A second chance pays off

 [Note to Print-edition readers: Additional content appears below at “More about Central National’s program.”]
Central National Bank spends a considerable amount on advertising designed to attract people to bank there. So it was a little disconcerting when the $800 million-assets bank in Junction City, Kan., discovered that on average it turned away one in five new account applicants due to ChexSystems/QualiFile scores.

“It was a substantial hole in our marketing,” according to Sara Girard, senior vice-president-retail. The solution, Girard explained during a session at ABA’s National Conference for Community Bankers, was to create a Second Chance Checking program.

It has “enabled us to turn more than 900 people into new customers every year instead of sending them out the door,” said Girard.

The bank creates a QualiFile Score for each applicant. Those who pass this screen are offered one of two accounts—a New Opportunity account or a more restrictive First Step account. The bank is able to open a checking account—any account—for about 80% of applicants. Approximately 15% of the applicants who are denied are offered one of the two Second Chance accounts, both of which carry a monthly fee of $9.99. “Most people are very appreciative of the opportunity,” said Girard.

Girard said training was needed to overcome a negative cultural bias among staffers. Some didn’t think the bank should be dealing with “shady” people. Once management explained the steps the program takes to mitigate risk—including limits on ATM and ACH withdrawals and holds on deposits from an unknown source—this bias was overcome.

Attrition has been 37%, said Girard, but many people graduate to regular checking. Losses overall have been minimal and income averages $360 per account, per year.


More about Central National’s program
The following points come from the presentation made by Sara Girard at the ABA conference cited above.

• The bank has offered the program for three years.

• The model for Central National’s Second Chance Checking program was developed by Stratis Technologies of Louisville, Ken.

• The software classifies each customer based on his or her level of risk and employs a specific follow-up protocol for any overdrawn accounts. One employee is the program administrator and spends about a third of her time using the program software and following up with Second Chance customers. The accounts are monitored daily.

• The New Opportunity checking account offers unlimited checking in addition to debit card access. The account does not offer overdraft protection. All NSF items are returned and charged a fee ($25). Second Chance customers have overdrawn their accounts about nine times per year on average. Second Chance checking customers comprise 3% of the total number of accounts but generate 6% of annual NSF income. “We have been burned a few times,” Girard said, “but ultimately our out-of-pocket loss has been quite minimal, and less than 5%.”

• The First Step account is the same as the New Opportunity account, except that it does not offer checks, only debit card access.

• The New Opportunity account offers an opportunity to “graduate” to a traditional checking account at the bank after 12 months in good standing, defined as no more than two NSF items during that period.

• Both programs are priced at $9.99 per month, as stated above, but this can be reduced to $7.99 if the customer enrolls in direct deposit. “We found that the account retention and success rate is quite a bit higher when the customer does have an automatic deposit,” said Girard.

• The bank reduced its standard ATM and point-of-sale daily limits for these accounts to $150 and $500 respectively.

• Regarding the “cultural bias” referenced above, Girard said that in training sessions, staff was asked to consider that bad things happen to good people—medical emergencies, for example. “Ultimately we were very pleased with the way our staff responded and rose to promote the program very enthusiastically to qualified applicants,” said Girard. She also emphasized that any bank considering such a program begin with an executive management session including the CEO, CFO, and heads of Risk and Operations.

• The bank was the first to market this type of program in the majority of its communities. Girard says that to this day, few other banks in Central National’s footprint (23 communities in Kansas and Nebraska) have chosen to roll out a product like this. In fact, some competitors refer customers to the bank.

• Central National has received CRA credit for “serving an underserved demographic in a fair manner.”

• Among the benefits of the program is that it has “helped our bank attract a younger group of customers, which we view as very important for the ongoing viability of our organization,” said Girard. “Our average customer today is 54 years old while our average Second Chance checking customer is 36. Today we have over 1,100 active [Second Chance] accounts as well as more than 250 program ‘graduates’ now in a traditional checking account at our bank. These graduates have proven to be loyal customers and in many cases have thanked us for our willingness to give them an account when other banks refused.”

• Sara Girard summed up her presentation this way: “Second Chance checking can be a valuable addition to a product portfolio if the program is structured effectively to mitigate risk. Our program has generated incremental revenue, helped us grow our floor-account base, attracted a new population of younger clients, differentiated us from our competition, and proven to have limited downside risk.”