Impact banking: Bank of America – not too big to care
Over the last two years, Bank of America has been overhauling its low-to-moderate income business, redesigning branches and products, improving employee retention and working with community partners, but will the bank get the credit its actions deserve?
With gleaming white walls and decor, and housed inside a historic community bank building replete with original vault, the bank branch seems more like an Apple Store.
Indeed, over on the left are counters adorned with several iPads where customers can access financial education training modules and two computers that customers can use to pay bills online rather than waiting in line.
A ‘lobby leader’ greets every customer and asks them what they may need as a service, pointing to a large screen on the wall highlighting savings accounts and online payment tools.
Over on another wall are framed drawings from a local school and at the back is a designated community room for financial health training and for use by local community groups relevant to bank customers.
It is hard to believe this is Roxbury, Massachusetts – a neighbourhood that consistently ranks among the five poorest in Boston, with above-average unemployment and where there have been seven fatal shootings this year alone. But this is one of Bank of America’s designated low-to-moderate income (LMI) branches – one of 250 that are receiving a makeover as the bank focuses on serving LMI communities.
The programme began in 2016, and this is the year of transformation. Branches (or ‘financial centres’ as the bank calls them) have been redesigned so that they better reflect the communities they serve. In addition to tailored products and services, the financial health of the community is being improved through job creation and training. And the bank is partnering and supporting local non-profits, as well as supporting local community development finance institutions (CDFIs).
Mike Curran, Bank of America
Mike Curran, senior environmental, social and corporate governance strategy executive within consumer and small business at Bank of America, heads up the push in LMI – indeed, he came out of retirement to do so in 2015.
In late 2016 and 2017, Curran spent five months touring 250 of Bank of America’s 1,300 LMI branches.
“A third of all our branches serve low-to-moderate income communities, while one third of our employees live in LMI communities,” he says. “Yet we realized we weren’t thinking about LMI from the perspective of the individual communities and what they needed. It isn’t a one-size-fits-all segment as it includes a very diverse client base from students to the elderly. But digitization had opened up the door for us to serve this customer segment better and more profitably.”
The approach is four-pronged, says Curran. It focuses on employee experience, client experience, digital migration and appropriate products and services.
Over the last three years, Bank of America has improved more than half of its 1,300 LMI branches, with those that haven’t had a physical makeover receiving training and service upgrades. Charles Liu, head of branch transformation, ATM innovation and market planning, is leading that effort.
“Banks have tended to build square boxes and put tellers and sales people inside and keep everything the same,” says Liu. “But we don’t believe that is the right approach today. You can’t treat customers like widgets. We want the branches to reflect the community that they serve, from decor to services.”
In branches that serve predominantly students, where there is an alliance with a university, the school’s colours are used for decor, for example.
“The students, faculty and alumni are happy to see the school spirit extended,” says Liu.
There are ‘lending centres’ in areas of high household growth. There are ‘retirement centres’ in towns in Florida with high numbers of elderly. There are ‘small business centres’ in neighbourhoods with high concentrations of small and medium-sized enterprises.
Branches that serve a broader community of LMI households and where there is a majority of social minority households are called ‘community centres’. Some 25 like Roxbury have been completed so far, with more than 75 planned for this year alone.
Curran says the most obvious take away from his tour was that branches needed wifi installed. LMI customers are often on phone plans that have limited data downloads outside wifi.
“If you provide wifi in the bank, then customers know they have a place they can come and use their banking app for free,” says Curran.
Lobby leaders in LMI branches show customers how to upload and use an app to their phones, rather than them having to wait in line or for an ATM to check bank balances or transfer money. The uptake has been impressive: LMI customers are adopting mobile payment app Zelle at a rate of 51% year on year – far faster than the bank’s non-LMI clients.
'Better money habits'
Financial education is also at the heart of the bank’s strategy. Five years ago, the bank teamed up with Khan Academy to develop an online financial education programme called ‘Better money habits’.
Its success, when coupled with use of the bank’s spending and budgeting tool, is measurable. About one in four users have seen their savings grow by 20% or more and one in seven have reduced their debt balances by the same amount.
Now iPads can be found in some community centres so that customers can take the Better money habit modules in-branch. A Spanish version will also be completed by the end of this year.
Roxbury financial centre manager Angelica Civilus
“When many of your customers are seniors, it’s important that they have someone who can walk them through online banking,” says Roxbury financial centre manager Angelica Civilus, whose branch also has large screens that highlight products aimed at the community.
