For banks, supermarkets, health service providers, and other retailers, penetrating low-to-moderate-income markets increasingly depends on “beyond the branch” activities: enlisting local nonprofits and informal associations as marketing and distribution channels, customer support systems, or customer referral pipelines. These relationships enable retail stores to operate with fewer staff, deepen consumer trust, and—since philanthropic or sponsorship budgets can support them—yield business outcomes while reducing risk.
This article will focus on how this transformation is taking shape in the banking industry, where the shift signals the replacement of large, full-service branches with a more lightweight, flexible, and decentralized delivery system for services.
A New Model: Community Groups as Partners
Banks already maintain various relationships with community groups, primarily through charitable foundations, community reinvestment act (CRA) compliance teams, or community development departments. But usually, these relationships are intended to meet philanthropic objectives, associate the brand with social responsibility, or comply with the CRA.
But while bank managers seldom recognize it, community groups also possess the exact capacities their branches need to extend reach and enhance service delivery. Nonprofit agencies often have full-time, professionally certified case managers who spend considerable time helping clients meet life goals. These managers are limited in the number of individuals they can touch regularly—a single caseload rarely exceeds 50 individuals or families—but they offer a depth of attention that a teller or branch banker cannot. If trained to deliver financial counseling to their clients, they begin to resemble the “relationship managers” banks assign to affluent clients.
Informal associations—such as churches, school-based parent networks, and tenant and homeowner associations—are less likely to have staff. But they are natural “aggregators” that gather large numbers of people and create economies of scale for service delivery. In their article, “Collaborating with Congregations: Opportunities for Financial Services in Inner Cities,” Larry Fondation, Peter Tufano, and Patricia Walker observe these characteristics in churches, emphasizing their capacity to not only aggregate people, but also earn trust and maintain contact information on members.
Community groups have another advantage: If partnership activities are of generalizable benefit, they may be funded philanthropically, incurring no cost to the branch. For instance, a bank’s charitable foundation may fund a homebuyer education class and even deploy its bankers as volunteer instructors. As long as participants are not pressured or steered to bank at any one institution, the program represents a “public good.” Tax law prohibiting “self-dealing” does not forbid the sponsoring bank from acquiring customers from the participant pool; it only stipulates that the way in which this happens be “incidental and tenuous” and free of coercion.
Community groups can also help banks with more direct customer acquisition. Banks may incentivize community groups to source customers, funding them as a marketing expense (not a grant). It will not jeopardize the organization’s nonprofit status if the activity is deemed “related” to the organization’s mission, such as promoting home ownership. To avoid appearing beholden to one institution, a nonprofit may afford all banks equal opportunity to negotiate similar arrangements or carry out due diligence on the products.
In the current climate, we might expect community groups to recoil at the notion of being embedded in a bank’s distribution network. But many proactively seek out such partnerships, recognizing the crucial role that banks play in the lives of the people they serve. Schools view family economic security as a pre-condition to academic success, graduation, and college enrollment. Community clinics note the correlation between banking and health. Family service agencies focus on financial stability as a contributor to mental health and family resilience.
It is important that partnerships arise from natural points of intersection and mission alignment between the community group and the bank, and that the form of the partnership follows function. As the next section will show, the options for form are varied.
Eight Partnership Formats
A review of the most successful of these partnerships nationwide reveals eight primary formats:
- Account Administrator: A nonprofit community development financial institution (CDFI) can be an official vendor to a bank, handling select customer service and account administration functions ordinarily carried out by bankers, including collecting federally required “know your customer” information, managing enrollment paperwork, and—through special data-sharing arrangements—monitoring savings accounts. One CDFI, Justine Peterson, Inc., helps clients of six nonprofits in St. Louis open a matched savings account at Citibank, providing high-touch supports.
