Minutes 

of 

The Meeting of the FDIC Advisory Committee on Economic Inclusion 

of the 

Federal Deposit Insurance Corporation 

Held in the Board Room 

Federal Deposit Insurance Corporation Building 

Washington, D.C. 

Open to Public Observation 

April 26, 2012 - 8:48 A.M. 

The meeting of the FDIC Advisory Committee on Economic 

Inclusion ("ComE-IN" or "Committee") was called to order by 

Martin J. Gruenberg, Acting Chairman of the Board of Directors of 

the Federal Deposit Insurance Corporation ("Corporation" or 

"FDIC") 

The members of ComE-IN present at the meeting were Robert A. 

Annibale, Global Director, Citi Microfinance and Community 

Development; Ted Beck, President and Chief Executive Officer 

("CEO"), National Endowment for Financial Education; Kelvin 

Boston, Executive Producer and Host of PBS’s Moneywise with 

Kelvin Boston; JosØ Cisneros, Treasurer, City and County of San 

Francisco, California; Martin Eakes, CEO, Self-Help/Center for 

Responsible Lending, Durham, North Carolina; Rev. Dr. Floyd H. 

Flake, Senior Pastor, Greater Allen A14E Cathedral of New York; 

Ester R. Fuchs, Professor, School of International and Public 

Affairs, Columbia University; Andrea Levere, President, 

Corporation for Enterprise Development; Alden J. McDonald, Jr., 

President and CEO, Liberty Bank and Trust, New Orleans, 

Louisiana; Bruce D. Murphy, Executive Vice President and 

President, Community Development Banking, KeyBank National 

Association; John C. Weicher, Director, Hudson Institute’s Center 

for Housing and Financial Markets; and Deborah C. Wright, 

Chairman and CEO, Carver Bancorp Inc., New York, New York. 

Michael S. Barr, Professor of Law, University of Michigan 

Law School; Lawrence K. Fish, Former Chairman and CEO, Citizens 

Financial Group, Inc.; Wade Henderson, President and CEO, 

Leadership Conference on Civil Rights, and Counselor to the 

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Leadership Conference on Civil Rights Education Fund; Manuel 

Orozco, Senior Associate at the Inter-American Dialogue, and 

Senior Researcher, Institute for the Study of International 

Migration, Georgetown University; John W. Ryan, Executive Vice 

President, Conference of State Bank Supervisors; J. Michael 

Shepherd, President and CEO, Bank of the West and BancWest 

Corporation; Robert K. Steel, Deputy Mayor for Economic 

Development, The City of New York; and Peter Tufano, Peter Moores 

Dean and Professor of Finance, Said Business School, Oxford 

University and Founder and CEO of D2D Fund, were absent from the 

meeting. 

Members of the Corporation’s Board of Directors present at 

the meeting were Martin J. Gruenberg, Acting Chairman, and 

Jeremiah 0. Norton, Director (Appointive). Roberta K. McInerney, 

Designated Federal Officer for the Committee and Deputy General 

Counsel, Corporate, Consumer, Insurance, and Legislation Branch, 

FDIC Legal Division, also was present at the meeting. 

Corporation staff who attended the meeting included Willa Allen, 

Dawn Adams, James L. Anderson, Lisa D. Arquette, Valerie J. Best, 

Michael W. Briggs, Luke H. Brown, Susan Burhouse, Alexander S. 

Cheng, Kimberly K. Copa, Carolyn D. Curran, Christine M. Davis, 

Patricia B. Devoti, Keith S. Ernst, Oscar A. Escamilla, Robert E. 

Feldman, Carl J. Gold, Alice C. Goodman, Heather Gratton, 

Leneta G. Gregorie, Cheh Kim, Kathleen Keest, Elizabeth A. 

Khalil, Ellen W. Lazar, Christopher Lucas, Jonathan N. Miller, 

Robert W. Mooney, Paul M. Nash, Christopher J. Newbury, Janet V. 

Norcom, Victoria Paweiski, Mark E. Pearce, Luke W. Reynolds, 

Sherrie L. W. Rhine, Barbara A. Ryan, Richard M. Schwartz, 

Kimberly Stock, and John D. Weier. 

William A. Rowe, III, Deputy to the Chief of Staff and 

Liaison to the FDIC, Office of the Comptroller of the Currency 

also was present at the meeting. 

