U.S. Bank is the latest financial company to aim for customers outside the financial mainstream by rolling out a bank account for people with as little as $25 to deposit.
On Monday the bank is to announce the checkless "Safe Debit Account," which comes with a debit/ATM card and will not allow overdrafts. It will let customers pay bills, deposit money and use the bank's online and mobile banking platforms.
For now, customers can open an account in a bank branch. Starting in November they will be able to open one online or by phone.
Services such as these are sold as a low-risk way for customers to disentangle themselves from the world of check-cashing firms and payday lenders. They are also a way for banks, in an era of moderate revenue growth, to attract millions of new customers and drive traffic to branches.
"The segment that we're talking about here, the unbanked and the underbanked, is a segment that does have unique needs," said Lynn Heitman, executive vice president and head of consumer products and services at Minneapolis-based U.S. Bank. "It's an open door for them to have an account that allows them to have some stability."
U.S. Bank will charge a $4.95 per month maintenance fee for the accounts.
U.S. Bank is one of the larger banks to roll out a product aimed at the underbanked, but it's not the first.
TCF Financial announced a similar product called ZEO earlier this year. Last year, Cincinnati-based Fifth Third Bank rolled out a service called Express Banking, which offers a checkless account with a debit card, direct deposit and check-cashing with no minimum balance requirement and no chance of an overdraft. A Cleveland bank, KeyBank, has offered a checkless account for more than a decade that doesn't charge overdraft fees.
Pressure from policymakers has helped encourage these moves. Earlier this year, Richard Cordray, director of the Consumer Financial Protection Bureau, urged the nation's 25 largest banks to make accounts that don't charge overdraft fees more broadly available.
Nearly 10 million American households have no relationship with a bank, according to the Federal Deposit Insurance Corp., and another 25 million households are considered "underbanked," meaning they have a bank account but still make use of check-cashing outlets, car title and payday lenders.
In Minnesota, about 346,000 households operate completely or partly outside the financial mainstream, according to a 2013 FDIC report.
Trying to stay afloat without a solid banking relationship can be expensive. It's estimated that Americans who are underserved by banks spent $138 billion on fees and interest in 2014. Families with between $20,000 and $25,000 in annual income typically spend between $1,100 and $2,400 per year on fees and interest that wealthier people don't pay.
"We believe very strongly that there's real value in having a banking relationship for a consumer," said Heitman, of U.S. Bank, the nation's fifth-largest commercial bank.
She said the service has been discussed for several years, but work began in earnest in the past 12 months. She declined to say how many people U.S. Bank projects will sign up for the product.
Tracy Fischman, director of Prepare + Prosper, a St. Paul nonprofit that helps low-income people with their taxes, said she has seen the basic description of the product and it looks like it will be useful for underbanked consumers. The $4.95 per month fee is actually a good sign, she said.
"This is the certainty that there will not be hidden fees, hidden costs," Fischman said. "That seems smart and that seems consumer-friendly to me."
Credit-building is very important for low-income people, Fischman said, and she hopes the Safe Debit Account can lead to access to credit, small business loans and home loans for some customers.
"If you don't have good credit, not only are you shut out of things, but you're also paying more for stuff," Fischman said.