for someone from Regions Bank to walk him across the lobby and introduce him to a new tier of products.
The same process, of course, is available in a virtual setting through AmEx’ “Make Your Move” program.
A New World
So here’s the thing. It’s not hard to generate revenue by serving the unbanked and underbanked. Lots of places — from Green Dot to MoneyGram to Western Union to the U.S. Post Office — do it. But it is hard to make money selling bank products to them. That’s why they are the unbanked and underbanked.
Or to put it another way: It’s not that the less-than-affluent are the wrong customers for banks; it’s that banks are selling the wrong stuff.
But it doesn’t have to be that way.
Banks do face substantial challenges. The old ways of making money aren’t working so well anymore. Heck, some of the old ways of making money aren’t even legal anymore.
Many big banks seem to be looking to pare the services they offer to the poor and middle class, and to expand services for folks closer to the top of the food chain. But Regions Bank and American Express seem to have a better sense of how the future of the industry will look.
Banking, when it’s done right, is an aspirational play. Saving, investing and borrowing are what people do in order to provide for themselves and their families. Banking is about the future.
Both consumers and bankers forgot this in the run up to the financial crisis. In the era of quick returns and quarterly earnings reports, we became a land of hidden fees, credit-card debt, day trading, house flipping and rate chasing.
Now consumers are rethinking their relationship with money. Financial institutions are rethinking their relationships with consumers.
And sitting right smack in the middle of all that rethinking are two, big, troublesome birds: banks’ need to generate profits and the vast numbers of the un- and underbanked.
So allow me to suggest that Regions Bank and American Express have found the perfect stone with which to kill those birds — a long-term, aspirational-style range of services by which a family moves from unbanked to underbanked to banked.
Regions Bank and AmEx aren’t the only smart companies in the business. They are just two of the faster movers. A few years from now we’ll see a widespread acceptance of this single-stone approach. Bank branches will offer check-cashing services. Suze Orman will succeed in getting the credit bureaus to accept data from prepaid debit, or she’ll start signing deals with banks that will. Banks will sell prepaid cards that morph into checking accounts when customers are ready. Convenience in money movement won’t be limited to convenience stores.
And one day, some genius somewhere, will offer these services in an artisanal bank. And I will die a happy man.
Photo credit: Elise Wormuth / Flickr
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