Acting Chairman Gruenberg opened and presided at the 

meeting. He began by introducing and welcoming the FDIC’s newest 

Board member, Jeremiah Norton, underscoring his extraordinary 

background; and explaining that, although new Board member, 

Thomas Hoenig, was unable to attend the Committee meeting because 

of a prior commitment, he expected to take an active interest in 

the Committee’s work. He next welcomed four new Committee 

members, Mr. Annibale, Mr. Cisneros, Ms. Levere, and Mr. Weicher, 

noting that each had already made outstanding contributions to 

underserved communities, and expressed his gratitude for their 

willingness to serve on the Committee. Acting Chairman Gruenberg 

then provided an overview of the meeting agenda, advising that 

there would be presentations on the FDIC’s community banking 

initiative, the different consumer protections applicable to 

April 26, 2012 
223 

debit and credit cards versus prepaid cards, and the final report 

for the Model Safe Accounts pilot program; a continuation of the 

Committee’s discussion on mobile financial services; and a lunch 

presentation by the new Director of the Consumer Financial 

Protection Bureau ("CFPB"), Richard Cordray. He then turned the 

discussion over to Mr. Pearce. 

Recalling the Future of Community Banking Conference hosted 

by the FDIC in February 2012, Mr. Pearce advised that he had 

moderated a panel comprised of community bank customers, 

including the CEO of Neighborworks America, the president of 

North Dakota Farmers Group, a representative from the Consumer 

Federation of America, and a small local business entrepreneur, 

on why community banks matter. Noting that among the themes 

emerging from the panel were flexibility, nimbleness, 

understanding one’s local market, and doing things a little 

outside of the box, he stated that the Committee struggles with 

similar issues as it ponders what can be done differently to 

promote economic inclusion to bring more people into mainstream 

banking. He suggested that the challenge in figuring out how the 

community banking and economic inclusion initiatives best fit 

together is to determine how to leverage the information on 

industry trends generated by the community bank initiatives to 

increase and enhance economic inclusion. He pointed out that 

emerging technology has great potential in promoting economic 

inclusion; that a number of community bankers had spoken 

passionately at the conference about how they were investing in 

new technology and viewed it as essential to their ability to 

succeed in their marketplace; and that, to demonstrate some of 

the ways in which institutions are reaching out to their 

customers in this regard, Carolyn "Betsy" Flynn would later talk 

to the Committee about what her bank is doing in the area of 

mobile financial services. After noting that Committee members 

had raised a number of questions at the December 1, 2011, 

Committee meeting, Mr. Pearce turned the meeting over to 

Elizabeth Khalil, Senior Policy Analyst, FDIC Division of 

Depositor and Consumer Protection, Michael Briggs, Acting Senior 

Counsel, Consumer/Compliance Unit, Consumer Section, Corporate, 

Consumer, Insurance, and Legislation Branch, FDIC Legal Division, 

and Lisa Arquette, Associate Director, AML and Risk Analysis 

Branch, FDIC Division of Risk Management Supervision, to discuss 

"Consumer Protections Provided to Debit and Credit Cards Compared 

to Prepaid Cards." 

Ms. Khalil, after noting that Committee members’ questions 

had focused on the differences between consumer protections 

applicable to bank-offered and non-bank-offered prepaid products, 

advised that applicability of federal law is more dependent upon 

product type than the type of entity offering the product. She 

April 26, 2012 
224 

explained that there are three types of prepaid products: 

general-purpose reloadable ("GPR") cards that carry a network 

brand and are "open-loop," i.e., can be used as all other cards 

on that network can be used; payroll cards, for which the source 

of funds is employment-related compensation and, like GPR cards, 

are typically open-loop; and gift cards that may or not be 

reloadable, may be open-loop or "closed-loop," i.e., usable at 

only one retailer or a closed universe of retailers, and are 

normally marketed as a gift card to be used once or a finite 

number of times. She pointed to GPR cards as the type most often 

used by unbanked and underbanked consumers as a replacement for a 

bank deposit account. 

Next addressing the two key laws that apply to different 

payment methods, Ms. Khalil first advised that the Electronic 

Fund Transfer Act ("EFTA") and its implementing regulation, 

Regulation E of the Board of Governors of the Federal Reserve 

System ("FRB") , provide consumer protections for covered 

"accounts," including certain account opening and fee disclosure 

requirements, requirements for periodic statements, rights to 

error resolution procedures, and limitations on liability for 

unauthorized transactions; but cautioned that, although payroll 

cards are generally covered, gift cards are covered only by very 

specific provisions, such as those related to dormancy fees and 

expiration dates, and GPR cards are not covered at all. She 

noted, though, that exclusive rulemaking authority for the EFTA 

now resides with the CFPB, which could elect to extend Regulation 

E coverage to other prepaid products, including GPR cards. She 

then advised that the Truth in Lending Act ("TILA"), as 

implemented by FRB Regulation Z, provides numerous consumer 

protections to credit cards and other types of consumer credit, 

similar to Regulation E protections, including certain account 

disclosure requirements, requirements for periodic statements, 

rights to error resolution procedures, and limitations on 

consumer liability. Again, however, she noted that TILA and 

Regulation Z apply only to credit and not to prepaid products. 

