Looking For Overlooked Consumers
By Collin Canright
If there’s a formula for serving the successfully lower-income consumers at Sunrise Banks, it’s this: access, convenience, fairness and price.
The community bank has spent nearly 20 years working in the urban core of Minneapolis-St. Paul to find out how to serve the low- and moderate-income banking consumer market in a way that fuses social mission with a reasonable return. Since he started with a single bank in 1995, Sunrise Banks CEO David Reiling has led grassroots efforts to build an $800 million-asset “value-based bank” that looks to provide a broad set of financial services for its community.
FDIC research done in 2011-12 estimates that one-third of U.S. households have scant to no financial accounts or relationships with a mainstream bank. A later FDIC report estimates that nearly three-quarters percent of U.S. households use one or more alternative nonbank financial service. Those nonbank services mainly include these businesses:
- check-cashing services at currency exchanges, grocery stores or other outlets;
- loans from “payday” lenders or pawn shops;
- nonbank money-transfer, money-order and payment services; and
- prepaid cards purchased off the shelf at retailers and currency exchanges.
One thing community bankers must understand, Reiling says, is that the business of providing financial services to lower-income consumers, including microloans and check-cashing specialty services, follows a different model than many community banks are used to. “It’s obviously a transaction business, and we’re in a relationship model,” he points out.
A full-time focus
Reiling says that serving the less-affluent consumers—the “unbanked” and “underbanked”—is not a sideline business for Sunrise Banks but a profit-oriented activity that’s infused with the bank’s vision, mission and purpose. The objective translates into Sunrise Banks’ policies, procedures and people, he says. The bank’s corporate governance structure also is built to support its social mission.
“It dawned on me that if I can’t figure it out, how were they going to figure it out?”
—David Reiling, Sunrise Banks
Sunrise Banks is the first Minnesota bank certified as a Community Development Financial Institution (CDFI), the first Minnesota B Corp and the first Minnesota bank to join the Global Alliance of Banking on Values. Under the U.S. Treasury Department’s CDFI program, a bank must follow a mission of community development and originate more than 60 percent of its loans in low- and moderate-income communities, with community accountability. The B Corp (for benefit corporation) structure is designed to ensure standards of social and environmental performance, accountability and transparency.
What’s also necessary is community grassroots involvement to get the service and technology mix right to make a transaction-based business profitable, Reiling says. “If you are really going to be in this business, you need to leverage technology in order to keep the cost as well as the compliance in-check,” he says. “You do need a high volume of transactions because it is a very low-margin business.”
Providing specialty services
Sunrise Banks offers microloans, settling on a model of providing them through employers as an employee benefit. Working with a partner, the bank has developed software that quickly accepts an application for a microloan and provides an immediate decision. Funds are put in an employee’s bank account the next day or made available on a prepaid card.
“If you are really going to be in this business, you need to leverage technology in order to keep the cost as well as the compliance in-check. You do need a high volume of transactions because it is a very low-margin business.”
—David Reiling, Sunrise Banks
The bank follows a two-pronged consumer-service strategy: place-based and people-based. The place-based strategy consists of the bank’s primary commercial lending and leasing business in the Minneapolis-St. Paul urban core, where Sunrise Banks provide loans to small businesses for jobs, to nonprofits as a social safety net and for affordable housing.
The people-based strategy consists of national products. Sunrise Banks provides a national prepaid card platform and seeks to make it work for program managers in other locales who are working with communities of unbanked and underbanked communities.
One of the keys to the success Sunrise Banks has had with low- and moderate-income markets has been its grassroots learning efforts and partnerships with community groups. “The bank has also conducted on-the-ground research to see how consumers use financial services, including working shifts at a local laundry to learn how the business served the neighborhood’s needs. The experience with the laundry led to another leg in what Reiling now calls the “Unbanked Empowerment Journey.” During one of his laundry shifts, three Hispanic ladies asked for help with their tax returns. “I didn’t know what an earned income tax credit was. We had language difficulties. It dawned on me that if I can’t figure it out, how were they going to figure it out?”
After doing more research, Sunrise Banks put together a tax-preparation package. The bank made agreements with tax preparers, set up temporary bank accounts so refunds can be deposited electronically, made agreements with retailers to provide flat check-cashing fees, and made sure the tax preparers get paid appropriately as well. Reiling says it takes experimentation to find the right mix of alternate financial service and traditional relationship service to both make a profit and serve a cause. Sunrise Banks has had to innovate and experiment.
“That’s where I think there is difficulty particularly within the current regulatory environment,” Reiling says. “That intersection of innovation and regulation is really a difficult one these days.”
Collin Canright is a financial writer in Illinois.