Fintechs, small banks do their part in coronavirus fight despite risks

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Large banks and others stepped up early in response to the coronavirus outbreak with efforts to lend a hand to customers and employees. But those initiatives are not limited to large or even regional banks, nor are they limited to banks.

Some institutions have created ways for consumers to access cash in advance of the government dispensing direct payments under the $2 trillion stimulus plan. At several firms, CEOs have waived their salaries. Others are providing simple ways for customers to request deferring loan payments.

“This is a great time for fintechs and banks to build trust and goodwill with their customers," said Sam Maule, managing partner, North America at 11:FS.

With the virus having a crushing economic impact, such decisions are not easy. Fintech firms, in particular, were among the first to be affected by job losses resulting from quarantine measures. Kabbage had to stop lending last week because many of its small business customers went out of business. Other online lenders are tightening their credit standards. Some fintechs simply don’t have the capital to offer a generous relief package.

But the economic downturn hasn't stopped firms from offering concrete help to customers at some risk to themselves.

Kabbage was among online lenders announcing aid programs for businesses last month. It launched a website offering consumers gift certificates on behalf of small businesses, which can be redeemed after the pandemic ends.

Chime, meanwhile, began giving 1,000 of its customers access to $1,200 each in the first week of April, offering them an advance well before the federal government will start sending out stimulus payments in the same amount by check or direct deposit.

This is an extension of the challenger bank’s SpotMe feature, which lets customers who have their paycheck directly deposited in their Chime account make purchases greater than their account balance without incurring a fee. Usually this is limited to $100. In its stimulus-advance pilot, Chime is raising its SpotMe limit to $1,200.

“When we did more research and talked to our members, it became clear that, while on the one hand the government's been amazing in how aggressively they want to address this crisis, it's still going to take a few weeks for people to get access to the money," said Chris Britt, founder and CEO of Chime. "We feel like we're the company that's known for giving people early access to their paycheck and a little bit of extra cushion before the next payday. It seemed natural for us to do this for some of our customers.”

Brett King says “the team at Moven is our family.” Chris Britt of Chime is developing a stimulus advance pilot. Citizens Bank of Edmond CEO Jill Castilla reached out to small businesses before the rollout of the PPP.
Brett King says “the team at Moven is our family.” Chris Britt of Chime is developing a stimulus advance pilot. Citizens Bank of Edmond CEO Jill Castilla reached out to small businesses before the rollout of the PPP.

In the pilot program, which only includes existing Chime users, the company assumes that a stimulus recipient will use the account linked to the challenger bank. But there is no recourse. If a user closes a Chime account or has a stimulus check deposited into a different account, Chime could lose money.

“We're largely just giving people money in hopes that it comes back to us,” Britt said. “There is real risk. If a customer doesn't get another direct deposit because they got fired from their job or quit their job, we could be on the hook for a $1,200 negative balance that we'd have to pay back to our bank partners."

Chime also doesn't know for sure that these customers' stimulus payments will be deposited to Chime.

"If we knew with 100% certainty that the consumer's stimulus payment will hit the Chime account, then we'd be more inclined to offer this to a broader segment of our customer base," he said.

Britt would like to offer the stimulus check advance to all 6.5 million Chime customers. Chime, which derives revenue primarily from interchange fees, would also like to offer a way to disburse stimulus money to people who don’t currently have a bank account.

While Chime is in a good capital position after two strong funding rounds in 2019, Britt cautions that the company is not shielded from the economic shock of the pandemic.

“We're ... not naive about the fact that as most people lose their jobs, we’ll naturally start to see some impact,” he said. “What we like about the business model is that it's very much aligned with the customer in that we only make money if you're highly engaged with us and using us as your everyday transaction mechanism.”

Maule said the stimulus advance program puts Chime in a good position compared with some of its rivals.

“I think this was a smart move by Chime,” he said. "You kind of wonder where some of the other challenger banks ... are.”

Some fintech leaders are agreeing to severe pay cuts to save employees’ jobs.

Brett King, founder and executive chairman of digital banking software company Moven, had to close the firm's challenger bank but is growing its business providing software to banks. In late March, King said he will forgo taking a salary until the coronavirus crisis is over.

“Once it became clear the economic effects of COVID-19 were going to be with us for considerably longer, we determined that renewed funding was also less likely,” King said. “Thus, either we modified the pay structure at the top end or we’d have to cut staff. So Marek [Forysiak, the company’s CEO] and I cut our salary to zero and the executive team capped their remuneration at $150,000. The rest of the staff then accepted a 15% cut while this crisis is in effect. At this stage the team at Moven is our family and this was the best way to ensure everyone was looked after for as long as possible.”

Tom Blomfield, CEO of Monzo, the British challenger bank that’s ramping up in the U.S., has waived his salary for 12 months and encouraged senior leaders at the company to take 25% less salary.

Community bank CEOs have also emerged as leaders. Citizens Bank of Edmond in Oklahom moved quickly to try to help customers affected by the coronavirus pandemic.

CEO Jill Castilla began mailing out 60-day loan payment deferment options to all of Citizens' consumer borrowers in late March. Interest will keep accruing on the loans, but the late payments won’t be reported to the credit bureaus.

At the same time, loan officers at the bank, which has $300 million of assets, began calling small-business customers about a COVID-19 Relief Program the bank had quickly put together to meet cash flow needs, well before the Small Business Administration came out with its program.

“Until we get further direction from regulators, we’re doing the most possible with the tools that we have,” Castilla said in a tweet. “Our customers are desperate for help.”

Citizens also launched an overdraft program to provide eligible customers early access to their stimulus funds. This is a no-interest overdraft line that customers can repay when they receive their $1,200 checks from the government.

Like other bankers, Castilla wanted to offer small-business customers emergency relief loans from the SBA under its Paycheck Protection Program, but she was frustrated by the lack of clarity from the government agency about how the program will work.

On Saturday, she tweeted: “While I am using social media to push for restored SBA government access and better processes, our lenders have a workaround to get our PPP loans processed for our neediest customers. We plan to have even more options on Monday even if the SBA does not come thru. We are in this for you.”

On Sunday, Castilla tweeted that the bank had gotten SBA access and started sending in loans at 3:00 a.m.

“We’re currently at $2 million approved with an average PPP loan size of $84k with lots more to go,” she said. “Couldn’t be prouder of our dedicated team!”

Some other community banks have been helping customers more quietly.

“Many are doing this with a very low profile for many reasons,” said Brian Roemmele, president of the consulting group Multiplex.

Roemmele points to Blue Ridge Bank in Luray, Va., which is near Shenandoah National Park. The bank, which has $961 million of assets, has posted a simple form on its website that customers can use to defer loan payments for up to 90 days. This community bank was also one of the first to let small businesses apply for the SBA’s Paycheck Protection Program on its website.

“I think Blue Ridge Bank has a spectacular team that built a plan in a national emergency,” Roemmele said. “They made sure they had contingencies in place and the ability to help local customers."

Smaller banks "are really rising to the occasion," he said. "I think they are heroes. No complaints, no politics, just helping folks in need.”

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