Ms. Arquette, indicating that she hoped to clarify the 

requirements for banks versus requirements for some of the other 

parties associated with prepaid programs, began by noting that 

the Bank Secrecy Act ("BSA") which, among other things, requires 

collection of information related to card purchasers, is 

administered by the Financial Crimes Enforcement Network 

("F1nCEN"), a bureau within the Treasury Department; and that 

FinCEN’s rulemaking focus has been to exclude coverage of 

products that present less risk of criminal activity or money 

laundering. Based on that premise, she stated that closed-loop 

cards with a value equal to or less than $2,000, government 

funded cards, and flexible spending and dependent care funded 

April 26, 2012 
225 

cards are among the prepaid products not covered under BSA; and 

that products covered under BSA include closed-loop cards with a 

value greater than $2,000, open-loop cards with a value greater 

than $1,000, open-loop cards with international capabilities 

regardless of value, open-loop cards with person to person 

capabilities regardless of value, and open-loop cards that allow 

non-depository loads regardless of value. Turning to regulatory 

requirements for banks versus providers and sellers of covered 

prepaid cards, Ms. Arquette advised that both banks and providers 

and sellers have similar requirements to develop and implement 

BSA and anti-money laundering ("AIL") compliance programs, report 

suspicious activity, collect and verify customer information, and 

maintain transactional records, with providers having the 

additional requirement of registering as a money services 

business and, as a result, subject to regulation by the Internal 

Revenue Service; and that the regulatory definition of "seller" 

excludes those with established procedures to prevent the sale to 

a single purchaser of cards with a value greater than $10,000, 

thereby excluding such entities from BSA requirements. In 

conclusion, she noted that transactional records are associated 

with the card, not the person, although at some point, if and 

when a suspicious activity report is filed, the report would be 

tied to the name of the card purchaser; that the value of prepaid 

cards is typically fairly low, with consumers purchasing numerous 

cards at different locations and with different parties 

collecting purchaser information, making it difficult to tie 

suspicious activity to one individual; and that the number of 

parties involved in prepaid card programs with different 

responsibilities and layers of regulatory requirements, also make 

it difficult to track suspicious activity. 

In response to the presentations, Mr. Murphy suggested that 

prepaid programs are an example of innovation far exceeding the 

ability to understand what is happening, presenting significant 

opportunities for abuse, which gives more pause than excitement 

about the potential of such programs to meet the needs of 

underserved clients. During the discussion that followed, 

Committee members expressed ambivalence, confusion and concern 

about prepaid programs, with Professor Fuchs indicating that her 

initial thought upon hearing the presentations was that payroll 

cards would be a useful product for the underserved communities 

that are the focus of the Committee’s work but that, upon further 

reflection, it seemed that the cards would preclude saving by 

users. She asked whether there existed any empirical information 

about whether users of payroll cards also have bank accounts or 

are connected to the banking community in some way, in response 

to which Mr. Pearce advised that, although he had not seen any 

specific research on payroll cards and savings, he would review 

April 26, 2012 
226 

recent studies to determine if anything of the nature has been 

done. 

Mr. Eakes questioned whether prepaid cards are subject to 

too much regulation or too little, with one possible response 

being to subject GPR cards to the same requirements as debit 

cards and another possible response, to the extent there is no 

significant risk of abuse, being to subject bank products to less 

restrictive regulation; and Mr. Cisneros questioned whether, 

given the confusing landscape for prepaid products with respect 

to BSA requirements and consumer protections, payroll cards would 

be a safe alternative to direct deposit accounts for San 

Francisco s financial empowerment initiative. Mr. McDonald 

expressed concern that the growing prevalence of prepaid programs 

is directing underserved consumers away from the banking industry 

for transaction products, subjecting them to unreasonable fee 

structures with fewer consumer protections than bank accounts; 

and that the costs to banks to implement prepaid programs are 

greater than what can be earned to offset those costs, suggesting 

that Community Reinvestment Act ("CRA") credits may be one way to 

encourage banks to enter the prepaid card business. Mr. Eakes 

expressed concerns about the lack of arbitration clauses in 

prepaid card agreements to protect consumers from systemic abuse, 

the possibility of overdraft fees, and the possibility that 

regulatory arbitrage, particularly with respect to the Durbin 

Amendment to the Dodd-Frank Wall Street Reform and Consumer 

Protection Act, is driving the proliferation of prepaid programs. 

