KeyBank has been a leader in creating business opportunities by focusing on long-term relationships with and developing responsible products for underserved, low-to-moderate income communities for more than a decade.
Bruce Murphy is EVP and Head of the Corporate Responsibility group at KeyBank. He currently is responsible for the bank’s: fair and responsible products and services; community investments, including community development lending/investing and philanthropy; a diverse and inclusive workplace and business environment, including supplier diversity; and environmental sustainability efforts that help neighborhoods across the nation thrive. He also serves as Board Chair for the Center for Financial Services Innovation and sits on the FDIC Advisory Committee on Economic Inclusion. Above all, he is a firm believer that conscientious corporate citizens strike a balance between earning returns and doing so responsibly.
What are the challenges you face with regard to customers and the banking industry?
So many things happened to shake the consumer’s confidence in the banking industry over the last decade. The subprime lending debacle, bankers leveraging relationship advances, and industry abuses all resulted in broken trust between lenders and the people they serve. Even with the formation of the Consumer Financial Protection Bureau, we, as an industry, still have not yet fully earned consumer trust back.
Our industry is trying to sort out how it failed, determine what the future demands and rebuild its profile with our customers.
What does it mean for consumers to be “underbanked” and “unbanked”?
“Underbanked” means that a potential customer does not have a transaction account. “Unbanked” means that an existing or potential customer has no credit account. We believe there is an opportunity to help communities by providing services to the people who need them most – the un- and underbanked.
It starts by looking at a select market and determining what that market needs and if we can serve it in a responsive way.
Back in the 2000s, I lead a team that evaluated these opportunities. We looked for communities that were underserved, and we would work with the local branches and set targets and goals for those branches for various products. Regularly, the branches pushed back on the goals. For example, some local branches had goals to provide mortgages for home ownership and often expressed that their market couldn’t drive that type of product. That led us to ask why local residents weren’t taking advantage – or couldn’t take advantage of – those products. We had to ask: were we offering what the community wanted and needed?
I began to understand that we needed to have unique products and services that fit those markets, specifically communities where there was low wealth.
I also realized we needed to build a structure and offerings that were better than the payday lenders and check cashers, who often took advantage of people. We needed to offer something superior to the alternative lenders and make sure that it aligned with our values to help people. We knew we could create something that served the communities at a much lower rate.
What types of products and services were created to serve these communities?
In these communities, many people are denied the basics because of gaps in employment, bad credit, and other financial challenges.
We started our offerings with check cashing, for government and payroll checks, with fees much lower than payday lenders. We then developed what is considered to be the market model for a small dollar loan program, as an alternative to payday lending. In fact, we ended up building an entire suite of products and services called KeyBank Plus, which includes products and services outside the traditional concept of banking. KeyBank Plus, which also includes saving products, first time mortgage products, and checking accounts, has enabled many people to build a credit history, financial capability, and financial health.
As part of KeyBank Plus, we also began providing free financial education. This included in-classroom training, and, today, 600 of our employees are trained as financial educators.
All the while we were building financial products and services for the underserved community, we were keeping in mind our corporate responsibility and values. Acquire clients, provide value, and do no harm.
How does KeyBank invest in low-to-moderate income communities?
Low-to-moderate income communities bring a unique set of challenges. The traditional banker mindset is that these markets present a low margin and a high risk. Traditionally, bankers try to figure out the most profitable areas with the highest returns.
For Key, the difference is that, we don’t see the underserved segment as high risk, if we know we can build the products correctly. And although the margins might be lower, we’ve never expected the highest profits from the underserved segment, and so we proceed accordingly. What we don’t reach in high profit with a small group of clients, we achieve with moderate profit and a larger volume of clients. We were willing to take the longer road to figure out how to achieve this.
We also do not try to build profitability with a single product. Instead, we focus on relationship building in these communities, which means becoming an individual’s primary source of banking and offering him or her all the products and services he or she might need. From there, we can offer the client pricing, based on the fact that he has a relationship with us, versus single product pricing. Relationship banking is how we can help communities and stay profitable as a business at the same time. We help by serving many of the communities’ financial needs.
The good news is that retention increases when you operate like this. When someone helps you when you are in need, you are more apt to stay with that relationship. It’s less likely that you will change banks when the relationship is longer term and meets your needs.
Why is balancing mission and margin so important?
We developed a mantra that guides us which says that if we choose purely on margin and only maximize margin then we won’t develop the business we seek to build.
We may get short term returns but not trusting, long term relationships. It’s important that we do the right work for the right reasons, not just because of margin return. Sometimes it just about choosing to do the right thing.
I’ll give you an example. We could have chosen to do payday lending, like so many others, and make wild profits. We gave up that opportunity, realizing that we wouldn’t take advantage of customers just to make margin. We were deeply criticized for making that decision by both members of the community who believe this kind of product was appropriate in the market and even some legislators who feel it should be offered. In fact, it was an idea on the table when we were considering all possible revenue streams, but our CEO clearly said NO.
What advice would you give companies that are thinking about building new relationship-oriented businesses using corporate responsibility values?
Let me start by saying that any programs that are initiated need to be genuinely authentic in providing value to underserved communities, balanced with an understanding of the impact to the company, and a commitment to profitability.
If these things aren’t in place first, then, when a single product or service is called into question by a consumer advocate or a regulator, the integrity of the entire organization is called into question. It will be glaringly obvious if a company chooses margin over mission. If you’re not guided by a set of operating principles – your “true north” – that help you understand whether or not you’ll harm a consumer in the long run, you’ll end up with products that do so.
In addition, the company’s values need to be institutionalized. Meaning, there isn’t one person doing good things who should worry about upholding the corporate values alone. It’s not Human Resources’ job, or the compliance team, or the marketing team, etcetera. It’s about everyone in the organization being on the same page with the values, believing in them, and implementing them. It becomes how you run your business.
Communicating well internally is the first key to success. The shadow of the leader does, in fact, matter. Senior leaders of the organization also need to demonstrate the values. It can be a challenge to reach deeper in the organization where people are building products or setting process, if they don’t feel the importance of operating responsibly. People have to walk the talk, report the right way, and strong corporate values have to become part of the DNA.