By Julie Stackhouse, Executive Vice President, Federal Reserve Bank of St. Louis
Banking on "Bank On" A
ccording to the Federal Deposit Insurance Corp. and the Census Bureau, about 1 in 4 households either do not have a savings or checking account, or do, but also rely on firms such as check cashers and payday loan centers for banking services. It’s alarming because banking products are generally more cost effective than similar services from alternative providers. Moreover, a banking relationship can promote savings and provides a pathway to more sophisticated products and services.
Bank On Basics The first Bank On initiatives sprung up in New York and San Francisco in 2006. In the dozen years since, more than 75 additional cities have formed Bank On coalitions. In 2012, a nonprofit organization called the Cities for Financial Empowerment (CFE) Fund began providing technical assistance, grant funding and other services to Bank On coalitions. The CFE Fund also set out standards1 for Bank On accounts to promote both low cost and low risk for customers. Standards include: • An initial deposit of $25 or less • A $5 maximum monthly maintenance fee • A $2.50 maximum out-of-network ATM charge • No overdraft fees • Free online bill pay and in-network ATM access • Direct deposit
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• May-June 2019
Currently, 31 banks and credit unions—including some of the nation’s largest banks—offer certified Bank On account products that meet the Bank On National Account Standards. With more than 21,000 bank and credit union branches offering accounts, the program has a national reach.
Measuring Bank On Effectiveness Such programs are laudatory. But are they effective? Last year, the CFE Fund saw the opportunity to assess Bank On’s effectiveness. The St. Louis Fed, as a neutral party, was selected to analyze account data collected by four large financial institutions. The results of the analysis are encouraging! The collected data indicate that: • Bank On customers use their accounts like typi-
cal bank customers, with about one-third taking advantage of direct deposit and more than threefourths making debit transactions.
• Account holders—many of whom were previously
unbanked—are digitally active and make extensive use of online and mobile banking services.
• Despite early fears, Bank On accounts do not
“churn.” They have similar closure rates (25 percent) to other bank accounts.