In response to Mr. Eakes’s concerns, Mr. Pearce advised that 

there are no clear prohibitions on arbitration clauses in prepaid 

card agreements; that the inability to overdraw a prepaid card is 

one of its major selling points; and that the Durbin Amendment 

limits on interchange fees and the fact that some prepaid cards 

are covered by the amendment, while others are not, does create 

challenges, but that feedback from banks that do offer prepaid 

cards suggests that cost issues are more of a factor than 

regulatory arbitrage. Also in response, Mr. Briggs indicated 

that there are some protections for prepaid programs under the 

unfair and deceptive practices provisions of the Federal Trade 

Commission Act; that, unless the prepaid card is somehow linked 

to a transaction account, which is not frequently the case, there 

may be some limits on overdrafts; and that the CFPB is looking at 

prepaid cards, not only from a supervisory perspective, but also 

from a consumer protection perspective, in an effort to level the 

playing field. 

Mr. McDonald suggested that perhaps someone from the CFPB 

might be a welcome addition to the Committee, in response to 

which Acting Chairman Gruenberg reminded Committee members that 

the CFPB Director is a member of the FDIC Board, creating a 

April 26, 2012 
227 

direct institutional relationship; suggested that CFPB Director 

Cordray’s luncheon presentation to the Committee would provide an 

opportunity for Committee members to raise any questions they 

have directly with him; and agreed that having a CFPB 

representative participate as a member of the Committee was 

certainly a reasonable idea to consider. Acting Chairman 

Gruenberg also noted that prepaid cards are a mere payment 

device, while account-based debit cards are payment devices that 

offer the full set of services associated with a bank account, 

with the latter determined by the Committee to represent a 

promising vehicle for expanding access to the banking system, as 

indicated by the Model Safe Accounts pilot. 

Next, Keith S. Ernst, Associate Director, Consumer Research 

and Examination Analytics, Policy and Research Branch, FDIC 

Division of Depositor and Consumer Protection, moderator of the 

second panel on the "Model Safe Accounts Pilot Results," after 

noting that the Committee had been instrumental in helping to 

design the safe transactional and savings account templates, 

thanked pilot institutions for volunteering their time, talent, 

and energy to help advance the cause of economic inclusion. He 

then advised that the pilot sought to answer a series of 

questions-whether safe accounts meeting the template criteria 

were sustainable, whether consumers would maintain access over 

time, whether the accounts were operationally and economically 

feasible, and which strategies were successfully used to engage 

consumers; and that the answers to the questions would be 

presented in two parts - an overview of the final pilot report 

presented by FDIC economists, Sherrie L. W. Rhine, Senior 

Economist, FDIC Division of Depositor and Consumer Protection, 

and Susan Burhouse, Senior Financial Economist, FDIC Depositor 

and Consumer Protection, followed by presentations by 

representatives of three of the pilot institutions on their 

experiences. 

Ms. Rhine began by discussing the purpose of the pilot, the 

pilot participants, and the template features that formed the 

basis for the transaction and savings accounts offered. She 

reported that the pilot had a duration of one year; that its 

purpose was to determine the feasibility of insured depository 

institutions offering safe, low-cost transaction and savings 

accounts to help meet the needs of unbanked and underbanked 

households, which comprise almost 26 percent of all U.S. 

households; and that the nine participating institutions varied 

in size and assets and were located in different geographic 

areas. She identified the nine pilot participants as Bath 

Savings Institution, Bath, Maine; Citibank, New York, New York; 

Cross County Savings Bank, Middle Village, New York; First State 

Bank, Union City, Tennessee; ING DIRECT ("ING"), Wilmington, 

April 26, 2012 
Delaware; Liberty Bank and Trust Co., New Orleans, Louisiana; 

Pinnacle Bank ("Pinnacle"), Lincoln, Nebraska; South Central 

Bank, Glasgow, Kentucky; and Webster Five Cents Savings Bank 

("Webster Five"), Webster, Massachusetts. 

Moving to the safe accounts template, Ms. Rhine stated that 

the guiding principles were that the charges be transparent, that 

the fees be reasonable and proportional to costs, and that there 

be access to banking services that feature FDIC insurance and 

other consumer protections. Explaining the core features of the 

model transaction account, she advised that it was critical that 

the product be an electronic, card-based account, with no 

overdraft or non-sufficient funds fees, and that it have free 

direct deposit, automatic saving, and online access; an opening 

balance between $10 and $25; a monthly minimum balance of $1; 

monthly maintenance fees of up to $3; and two free money orders 

or electronic checks per month, with any additional money orders 

subject only to a fee that was reasonable and proportional to 

cost. With respect to the core features of the model savings 

account, she indicated that the accounts had to be interestbearing; have free direct deposit, automatic saving, and online 

access; have an opening and monthly minimum balance of $5; and 

have a free monthly maintenance fee if the minimum balance was, 

in fact, met. Concluding her discussion of the template, she 

noted that it listed auxiliary services and features for 

participants to consider as possible add-ons to the safe 

transaction and savings accounts, including financial education, 

linked transaction and savings accounts to cover potential 

overages, lines of credit, small-dollar loans, kiosk bill 

payment, and domestic and international wire transfers. 

