Banking For America’s Unserved And Underserved

You probably already know that half of the $6.8 trillion dollars banked in the United States is managed by just four banks: Chase, Bank of America, Wells Fargo and Citigroup (remaining dollars are managed by over 6,000 banks scattered across communities from Maine to Orange County).

What you probably don’t know is that escalating fees, banking mistakes and deceptive practices have created a Big Bank environment where fees come first and customers last.

Simple practices like the fact that banks transact seven days, but only collect money five days, create gaps in customer cash flow where some banks take advantage.

Like this: Let’s say you have $100 in your checking account. You write a check for $75 for food and you write a check for $25 for gas. Then you discover you have $125 due for a medical expense. So you write a check for $125, willing to take on the added expense of a single overdraft fee.

But here’s what happens. Some banks deliberately resequence the checks so that your check for $125 is cashed first — automatically overdrafting you not just for that check, but also the checks for $75 and $25. This stunt is known as “debit resequencing”, and it is just one reason why some Big Banks have recently been fined hundreds of millions of dollars.

The bottom line is that banks — the institutions presumably responsible for preserving financial stability, are provoking financial instability for millions of Americans. And that includes entrepreneurs.

The simple money gaps that some of us fill with easy overdrafts (with fees easily paid via steady biweekly paychecks) can be disaster for ordinary business owners (and American families working two or three jobs to maintain America’s average income of about $60,000 a year).

Rising wage inequality, declining wages, a ragged social safety net, decreased worker benefits, increased costs of living, changing social strata, the slow egregious movement to a gig economy (where everyone holds more than one job), have turned financial bedrock into quicksand for many Americans.

Worse, rather than an ascent to the American Dream, the “middle class” now has become a placeholder for poverty.

Financial instability has become the new normal.

Clearly, this is a white space for socially conscious entrepreneurs looking for opportunities. And it’s a gap that is being filled by new kinds of banks and other financial services.

As Lisa Servon writes in her book “The Unbanking Of America,” “We need an [financial] industry that keeps people’s money safe, provides high-quality, affordable products and services, aligns with our democratic values, and truly serves people in the best sense of that word.”

Happily, new financial institutions willing to “do good” exist around the world, although there are only about 40 on the planet, according to the Global Alliance For Banking On Values (GABV).

Sunrise Banks in Minneapolis-St. Paul is one of these banks. Over 60-percent of their business is commercial lending to local businesses like the local dry cleaners, grounds keeping companies, and small manufacturing. Nothing sexy.

But what is attractive, is how Sunrise Banks feeds that money back into special projects. Like a local organic food resource project. Housing for disadvantaged families. A shelter for abused women and children. And more.

Projects like these have helped Sunrise Banks to become ranked best bank in the world for positive overall social and environmental impact. (This ranking is according to a number of experts and organizations, from BCorp, Minnesota Business Magazine, Business Journal and other publications.)

In 2015, B Corps ranked Sunrise Bank in the top ten-percent in the world for overall social and community impact.

Detailing how Sunrise digs into local neighborhoods might help inspire entrepreneurs in other communities, as it reveals that Sunset Banks’ mission-focused investments may be small, but this is not Muhammad Yunus-style micro-lending.

Example: One Sunrise investment is a $6 million project that will preserve 20 jobs and create eight more. Activating nearly 30 jobs creates a multiple that has clear societal benefits. When success falls into the laps of individual mothers and fathers and working age children, this block-by-block thatching provides financial shelter for neighborhood families.

David Reiling, chief executive officer at Sunrise Banks finds that funding designed block-by-block has huge impact on families, individuals and neighborhoods.

“The first thing it does is provide hope,” says Reiling. “What I’m trying to address is the psychographic of the community. If something is being repaired or lawns are being cut, people feel that things are getting better. However, when they see businesses fail, there’s no hope.”

Transforming one key site — eliminating one problem property in a single neighborhood — has a huge multiplier effect. Getting rid of a single slum landlord can spark surrounding homeowners to start taking care of their yards. The city takes notice and gets involved.

“Filling in those smaller, in-between places allows for a democratization of capital that adds to the thickness of a neighborhood,” adds Reiling. “Families feel ownership, they start to feel that it’s their community and now they want to have a say in it.”

Other Sunrise Banks investments include financing for a new training center, financial assistance for a YMCA, money for renovating a foreclosed property. These projects are in the weeds and empty lots of local neighborhoods, areas red-lined and ignored (or simply, hands-off) by Big Banks.

“It’s easy for big projects to get capital,” declares Reiling. “Smaller deals, not so much.”

But this is geography where Sunrise Banks and other banks can find a role.

Amalgamated Bank in New York City is the largest B Corp bank in the U.S. Amalgamated focuses on “doing the most good for the most people.” They, too, are not only trying to create a positive footprint in the world, but also reinforce the positive impact on local organizations and businesses.

Another bank in the GABV network is Beneficial State Bank based in Oakland, California, ranked best for the world in 2016. (Amalgamated and Beneficial did not make themselves available for this article.)

Banks trying to do good are often not national or international, instead they are local banks trying to reduce the friction of Big Banks.

Their presence in the community also allows opportunity for bootstrapping entrepreneurs and community dot.orgs who might otherwise find themselves overlooked by angel investors and other VC partners.

“One of the things smaller projects have enabled us do, is to experiment,” says Reiling at Sunrise Banks.

“Rooted in the dirt and doing the projects and understanding what the needs are, helps us understand how to solve for other problems and situations.”

To recognize the advantages, you might have to reframe your ideas about scale.

“Scale is always an important factor,” nods Reiling. “There is always going to be pressure about doing the business, there’s always competition from other financial institutions. You need scale in order to invest in innovation.”

Banks in this sector create a larger footprint than you might think. Making sure that the mother, father, older children, even grandparents are employed creates a radiant effect: reducing spousal abuse, school dropout rates, undernourishment, small crime and other social ills — improving overall neighborhood quality of life.

Unfortunately, many entrepreneurs and business owners are not aware that these socially responsible banks exist. Gabriel Garcia, co-founder of Brooklyn Circus, a trend-smart fashion retailer with locations in the Boerum Hill area of Brooklyn and on Fillmore Street in San Francisco — in other words, within the marketing footprints of both Amalgamated and Beneficial — was unaware.

“I live in Oakland and never heard about them,” says Garcia. “We joined a Credit Union.”

Stats vary on the exact number of unserved or underserved Americans, but the estimate is about 68 million — a quarter of all U.S. households, according to a U.S. Postal Service Office of Inspector General report. Many go unidentified, slipping through the cracks of the United States financial system.

This provides fledgling entrepreneurs with an ample market and plenty of white space for new product and service innovations such as mobile payments, easier experiences, as new payment methods (like Bitcoin and block chain) evolve.

Doing good for people, rather than for other banks, looks like an uphill climb. But banks like Sunrise, Amalgamated, and Beneficial are making headway.

For today’s unbanked and long tail financial markets, outcomes include positive growth and better life experiences.

“You do a building, you create jobs,” says David Reiling at Sunrise Banks. “The road gets fixed, the sidewalk gets fixed. These small projects can reclaim a block, they can reclaim a street and then a neighborhood. We’re building great neighborhoods, we’re creating great environments, and soon enough you’ve got a great city.”

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Patrick Hanlon

Patrick Hanlon

Author of “Primal Branding,” “The Social Code,” writer on Forbes, Inc., Adweek, and elsewhere. Founder primalbranding.co + Thinktopia®