It all comes at a cost. Renovations can be $1 million per centre, then there are the tailored training, resources and affordable loan commitments.
Not every community centre makes a profit, but Liu says there is a longer-term plan.
“Everyone has to start somewhere, and if we can help people get on the right path through financial education, or help them with budgeting and savings, then that client is going to be on the right track to be able to work more with us in the future,” says Liu.
Civilus points out that an unbanked customer’s journey can begin with simple cheque cashing, which is welcomed because it then gives the bankers a chance to talk about the benefits of having a bank account rather than just cashing cheques.
“Some $2,500 a year can be saved by having a bank account rather than living on cheques – but often people think they would be turned away by a bank,” says Civilus. “We show them that is not the case.”
She adds that the financial health of a customer is tracked in terms of increasing Fico credit scores, reduced overdraft fees and increased savings and deposits. It is the same for every LMI branch. Customers who hit particular financial health milestones receive a phone call of congratulations.
Where the bank is unable to lend due to credit circumstances, customers are introduced to local CDFI loan funds that can help them build credit and access small loans with the aim of graduating onto auto or home loans from Bank of America.
The partnership benefits small CDFI loan funds by bringing them new clients thanks to the reach of Bank of America.
It is a new world for US retail banking, which has been disinvesting in branches as a sector – often in LMI neighbourhoods – because they are deemed less profitable. Bank of America has closed or sold some 1,500 branches since 2009 for example, according to data from the Wall Street Journal.
But Curran points out it is often not true that branches in high-income neighbourhoods make more money than in LMI communities.
“That would be an over-simplification,” he says. “We look at it this way: it represents a large population of our client base, we have branches and services that are well-positioned to make a difference and we have an obligation to stick with these clients. The market is changing and everyone is on this digital journey – we need to stick close and provide the right connection points when clients are ready.”
He stresses that digital has brought LMI community banking to a breakeven point or better.
“People no longer need to see a teller as often, for example,” he says. “Also there is a rhythm to the times people come to the bank – typically on days when social security payments are issued – so we bring in employees from other parts of the business or branches on those days to keep lines low. It means we run at maximum efficiency.”
As yet it is too early to say if the new strategy in LMI is paying off in terms of increased deposits and improved customer financial health.
The success of the revamped community centres will also depend on the consumer bank’s 60,000 employees and the roll out of the Academy for Consumer and Small Business led by John Jordan.
The tailored training of the academy began in Merrill Edge’s call centres and was expanded two years ago to all financial centres, and more recently into small business and lending. The academy offers in-depth training on topics such as empathy and emotional intelligence.
“Some of our employees may not have had the same life experience of our customers,” says Jordan. “If we want to make people’s financial lives better, we have to understand what drives their lives and why they come to us.”
Another aim of the academy is to provide employees with a clear path of career progression, from entry-level positions into sales or relationship roles, to specialist roles in mortgages and on to leadership roles. It also allows a transition between phone and customer-facing jobs, and provides cross-training so that call-centre employees can assist in branches on heavy traffic days.
Hiring from communities has been part of the academy’s strategy – creating a greater sense of community within the bank and bringing jobs to neighbourhoods. Civilus, for example, comes from the Roxbury community.
Speaking in June at the US Conference of Mayors, Bank of America chief executive, Brian Moynihan himself referred to the bank’s announcement to hire 10,000 “teammates from low and moderate-income neighbourhoods”, adding that the bank wants “to have people that connect us to the local communities and provide support for them.”
Hiring from the community also improves retention.
“We’ve seen financial institutions struggle with retaining community hires,” says Jordan, “but we have found that if you partner with local workforce development programmes and take the time to invest in new hires early on, then people do stay.”
And staff who stay tend to make fewer mistakes, serve clients more quickly and inspire teammates, he adds. For workforce development, Bank of America partners with organizations such as Urban Alliance, the Boys’ and Girls’ Clubs, and the YWCA for referrals.
“We’re experiencing our lowest attrition rate ever,” says Jordan.
This is what we believe large banks can and should be doing – keeping low rates and long terms and increasing the amount they can lend to community development finance institutions - Dan Letendre, Bank of America
In some cases, the bank is working on staff development in the financial industry at large, not just within its own walls. The Asian American Civic Association (AACA) has partnered with the bank in Boston since 2012, for example, receiving nearly $200,000 in grant funding for their programmes that help low-income unemployed and underemployed access skills training, job placement, retention and advancement services.