Before providing a summary of the pilot results, Ms. 

Burhouse observed that the data was largely based on quarterly 

reports submitted by each bank on basic metrics, including the 

number of accounts opened and closed, balances on the accounts, 

and use of some of the specific account features, supplemented by 

quarterly one-on-one conversations to get behind the numbers and 

understand the circumstances and challenges unique to each 

institution; and cautioned that the pilot results are not based 

on a statistical sample and cannot be interpreted as 

representative of the overall banking industry or consumers 

nationwide. First focusing on the transaction accounts, she 

reported that such accounts were the primary focus for seven of 

the nine pilot banks; that a total of 662 accounts were opened, 

with the total number opened each quarter varying from 130 and 

190 and the number per institution varying from 10 to 25; that 

average opening and monthly balances across institutions were 

$244 and $243, respectively, with a range of $200 to $400 for 

average opening balance and $200 to $300 for average monthly 

April 26, 2012 
229 

balance; and that 81 percent of the accounts remained open at the 

end of the pilot, as compared to an industry-wide retention rate 

for all accounts during the first year of about 70 percent. 

Turning to the savings accounts, she reported that seven of nine 

pilot banks offered such accounts; that a total of 2,883 accounts 

were opened, with the total number opened each quarter varying 

from approximately 600 to 800 and the number per institution 

varying from 20 to more than 1,000; that average opening and 

monthly balances varied widely, with some account holders having 

average opening and monthly balances of $20 or below and other 

account holders having average monthly balances of $3,000 or 

more; and that, with only 141 accounts closed during the pilot, 

the retention rate was 95 percent. She explained that the wide 

variations in the number of savings accounts per institution each 

quarter and in average opening and monthly balances were 

primarily the result of the different business models used by 

pilot participants, with some institutions having very narrowly 

focused and targeted programs and others having much broader 

programs targeting a wider range of consumers. 

Regarding feasibility of the safe transaction and savings 

accounts and their associated costs and revenues, Ms. Burhouse 

cautioned that calculation of costs and profitability were not 

straightforward because of technological challenges and because 

the different ways banks have of defining their fixed and 

variable costs made it difficult to allocate costs to a specific 

product line over a one-year time period. Nevertheless, she 

stated that many of the banks thought the marginal costs of 

offering the safe accounts were negligible or close to zero and 

that the costs of offering the safe accounts were in line with, 

if not lower than, the costs of other deposit accounts; that the 

low cost was due largely to the electronic, card-based nature of 

the accounts; and that, as a result, staff believes that revenues 

generated from interchange fees and appropriate monthly 

maintenance fees make the safe accounts a viable product in the 

marketplace. 

Ms. Burhouse then discussed lessons learned, focusing on 

emerging business models, relationship building, and potential 

risks, noting with respect to business models that, although some 

banks used elements of two or more models, the distinct models 

that emerged included the partnership model, where banks 

partnered with third parties to advance their outreach and 

marketing efforts and identify potential account applicants; the 

re-entrant model, where the safe accounts functioned as second 

chance accounts for consumers with problematic banking histories 

who would not otherwise qualify for accounts; the new entrant 

model, where banks targeted consumers, oftentimes young adults, 

who had never before had a bank account; the cross-selling model, 

April 26, 2012 
230 

where banks that focused more on transaction or savings accounts 

took advantage of the opportunity to cross-sell the other type of 

account or to bundle the accounts; and the internet model, where 

the internet platform was used to market and open accounts. 

Regarding relationship building, she reported that pilot banks 

found that it was of critical importance to engage tellers and 

customer service representatives in building relationships with 

safe account customers; that tellers and representatives who were 

trained to offer the safe accounts were instrumental in getting 

the accounts to the right customers and providing information to 

customers about how to use and manage the accounts; and that 

having customers who received one-on-one financial education from 

frontline staff and understood account basics were key factors 

driving account success. Finally, with respect to potential 

risks, she advised that, although pilot participants had initial 

concerns about fraud and potential overdrafts, the concerns did 

not materialize, with only a very few instances of fraud or 

intentional mismanagement and with instances of account overages 

no higher than those on other deposit accounts at the 

institutions. 

