On a study trip to Oaxaca, Mexico, with a group of fellow philanthropists, Tricia McKay visited a low-income credit union where she saw customers routinely making deposits and taking out small loans. Back in Seattle where she heads the Medina Foundation, McKay couldn’t help but notice a lack of similar services for the working poor of Washington state. She became acutely aware of “payday lenders and check-cashing services on every corner of low-income neighborhoods. We have a market failure,” she concluded, when it comes to serving “the unbanked, underbanked, and want-to-be-banked.”
That gap narrowed a bit in May when a five-year effort spearheaded by the Medina Foundation resulted in the grand opening of Express Credit Union. Actually, it’s a reopening of a 75-year-old institution that originally served transportation workers. The old Express was losing members and lacked capital to modernize its systems.
The makeover brings in a new board of directors and CEO, a new business plan, and a sister nonprofit called Express Advantage to provide financial literacy education and other support. An infusion of capital includes $1.4 million from the Medina Foundation plus smaller grants from other philanthropists.
Through an unusual partnership, Washington’s largest credit union, BECU, is helping incubate this new enterprise by providing Express with in-kind infrastructure and back-office support. Under the new plan, Express remains a freestanding entity with a mission to serve low-income people. After five years of in-kind support, BECU will start earning a percentage of net revenues. “This is not a charity case,” McKay emphasizes. “Low-income people deserve good business solutions. And businesses have a right to earn in this space—appropriately.”
The estimated 100 million underbanked Americans need a different slate of financial products from more affluent consumers, notes Bobbie Britting, research director in the consumer lending service at TowerGroup. “They often need an advance on their next paycheck and can’t afford to have a bank hold their check for four days,” she says. Bill paying tends to happen “at the very last minute.” Credit history may be thin or sketchy for those who live in a cash-only economy. Avoiding financial meltdown would be easier with access to affordable credit, but short-term, unsecured loans “are products that banks have walked away from,” Britting says.
Express offers products that meet clients’ urgent needs while also helping them establish better habits. Instead of rolling over two-week payday loans at annual interest rates that can top 300 percent, Express offers a 90-day loan at 15 percent interest. With successful repayment, a third of that fee converts to a savings deposit. Low-cost international remittances enable customers to send cash to distant relatives without a steep charge for wire transfers. Rather than handing out wads of cash, Express gives borrowers a loaded debit card.
Instead of opening branches, Express reaches customers by setting up tellers—known as community member service representatives—inside partnering nonprofit organizations that already serve this population in their home neighborhoods. Community teller Maricel Valdez understands her customers’ challenges. “I’ve been in their shoes,” she says. A single parent who recently bought her first home, Valdez taught herself about personal finance to gain more stable financial footing. “I tell our customers I’ve come this far and so can you.”
Read more stories by Suzie Boss.