Each year from this programme 225 clients are trained for jobs and 165 are hired directly upon programme completion into Bank of America or other financial institutions in the Boston area. Bank of America volunteers assist with mock interviews with AACA clients.
The bank also works with Year Up, providing more than $2.2 million in charitable funding since 2014 to support workforce development. Some 470 interns have been hosted through Year Up and more than 200 students have gone on to full-time jobs.
Part of the academy’s strategy has also been to run the bank’s vast retail real estate more efficiently.
“We noticed we had enormous financial centres with empty space and separate call-centres elsewhere,” says Jordan. “Now we’re combining the two, where possible.”
It means that a branch effectively becomes a hub of employment of advisers, loan officers, sales representatives, call-centre employees and relationship managers all working in the same building. Employees can see the different career paths available to them. It also creates a greater sense of community as more people are working in the same building together.
The Belmont-Cragin centre in Chicago is a case in point. It is 23,000 square feet. Formerly a branch downstairs, serving chiefly the LMI Hispanic community in the neighbourhood, it had a few offices upstairs. Now the first floor has been adapted to become a call centre for the bank’s ‘preferred client’ segment. That call centre supports 50 roles, with the potential for future growth. The staff are trained to handle calls from preferred clients and are being cross-trained to support the financial centre downstairs during peak times.
The final piece of Bank of America’s strategy is not new: its philanthropic work. Now, however, there is a conscious effort to better connect its work with community non-profits to its LMI financial centres.
The bank’s Neighborhood Builders Program began in 2004 to provide leadership skills and training to selected non-profits and give them funding. Haley House in Roxbury and Boston’s South End was one such non-profit that received $200,000 in flexible grant funding and leadership development for its executive director, Bing Broderick.
The funding helped Haley House purchase the building that houses the bustling Haley House Bakery and Café, ensuring it can serve the community for the long term. The café offers a range of programmes including job training for those transitioning out of incarceration and after-school culinary arts and nutrition programmes for youth.
In a neighbourhood that had few places for people to gather, the café is a real asset to Roxbury.
Taking a more holistic approach to helping a community flourish, Bank of America’s recent commitment to LMI is a monumental shift in serving a client segment that has not only been excluded from US retail banking but has also often been the victim of high fees and low ethics.
According to the Center for Financial Services Innovation, some 54 million consumers across the US have low-to-moderate or volatile incomes; some 108 million consumers have credit challenges; and some 67 million individuals are unbanked or underbanked.
Bank of America seems to be setting an example for the nation’s largest banks, and Moynihan’s commitment to the segment certainly seems sincere. Indeed, the bank kicks its peers to the curb in terms of serving majority-minority communities. Majority-minority centres represent 35% of Bank of America’s footprint – the next closest competitor is three percentage points lower.
The model isn’t without its flaws, however. Savings, which are now seen as the key metric for financial inclusion, are cost-prohibitive to the lowest income clients because although Bank of America requires just $25 to open a savings account, the monthly fee is $8 unless a minimum balance of $500 is maintained.
Interest on savings is also less than 0.1%. Compared with online banks such as Ally Financial or Simple, which have no monthly fee and a savings rate of 2%, it would seem that online banks are better positioned to encourage an LMI community to save.
As something of a get-around, Bank of America tries to encourage customers to open savings accounts when they receive large lump sums such as tax refunds. And certainly at Roxbury and Belmont-Cragin there is a sense that the bank employees drawn from the community are not encouraging high-fee products.
The term ‘preferred clients’ for its affluent customer segment also feels a little out of place in a bank that claims to work for all.
But Bank of America certainly is not alone in having a tiered model where more-affluent customers are charged lower fees and offered higher interest rates.
There is also a larger moral question of whether or not it would be more helpful to support small CDFI banks, community banks and credit unions that presently serve LMI households, rather than for the largest banks to push into the LMI segment and compete with smaller institutions. Citi, for example, extends its ATMs to small minority-owned banks.
If the financial health of Bank of America’s LMI customers is measurably improved and that commitment is shown to be long term, then that debate may be irrelevant. It will be many years before such a judgment can be made.
If the bank’s LMI strategy does bear fruit, however – both in terms of improved financial health of customers and its own financial returns – it could make Bank of America, with its $2.28 trillion in assets, truly the largest community bank in the world.
