RYE, N.Y.—Should credit unions look more like neobanks? At least four CUs believe the strategy is not only good for their futures, but the futures of many underserved Americans, and they have introduced what they hope will become a national initiative open to other credit unions.
As CUToday.info reported the credit union community’s first neobank offering, Bank Dora Financial, went live last September. The effort is intended specifically for low-to-moderate income individuals who are currently underserved by traditional FIs.
Dora, operating under the umbrella of a new CUSO, was founded by four credit unions: $2-billon USALLIANCE Financial in Rye, N.Y.; the $3.5-billion Affinity Plus FCU in St. Paul, Minn.; $9.8-billion Digital FCU in Marlborough, Mass., and the $5-billion Service Credit Union in Portsmouth, N.H. Neobanks, often also called “challenger banks,” are fintechs that offer apps, software and other technologies to streamline mobile and online banking. The startups generally offer limited products, such as checking and savings accounts.
Bank Dora Financial Managing Director Kristi Kenworthy said while many of the underbanked choose neobanks because of their simple product focus and easy digital access, she contends many neobanks are not paying attention to the needs of the underserved, especially since many of those providers are backed by large banks.
The current focus of Dora is a 100% digital checking account.
“We're really targeting the underbanked community because they're really being underserved around the entire nation,” said Kenworthy. “The for-profit neobanks in the marketplace typically don’t cater to these individuals, because the economics are different from mainstream checking accounts. Their balances are lower on average, and creditworthiness may take time to achieve. The credit union movement is really made for offering products at scale that are safe and affordable for them.”
Kenworthy said Dora continues to seek additional credit union partners and is hopeful Dora will eventually have a large, national footprint.
Changing the Thinking
“We want to change how people think about access to affordable and fair financial services,” Kenworthy said. “Fifty-million Americans are not participating in mainstream banking services because of barriers to opening accounts, distrust of the banking system, gaps in awareness, past history, or lack of access – including the lack of a fully bilingual digital banking experience.”
The new offering’s brand is inspired by credit union pioneer Dora Maxwell, who helped charter hundreds of U.S. credit unions and believed everyone should have access to fair deposit products.
Dora’s Everyday Account features no minimum balance, no monthly maintenance fees, early payday with direct deposit, bill pay, a surcharge-free network of 30,000+ ATMs nationwide, and financial education opportunities—packaged in a fully bilingual experience, Kenworthy explained.
Goal is to Build Network
“This is the first cooperative-driven neo credit union, if you will,” said Kevin Randall, CIO/SVP of USALLIANCE Financial. “The four founding credit unions own it. We hope to build a network of neo credit unions from which we can provide that first checking account for some of that 50 million population of underbanked individuals, and then perhaps over time graduate them to a full credit union relationship. That would be ideal.”
Kenworthy added that many within the underserved communities have a distrust of financial institutions.
“They are not coming into brick and mortar branches,” she said, adding that applications for Dora are available in both English and Spanish. “People that don’t have banking accounts often don’t open one because there's barriers. It could be trust issues, it could be something else. It could be a previous negative relationship with a bank. But we want to give these people access to a cornerstone financial account to get them on a journey to financial wellness.”
Financial Counseling Offered
In addition to the checking account, Dora offers financial counseling. At least for the near term Dora will keep its focus on the checking account and financial guidance, Randall said, again with the goal of eventually offering Dora account-holders the chance to move up to a full credit union membership and access all of the CU’s products and services. Those who sign on with Dora do not have to join any of the owner credit unions, however Dora accounts are on USALLIANCE Financial’s books and are insured by NCUA.
What opened the eyes of USALLIANCE Financial —the key driver behind Dora—is the success of financial services fintech Chime, which focuses primarily on a digital checking account.
“They went from zero to more than 12-million users in a very short period,” said Randall. “Their success seemed to be almost overnight.”
Randall said Chime has kept its offering simple, avoiding complexity and offering a seamless digital user experience.
Borrowing an Ad Approach
Dora’s advertising looks much like that of fintechs such as Chime, emphasizing ease of use, and focusing on the advantages, such as getting access to paychecks two days early, digital banking and no fees. Dora’s website states the offer is “Better Than a Bank.”
“And when we say Bank Dora, we are using bank as a verb,” Randall explained.
The website also plays up the fact Dora is backed by credit unions.
“We are changing how people bank. A Dora Everyday Account provides a path to financial security and asset building,” text on the website reads. “Hidden fees, limited ATMs, and frustrating application processes are things of the past with this all-digital banking experience.”
Promising Strategy
Kenworthy said Dora is a promising strategy for credit unions across the nation to serve the underserved without each credit union having to “reinvent the wheel” to reach the market with a digital banking product.
“I think we are really going to be able to step into these communities and help a lot of people—get them out of the shadow banking system,” said Kenworthy. “Hopefully we’re leading the way and other credit unions will join us.”
“And we will eventually get more credit union members,” said Randall, reminding the goal is to eventually graduate Dora account holders to full members of any of the credit unions.