Ms. Rhine then addressed some of the challenges faced by 

pilot institutions, noting that three areas of concern were 

identified by pilot banks: marketing and advertising, 

establishing a presence in new markets, and ensuring adequate 

staff training. Expanding on marketing and advertising concerns, 

she indicated that several institutions found it challenging 

because of difficulties reaching the intended customers without 

being overly broad in scope, while other institutions mentioned 

budgetary or resource constraints. Regarding the challenge of 

establishing a presence in new markets, she stated that several 

institutions discussed the difficulties of reaching potential 

customers in communities where there is strong competition from a 

significant number of non-bank financial service providers, and 

some institutions encountered difficulty in reaching customers 

who had little experience with mainstream banking or who, because 

of past experiences with banks, held a negative perception of 

banks. With respect to ensuring adequate staff training, Ms. 

Rhine advised that a few banks emphasized the importance of 

effective training in changing the mindset of tellers and 

customer service representatives to offer the safe accounts in 

circumstances where applicants were found to be ineligible for 

traditional deposit accounts, a challenge that once surmounted 

yielded great success. She indicated that, despite the 

challenges, pilot institutions identified remedies that enabled 

them to overcome the challenges, including partnering with 

community-based partners to gain the attention and trust of 

targeted consumers, using direct mail and email to attract and 

reach customers, and training branch staff to spread the word 

April 26, 2012 
231 

about the value and benefits of safe, low-cost accounts. She 

indicated, moreover, that the majority of banks viewed their 

participation in the pilot as a valuable means of learning more 

about how to market and conduct outreach in their respective 

communities. 

Summarizing the pilot results, Ms. Rhine stated that the 

experiences of pilot banks suggest that opportunities do exist 

for institutions to offer safe, low-cost transaction and savings 

accounts to underserved communities; that the high retention 

rates for account holders are indicative of the ability of 

consumers to maintain successful banking relationships using the 

safe accounts; and that, in combination with high retention 

rates, the relatively low overdraft risk indicates that there may 

be greater account longevity and lower costs associated with 

safe accounts. She further stated, in conclusion, that the pilot 

was important to informing economic inclusion efforts; that, 

overall, the experiences of pilot banks suggest potential 

improvements to the template, such as decreasing emphasis on 

auxiliary services in the early stages of a customer’s banking 

relationship; and that the majority of institutions reported 

having learned from the pilot and were encouraged by their 

initial experiences with offering safe, low-cost accounts 

designed to meet the needs of underserved and low- to moderateincome ("LMI") consumers. 

Ms. Levere commented that the pilot study results affirmed 

the idea that, if one finds the right facilitating structures, 

LMI individuals will behave exactly the same as other consumers. 

She then asked whether staff could identify any basic structural 

techniques or lessons learned about how to effectively encourage 

savings accounts, which will be increasingly important as the 

only safety net for LMI households; and whether, despite 

conclusion of the pilot, any efforts would be made to continue 

data collection in year two. In response to the first question, 

Mr. Ernst indicated that the extent to which institutions 

emphasized savings accounts in the pilot and the details of their 

marketing efforts might account for the varying outcomes along 

the savings dimension, but suggested that the question could be 

explored further with the next panelists. In response to the 

second question, Ms. Burhouse advised that there were no plans to 

continue data collection into a second year and Mr. Ernst advised 

that some of the pilot participants had developed next steps, 

which would be discussed within the context of their 

presentations. Mr. Cisneros remarked upon the similarities 

between the pilot findings and BankOn programs as well as the 

differences, identifying as some of the similarities the nearly 

identical retention rates for accounts and the low incidences of 

fraud and overdrafts, and the primary difference as the take-up 

April 26, 2012 
rate on savings versus transaction accounts, with the pilot banks 

opening more savings than transaction accounts and the 

overwhelming majority of accounts opened through BankOn programs 

being transaction accounts. 

There then ensued a brief discussion of costs, with Mr. 

Eakes expressing his opinion that the next step would be to 

develop more standardized and tangible cost data, for instance, 

on the cost per year for a basic transaction account and the cost 

per transaction for a deposit, which would then allow a 

determination of whether the safe account products are a selfsustaining activity for financial institutions; are selfsustaining only at a certain point of account maturity and 

represent something of a cross-generational subsidy; or are more 

akin to a community service that is not expected to break even. 

Ms. Wright advised that, in her experience, it would take an 

infinite number of small-dollar accounts to cover costs and that 

only with a significant volume of accounts, generated perhaps 

from partnering with larger employers and institutions, can such 

programs be sustainable due, in no small part, to costs 

associated with the current regulatory environment. Mr. Ernst 

noted that within the scope of small pilots, there is a delicate 

balance between collecting information that is rigorous and 

getting organizations to participate, but agreed that 

understanding cost structure is central to making a powerful case 

for expanding safe, low-cost account offerings and that there is 

also a need to think more deeply about the value of the 

relationship beyond the account. 