Serving the CDFIs
As part of its low-to-moderate income strategy, Bank of America has set up a team that supports smaller niche financial institutions – community development finance institutions (CDFIs) – that serve LMI communities.
Dan Letendre, Bank of America’s CDFI lending and investing executive, runs a team of 12 that deploys some $1.6 billion to 260 CDFIs across 50 US states. Bank of America, like all large US banks, is required to lend to LMI communities, often through lending to CDFIs in the states in which it operates as part of the Community Reinvestment Act (CRA).
Letendre says Bank of America decided to break out of the CRA box by providing capital above and beyond what is required, and even in those states in which the bank does not have a presence.
“We know the benefits that CDFIs have on the communities they serve – communities we don’t always serve – and we wanted to support them,” says Letendre. The loans CDFIs make are less profitable than would be attractive for Bank of America and take more work or require local expertise.
“It could be for home-based business in the Lakota Nation or coalminers who lost jobs in Kentucky or fishermen in Maine or mobile home owners in the Delta,” he says. “These CDFI loan funds have the expertise in those sectors we don’t. Partnering with CDFIs means we get to go deeper and broader.”
While Letendre’s business is not expected to compete internally on revenues, it has not recorded a loss in the 10 years he has been running it, he points out. The range of capital is broad, from $200,000 to $250 million loans. The bank lends capital on one-year to 30-year terms. At present the rates are between 1% and 3%.
“This is what we believe large banks can and should be doing – keeping low rates and long terms and increasing the amount they can lend to CDFIs,” says Letendre.
Self Help, one of the largest CDFIs in America, has worked extensively with Bank of America, for example.
“We work with them in several ways,” says Letendre. “We lend them money [$15 million], we assisted them accessing a CDFI bond of $100 million (we were their bond agent) and have launched a $1 billion programme where we refer Bank of America clients to a mortgage programme known as the Affordable Home Loan Solution, which is serviced by Self Help, to help low-income borrowers achieve home ownership.”
What are the other big US banks doing?
Bank of America is not alone in seeking to address the imbalance of access to financial services for low-to-moderate income (LMI) households in the US.
Citi has introduced several inclusive finance initiatives in the last four years, including the Access account – a cheque-less account that has no overdraft and where 73% of the 381,000 accounts opened since launch qualify for waived fees. Access targets the unbanked and students. Citi also recently opened its ATM network to 27 minority-owned institutions and community development credit unions in the US.
The bank has also invested in Springboard CDFI to create a mortgage loan origination platform for the Nationwide Mortgage Collaborative, a coalition of community development financial institution (CDFIs) and housing agencies. The scaled platform gives the institutions that serve LMI communities the capacity to make homeownership a reality for those they serve. More than 100 CDFIs and housing agencies will be brought onto the platform with the aim of closing over $220 million in home loans by the end of 2019.
JPMorgan Chase is expanding its branch network, and 20% of the new branches will be in LMI communities. The bank is focused on improving savings, which are seen as key to financial inclusion. The bank hosts ‘Chase Chats’ at its branches – seminars about basic savings skills – and last year it launched National Savings Week to motivate employees and consumers to save.
The bank launched its Chase Liquid account in 2012. It offers a pre-paid debit card to avoid fees as a low-cost alternative to a cheque account for customers including LMI and the unbanked.
Through its five-year philanthropic venture, the Financial Solutions Lab, JPMorgan Chase has also helped support and fund 34 inclusive finance fintech companies that together have now reached more than 3.5 million Americans. Over half of them are LMI.
Financial Solutions Lab companies have collectively helped consumers save more than $1 billion.
Through its Opportunity Checking and Savings Package, Wells Fargo offers customers who are unable to open a cheque account because of their credit or banking history the chance to enter or re-enter the financial system.
In November 2017, it also introduced Overdraft Rewind, which reverses expensive fees if deposits are made on the morning after the fee was incurred.
Wells Fargo has a large philanthropic commitment to communities with large numbers of LMI. In October this year, Wells Fargo announced it will commit more than $1.6 billion in lending and philanthropy over five years in Washington DC. The money will be focused on affordable housing, small-business growth and job skills.
The bank supports minority LMI communities through its lending, including a $60 billion commitment to create at least 250,000 new African-American homeowners by 2027. It also manages a $250 million portfolio that provides capital for many community development organizations.