Four of the nation’s biggest credit unions hope a new digital bank will help them attract customers ordinarily wooed by neobanks, and address a serious social problem at the same time.

With the pandemic shining a light on the challenges faced by households that lack banking relationships, four credit unions, including two in New England, have joined together to launch a mobile app that they say could help address the problem.  

Marlborough-based, $9.8 billion-asset Digital Federal Credit Union has joined with New Hampshire-based, $5 billion-asset Service Credit Union, New York-based, $2 billion-asset USAlliance Financial and Minnesota-based, $3.5 billion-asset Affinity Plus Federal Credit Union to launch Bank Dora Financial, a digital checking account and bilingual Spanish-English mobile app for the unbanked and underbanked. 

David DeWitt, the senior vice president of enterprise services at DCU, called Bank Dora “a competitor to the neobanks out there,” like Chime. 

“We thought it was a very cool concept,” DeWitt said. “At DCU, we do a lot to help the underserved members, but we also felt that there’s a lot of members that may not be coming in our doors, and we thought this is a very good way to reach that population as well, not only in our geographic area but nationwide.” 

The credit unions involved say their goal in forming this partnership is not about seeking a return on investment but instead about addressing a problem with costly implications for around 50 million people in the U.S. 

Neobanks Did What CUs Wouldn’t 

While most U.S. households have a banking account, the Federal Reserve’s annual report on economic well-being has continued to show opportunities for more people to gain access to mainstream banking products. Across the U.S., 5 percent of adults did not have a checking, savings or money market account in 2020, according to the report released in May. The unbanked rate for Black households was 13 percent, and for Hispanic households, it was 9 percent. 

Another 13 percent of households were underbanked – they had a bank account but still used an alternative – and usually more expensive – financial services product, including money orders and check-cashing services. The underbanked rate increased to 27 percent for Black households and 21 percent for Hispanics.  

While some people lack trust in financial institutions, a reaction often rooted in negative or cultural experiences, others see their account applications rejected, including because of low credit scores or a history of account charge-offs, said Kristi Kenworthy, Bank Dora’s managing director. 

“Being in the credit union industry, we probably have more of a culture of trying to help people,” Kenworthy said. “What we found is we still deny people because we can’t open a checking account for them, for whatever reason.” 

Yet neobanks, which offer services through financial technology firms with no brick-and-mortar branches, were letting these same customers open accounts, Kenworthy said, and offering the same features as credit unions.  

Bigger Than One Lender? 

USAlliance’s CEO Kris VanBeek and Kevin Randall, the credit union’s chief information officer, came up with the idea for the Dora Everyday Checking Account and app, launching it more than a year ago. Earlier this year, USAlliance worked with the Bank On Boston coalition, a collaboration with the city of Boston’s Office of Financial Empowerment, to get the product certified as meeting national Bank On standards for accounts for the unbanked and underbanked. 

Kenworthy, who previously managed digital channels and online applications at USAlliance, said the credit union began to see potential for the app outside its market, which includes parts of New York, New Jersey, Connecticut and Massachusetts.  

“The further we got into it, the more we realized that this is really bigger than just USAlliance,” Kenworthy said. “This could really become an industry solution and perhaps a representation of an industry brand.” 

After USAlliance talked about the Dora account at conferences and reached out to other institutions, the four founding members – among the top 5 percent of the nation’s roughly 5,000 credit unions by asset size – formed Dora Financial LLC, a business entity known as a credit union service organization (CUSO). Credit unions often invest together in CUSOs, especially to develop or distribute shared technology. 

Bank Dora’s operations include marketing, customer service support and technology, although accounts opened through the platform are technically held by USAlliance. The CUSO plans to look for other credit unions to invest in the partnership. While the founders are still figuring out what having more investors would mean for Bank Dora, Kenworthy said the additions would help build awareness of the brand and bring more people into the credit union movement, helping the unbanked and underbanked avoid the costs associated with alternative financial services. 

Bank Dora does not have a target for how many accounts are established, Kenworthy said, noting that the four credit unions are instead focused on the impact they can have on communities and the credit union industry. 

“I know this probably sounds contrary to the way most banks or credit unions would answer that because it’s usually all about net accounts,” Kenworthy said. “I think it’s a little different for this project; it’s really about the impact that we can have in communities and how many people can we help.”  

Risk Mitigation, Not Rejection 

Bank Dora was named for Dora Maxwell, a key figure in establishing hundreds of credit unions last century in the Northeast. The word “bank” was included in the name as a verb, DeWitt said, to provide clarity around the app’s purpose. 

The rollout will focus on the markets of the four credit unions involved, with plans to expand nationwide. Kenworthy said the CUSO plans to launch a bilingual marketing campaign next month, and DeWitt said DCU plans to work with nonprofits in its market, including in Lawrence, Lowell and Worcester, to reach Spanish-speaking populations. 

Diane McLaughlin

Bank Dora does not look at the risk profile or credit history of applicants. Risk is instead managed on the transaction level, Service Credit Union Senior Vice President of Technology Geoffrey Gilton said, with the account balance at the time of the transaction controlling the activity in the account. He added that Bank Dora is looking into accessing lists of people who had applications denied at other banks and credit unions to find candidates for accounts, giving the unbanked a way to start building a credit history. 

The credit unions have not decided whether Bank Dora will offer other products in the future. CUSOs previously could not offer consumer lending, though the National Credit Union Administration finalized a rule on Oct. 21 to allow this. The proposal had been opposed by bank trade groups but supported by credit union trade groups. DeWitt, before the finalized rule was announced, said that depending on regulatory outcomes Bank Dora could offer lending in the future, or Dora customers could become members of one of the credit unions involved, gaining access to a suite of products. 

For now, the credit unions say their focus is on helping improve access to financial products, rather than finding business opportunities. 

“Because we’re a not-for-profit, it’s not about the return on investment,” DeWitt said. “It’s really about the impact that we think we can make.”