- Account Custodian: Some community partners assume custodial responsibility for customer accounts, acting on behalf of customers who, for whatever reason, are unable to manage on their own. The city of San Francisco has established a universal children’s savings account funded through public dollars. Accounts are held at Citibank, with the city serving as account custodian until the child is ready for higher education. Parents can contribute to the fund tax-free at any time. If a child does not seek higher education, the bank returns parent contributions, and the city reclaims municipal deposits.
- Customer Cultivator: A nonprofit agency can address barriers preventing clients from accessing banks. Mission San Francisco Community Financial Center helps women repair damaged credit. Counselors incorporate credit education into case management and help clients obtain a secured credit card from Citibank (backed up by the client’s own money). If clients manage payments successfully for a year, Citi converts the secured credit card to a non-secured card, restoring a positive credit rating. Money used to back the secured card moves into a savings account.
- Customer Coach: Many banks worry that poorer customers may close accounts soon after opening them, causing a net loss to the bank and the additional transaction costs of customer replacement. But community groups can provide ongoing customer support, helping them adopt careful financial management behaviors and allowing the accounts to perform profitably over time. In Philadelphia, Citibank supports Financial Advancement Network (FAN) Clubs, financial support groups, at local churches and schools. Bank of America has supported Central New Mexico Community College to train of financial coaches, in 23 communities across the country..
- Offsite Host: Sometimes, unbanked individuals are too intimidated by the formality of a branch to even come in. In these cases, banks can out-station personnel at a familiar environment, such as a church or community center. Wells Fargo was among the first banks to fund Matricula Consular enrollment days, where the Mexican Consulate issues identification cards to immigrants in churchyards. Bankers are present to open accounts or administer preliminary paperwork, inviting individuals to come to the branch later.
- Customer Aggregator: Large organizations, such as a churches or schools, can aggregate customers in one place, providing economies of scale to banks that enable them to more efficiently serve customers. In Los Angeles, Wells Fargo partners with large churches, training parishioners as financial educators. Some banks make special promotional offers available to members of a particular congregation, parent association, or block club. Wells Fargo even assigned a relationship manager or investment counselor to the churches, a premium that members would not likely have received otherwise.
- Referral Agent: A nonprofit can refer its clients to open accounts. In some cases, the nonprofit may help customize accounts, tailor the way a bank introduces or market it, ensure that customers stay with it and adopt savings behaviors, and overlay additional incentives (such as bonuses for meeting savings goals) that the bank would find difficult to offer. In Brooklyn, Capital One Bank has funded a nonprofit to educate parents about saving for their child’s education, helped them open college savings accounts and disbursed incentive funds when the parents met savings goals. Account holders present the agency with a “passbook,” which tellers stamp as the customers meet benchmarks, to trigger the incentive.
- Loan Pipelines: Often, entrepreneurs need capital to grow their businesses but don’t qualify for loans. In these cases, banks can partner with nonprofit business assistance centers to create a step-by-step process through which businesses access microloan funds (capitalized by the bank) and companion technical assistance. In time, entrepreneurs “graduate” through the stages of the pipeline into mainstream borrowers. Wells Fargo creates joint loan review committees with the nonprofit to periodically assess whether business owners can advance to regular loans. A Bank of America pipeline has helped regularize hundreds of informal-sector street vendors, converting some into customers.
Opening up branches to partnerships like these can dramatically enhance their viability, leading to reduced customer acquisition costs, higher customer profitability scores, increased customer retention, higher cross-selling ratios, and leaner staff requirements. And from a social perspective, they help to grow the economic productivity of poorer communities.
To date, most of partnerships have been one-off efforts—too isolated and small in scale for major impact. More often than not, banks conceive and execute the partnerships apart from the branch’s business plan. There is no reference to a branch’s goal metrics, nor is there direct input from the lines of business. As a result, bankers do not consider them real distribution channels.
What we need is a cluster of partners—strategically organized around specific branches—that functions as a comprehensive system of distribution channels. Taken together, these partnership configurations can have a cumulative influence on that branch’s performance indicators and overall profitability. To be most effective, the choice of partners, nature of the partnerships, customer segments to target, and other decisions must all be driven by branch goals.