Acting Chairman Gruenberg then announced that the meeting 

would briefly recess. Accordingly, at 10:42 a.m., the meeting 

stood in recess. 

* * * * * * * 

The meeting reconvened at 11:02 a.m. that same day, at which 

time Mr. Ernst introduced the next panelists: Dennis Thomas, 

Director of Regulatory Compliance, Pinnacle Bank; Joe Radovanic, 

Senior Vice President of Retail Administration, Webster Five Cent 

Savings Bank; and Todd Sandier, Head of Product Strategy/Deposit 

Business, ING DIRECT. 

After expressing his appreciation for the opportunity to 

share with the Committee Pinnacle Bank’s experience with the 

pilot, Mr. Thomas began his presentation by noting that, going 

into the pilot, his institution had concerns about risk and the 

possibility that the safe accounts would be used primarily as 

check-cashing accounts, but was pleased to report that their 

fears were unfounded - the accounts did not generate losses and, 

April 26, 2012 
233 

for the most part, remained open. He explained that the bank’s 

major emphasis in marketing the accounts was to target customers 

the bank would ordinarily reject on the basis of its own internal 

qualification system; that the bank developed a PowerPoint 

presentation explaining the safe accounts that was required 

viewing for all branch employees; that, although it offered both 

transaction and savings accounts, the bank’s focus was primarily 

on transaction accounts; that, over the one-year pilot, the bank 

opened an average of one account per day; that profitability 

varied depending on how often customers used their card since the 

accounts had no monthly maintenance fee; and that the retention 

rate for the transaction account was fairly high, with the nonretention rate of 21 percent being somewhat misleading because it 

was only representative of customers leaving the pilot program 

and not necessarily the bank. 

Mr. Thomas next discussed problems encountered and lessons 

learned, advising that the problems encountered included lack of 

access to computers for some customers; unavailability of checkwriting capability for customers who wanted checks; the lack of 

paper statements for paper-oriented clients; still having to turn 

away some potential customers who had previously committed fraud 

against the bank; and the inability to identify marketing funds 

to use across the 55 branches included in the pilot, 

necessitating reliance on employees to market the program. As 

for lessons learned, he reiterated that they did not know what 

they thought they knew-the accounts were not any more risky than 

other accounts, and advised that the bank learned that there was 

a need for flexibility with respect to overdrafts because they 

discovered that closing accounts that remained overdrawn for 

three days was not a realistic timeline for safe account 

customers; and that employee investment and employee and customer 

input were key ingredients of a successful program. 

In conclusion, after reporting that Pinnacle had decided to 

continue the program at the end of the pilot, Mr. Thomas 

discussed some of the changes to the program arising from lessons 

learned, noting that the bank has added a written monthly 

statement in response to customer requests, although there is a 

charge for providing the statements; it has eliminated free money 

orders because of lack of demand and complaints from employees 

about ability to track the number of money orders; and it has 

extended the time for program customers to correct overages from 

three days to seven days or the date of their next direct 

deposit, whichever is longer. He added that, going forward, the 

bank intends to extend the program throughout the entire holding 

company. 

April 26, 2012 
234 

Next, Mr. Radovanic provided background information on 

Webster Five noting, among other things, that it is a mutual 

organization, the earnings of which go directly to build capital; 

that it has received three successive outstanding CRA ratings; 

that it has offered reasonably-priced products and services to 

the community for 145 years; and that its employees have long 

supported and provided financial literacy training in various 

venues throughout the community. He then advised that the First 

Step account was Webster Five’s response to the need for a safe, 

free checking account, a need that surfaced at financial literacy 

training at a local community development corporation, and that 

pilot marketing was done primarily through outreach through 

various nonprofit agencies. After providing examples of some 

individuals who were helped by the account, including a homeless 

veteran and a single mother, Mr. Radovanic presented information 

on account costs. 

Based on information from a 2009 study of banks of the same 

asset size using Harland Financial Solutions software, Mr. 

