Some banks try to attract the unbanked and the underbanked with innovative products such as prepaid debit cards and mobile banking applications. United Bank in Atmore, Ala., has high hopes for the new technology, but in the meantime it's finding success in the underbanked market using a more traditional tool: checks.
Through its Gateway Checking Account, customers at the $448 million-asset bank can get their funds only by using paper checks or the teller line. While telephone and Internet banking services are available, customers have no access to ATMs or debit cards.
United operates along the Alabama and Florida coast, and after Hurricane Katrina in August 2005, the area saw an influx of immigrants from Mexico who came to help with reconstruction efforts. United saw a commensurate increase in the number of customers looking to open accounts, but the bank couldn't offer much to them because many had either no credit score or a score below 500. In response, United created the Gateway Checking account in 2006; through the first quarter of 2011, more than 1,200 Gateway accounts had been opened.
The account initially included a debit card, but United CEO Bob Jones says the bank decided to eliminate that feature after about a year, as it noticed a high number of overdrafts by Gateway customers.
"People were overusing their debit cards and not monitoring their balance or reconciling their statements," Jones says. "So after some consideration and discussion, we did away with the whole debit card."
The bank also decided to offer Gateway customers some additional support and counseling on how to better manage their money. Jones says the education is nothing formal, but rather an opportunity for an occasional one-on-one meeting with bank staff. Once Gateway customers exhibit good money management behavior for six months, they are upgraded to a checking account with more features, including a debit card.
Despite the check-only approach, the Gateway Checking account has continued to be popular without the product ever being advertised. It's not even listed on United's website; rather, it is offered on a case-by-case basis.
Nearly half of United's Gateway customers have been upgraded to more versatile checking products. And though the number of customers involved in the program may sound modest, it was enough for the FDIC to take note this year and recognize United for "Excellence in Transaction Accounts" as part of the agency's first ever Chairman's Award for Excellence in Serving the Needs of Low- and Moderate- Income Consumers. United and two other banks were selected from 64 nominees in three categories. In its write-up about United, the FDIC notes that the Gateway Checking account is "successfully increasing access to banking services for underserved consumers in a way that is safe and affordable."
Jennifer Tescher, the president of the Center for Financial Services Innovation, says that United Bank's approach to serving underbanked consumers in unique. She has heard of other banks limiting customers' debit card access to only ATMs, but she does not know of any other bank that has taken the check-only approach in recent years. Despite United's success with the account, she doesn't expect it to spur many copycats.
"Living in a town of 10,000 enables customers to get by with just check access, but I don't see it widely mimicked," she says. Jones no doubt would agree. He says the reason United has been successful in serving the Atmore community for 106 years, and in serving Gateway Checking customers for more than four years now, is that the bank tailors itself to its customer base.
"Any takeaway from this would be that in order to be a full-service community bank, you cannot have a one size fits all model, and you need to be constantly assessing the needs of your community," Jones says.
In other words, when it comes to making headway with a segment of the population that has been traditionally hard to reach, the holy grail is not a specific product, but perhaps the specific ability to be flexible and responsive to the needs of a given market. That's not something every bank can pull off as well as United did with Gateway Checking.
"The moral of this story is there is a huge divide between community banks and the enormous players," Tescher says. "Bank of America could not even contemplate something like this."
