One community banker's plan to reach the underbanked

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ST. LOUIS — Julieann Thurlow has a progressive vision for her 133-year-old financial institution.

Thurlow, CEO of the $578 million-asset Reading Cooperative Bank in Massachusetts, is leading a charge to reach unbanked and underbanked minorities in neighboring communities such as Lawrence. The plan is to offer more services to bring them into the banking system so they do not have to rely on check-cashing businesses.

At the same time, Reading is a member of the Alloy Labs Alliance, which provides smaller banks a way to share ideas and best practices. The hope is that the banks can leverage resources in areas such as technology to compete more effectively against larger lenders.

For Thurlow, technology is critical to serving the underbanked as well as millennials.

“Obviously we have to make sure we’re ready for the next gen,” she said in a recent interview. “And if we do get people in the banking system and they continue to evolve, then they’re going to look like all of our other customers. So we need to be ready for that as well.”

Thurlow, who was one of American Banker’s Women to Watch in 2019, will discuss those efforts in her banker keynote speech at this year’s community banking research conference hosted by the Federal Reserve, the Conference of State Bank Supervisors and the Federal Deposit Insurance Corp.

Thurlow said her speech, scheduled for Tuesday evening, will also touch on industry research and modernizing the Community Reinvestment Act. Here is an edited transcript of that discussion.

What is the focus of your keynote?

JULIEANN THURLOW: Some of my remarks will be directed toward CRA, discussing how it came about as a redlining regulation that was tied to people buying homes. When you look at low-income communities these days, what you see on every street corner is the multiservicios, or the money service business that handles check cashing and money transfers.

You have people who are not in the banking system. The distance between where they are in their financial life and buying a home is so far and vast, so I think the CRA should pivot a little bit and talk about what people need today to get themselves to a point of financial success. You’re not just talking about someone who can’t get approved for a loan. You’re talking about somebody who doesn’t even have a pay stub to show they have income to qualify for a loan.

We’ve done a lot of exploration. We just announced plans to open a branch in a Spanish-speaking immigrant community. We actually hired [a consultant] to work with us to get really deep into what the predicaments are for immigrants in the city. We’ve fallen in love with the city of Lawrence and the people, the local color and the joy that’s in the community for people who are coming here and starting their American dreams. It has really colored a lot of what we’re doing.

We’re also a member of Alloy Labs on the fintech side of things because obviously we have to make sure we’re ready for the next gen. If we do get people in the banking system and they continue to evolve, then they’re going to look like all of our other customers. So we need to be ready for that as well.

Because it is a research conference, I will end by focusing on some areas I think can benefit from some research. I’ll talk about some white papers that really changed out minds as an organization. … Harvard Business had a paper on shared values, which we adopted in 2014 because it’s a part of our backbone. The [Federal Reserve Bank of Boston] did a report on the color of wealth in Boston, which struck close to home. Fast forward to 20 years from now, African-Americans or other households of color will only have $12,000 in savings while white households have $250,000. Who’s retiring and who’s not retiring? Are we positioned so we can actually do something about that?

Lastly, there was an Atlantic article that noted that 40% of consumers couldn’t put their hands on $400 without selling something or borrowing the money. From that article, we created an emergency loan for our employees that we actually increased to $1,000. … It has been a huge success. We’ve been working with [Boston Fed and the state banking regulator] to build a program where we can monetize something like that, or create a consumer product.

What types of products are needed to address these issues?

Right now, if you are not banked you pay 5% at a check-cashing service and pay anywhere between $1.50 and $3 to pay a bill. … Then if you have some money left over and you want to send money overseas, you pay another chunk of change. Why would a consumer do that?

We found out that immigrants don’t trust the banks. That may be a little bit of a hangover from where they have come from, but in more cases it is because they have been burned. Maybe they ended up with a $35 overdraft charge the Friday before payday. That could be the difference in whether their family eats or not. Those big surprises can really hurt you, especially when you’re living paycheck to paycheck.

We’re working on a credit-builder product. We’re working on a small-dollar-loan product. Our bill pay is free. There are lot of opportunities out there. We’re going to start by opening a check-cashing business. We’re negotiating a [letter of intent] for the first property. Check cashing for noncustomers is something that went away in the 1990s when [Bank Secrecy Act] and money laundering concerns came about. Nobody wanted the responsibility for monitoring. That has pushed cash-based consumers, or those who are on the edge, right into the arms of the check cashers.

I’m not criticizing the multiservicios. They provide a service, and they use their own capital. But we intend to build trust with people that are using check cashing. We’re going to pair them with a financial literacy coach who can be relied on. And the services will be provided in Spanish.

How would you modernize CRA?

I’m of the shared-values approach. Community banks are across the country, and their demography is different. What works, and what is right, for us is very different for somebody who is in Montana or an internet-only bank. I think the bigger challenge is making sure you properly identify what the service area is. Once you do that, you need to figure out who is underserved.

I’m a little concerned with the fintech products that are being developed today that take just a small band, find a friction point and solve just for that. When you’re looking at somebody who is just refinancing student loans for just doctors and lawyers, who would be the underserved in that product line? Maybe public defenders?

Bigger, better smarter minds than mine are out there thinking about it. But I think every business model is different and, unfortunately, the whole one-size-fits-all approach just doesn’t work for CRA. It means it would be very hard to assign regulators. You don’t just send them out with a book … with a benchmark set for every other bank.

Will the idea of ‘community’ evolve for community banks?

I think it has to. When you see a service for Uber drivers only. You’re often talking about immigrants who are working the gig economy or the side hustle. Being able to take that information and monetize might help you figure out how to lend to those individuals who may not have access to credit anywhere else. I think that’s innovative. I think every single process needs to be considered in terms of who’s benefiting and who is being left aside.

Where are the banking industry’s opportunities?

We think it is with millennials. Community banks do really well with people 40 to 70. I think things are different. … I’ve had three kids in college in the last four years, and they behave differently. I know for a fact they wouldn’t bank with us if I didn’t lead the bank. And they know about the good things we do. Even though I make them keep their checking and savings accounts here, I see them using Venmo to make payments between each other. I see them going and allowing Discover to sweep out of their checking accounts. The ability to see through their eyes has helped us.

That’s one of the reasons why we joined Alloy Labs. I alone can’t build a million-dollar app without the risk of having to write it off if people don’t like it. You need focus groups and tests. Doing it as a group, with collective minds and consumer experiences, allows us to leverage resources and drive down costs.

What are some of those products?

There are a couple of things being worked on but aren’t yet ready for public consumption.

What are you doing to bank more millennials?

We’ve been working on services that can be delivered instantaneously on your smartphone. We have branches at two high schools. Both have provided interesting opportunities to learn from the next generation. It also lets us get products and services in their hands before they turn 18 and go to college.

There’s no reason to lose someone’s checking account when offering real-time payments. Develop that relationship as soon as you can. We have demonstrated an ability to keep those accounts in-house. The last three years we’ve had negligible attrition from matriculating.

And those balances from millennials are higher than you’d expect it to be. Maybe some of it is the demographics of Boston.

How do you rank the potential challenges of interest rates, deposit costs, loan demand and credit quality?

I'd say interest rates, credit quality and then deposit gathering. Deposit growth has been really strong for us.

Regarding interest rates, we budgeted for two increases and got two decreases. We know that’s a major challenge that is putting pressure on the margins. My bigger concern is the flatter yield curve, what the pricing is for commercial transactions and whether or not [banks are] getting paid for the credit risk of those transactions. You see a lot of banks that are extending terms and lowering rates, which is just not sustainable.

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