Radovanic revealed that the annual cost of a savings account rose 

from $125 in 2006 to $151 in 2009 and the annual cost of a 

checking account rose from $289 to $337 during the same period, 

with costs having only increased since then; that of the 97 safe 

transaction accounts and 599 passbook savings accounts opened by 

Webster Five during the pilot, only 6 percent of the transaction 

accounts and 13 percent of the savings accounts were profitable; 

but that, if only the incremental cost of an additional account 

is considered and all indirect costs are excluded, then the 

annual costs for transactions and savings accounts drop to $36 

and $6, respectively, resulting in a higher profitability of 55 

percent for pilot transaction accounts and 74 percent for pilot 

savings accounts. He stated that overall, only 25 percent of 

community bank customers are profitable and that it is the profit 

from that 25 percent that enables banks to carry the other 75 

percent, to grow, and to provide their services; that the overall 

income from this profitable customer segment is shrinking, with 

the Federal Financial Institutions Examination Council "Uniform 

Bank Performance Report" showing a decline in bank profitability; 

and that the economy is driving the decline. Mr. Radovanic ended 

his presentation by advising that increasing costs and the 

overwhelming regulatory burden on community banks are threatening 

the ability of the institutions to do what they do best

partnering with community organizations, financial literacy 

training, and outreach to homeless veterans and single mothers. 

Mr. Sandler began his presentation by pointing out the 

unique characteristics of ING, noting that it is a digitally -

based bank, connecting with 93 percent of its customers online or 

through mobile technology and 7 percent through the bank’s 

April 26, 2012 
235 

dedicated call center. He advised that ING did not design a new 

product for the pilot, but instead used its existing Orange 

Savings Account, which was already based on a no fee, no minimum 

value proposition; that, because both new and existing customers 

must already have an existing checking account, the bank targeted 

underbanked, rather than unbanked, populations; and that, rather 

than designing an entirely new marketing campaign, the bank 

tweaked its core marketing package to indicate that customers 

could start an account with as little as one dollar. He then 

provided an account of ING’s marketing efforts for the pilot, 

reporting that the bank selected four of its footprint markets - 

Atlanta, Baltimore, Philadelphia, and Seattle - for the pilot; 

that it used direct mail, email, and internet advertising to 

market; that the direct mail and email marketing efforts used a 

model based on data from the FDIC Survey of Unbanked and 

Underbanked Households ("Household Survey"), primarily trying to 

identify those with a household income of less than $50,000, 

those with D or E credit grades, those who rent instead of own, 

those younger than 30, and single person households; and that the 

internet marketing effort was two-pronged, targeting networks 

more likely to get traffic from those with household income of 

less than $50,000, renters, and those with low credit scores, and 

placing ads based on key search terms, such as payday lending, 

money orders, cash advances, bank fees, and rent-to-own. 

Next addressing performance, Mr. Sandier reported that, 

although the direct mail and internet marketing campaigns were 

cost-prohibitive, 334 savings accounts were opened, with 25 

percent also signing up for an automatic savings plan and 18 

percent still saving through the automatic savings plan one year 

later; that average monthly savings grew from $42 to $57; that 

average account balances increases four-fold, from $250 at the 

beginning of the pilot to $1,000 a year later; and that some of 

the savings account customers have branched into other products, 

such as the Sharebuilder brokerage account and the Electric 

Orange checking account. He also reported that ING had conducted 

an email survey of customers at the conclusion of the pilot and, 

although the response rate was very low, with only 17 surveys 

completed, and the data collected was not statistically 

significant, he believed it was worth sharing some of the 

results. He advised that only four of 17 respondents selfidentified as underbanked based on the FDIC’s definition, 

suggesting that the direct mail, email, and online marketing 

efforts were not very successful at hitting the targeted 

audience; and that 47 percent of respondents indicated that the 

ING account was their first savings account in the past five 

years. In conclusion, he stated that, the bank had very good 

success using their core control package, with a few minor 

changes, to attract savers; that the attempt to segment the 

April 26, 2012 
236 

underbanked population worked best in cities where the bank’s 

standard marketing is the strongest; that, given the expense of 

direct mail and online marketing, it would be difficult to 

generate a positive return on investment or to scale those 

approaches beyond the pilot test; and that, given the difficulty 

of reaching the targeted population, digitally-based institutions 

will need to explore alternative targeting methods. 

In response to a question from Mr. Ernst regarding the most 

important advice the panelists would give to another banker 

implementing a safe account-type program at their institution, 

Mr. Thomas said he would advise the banker to not allow 

preconceived notions of risk frighten them out of trying the 

program; Mr. Radovanic said that he would advise that the safe 

account template is a good one and is cost-effective when one 

looks at it from the perspective of marginal costs; and Mr. 

Sandier said he would advise that the program be placed within 

the institution’s existing infrastructure so that, ultimately, it 

can be scaled to the entire customer base. 

Mr. Ernst also advised Committee members on next steps, 

indicating that staff had discussed identifying networks 

appropriate for sharing the pilot study findings; targeting 

networks of providers, such as the BankOn network and the 

Alliances for Economic Inclusion, through very specific outreach 

methods as a means of expanding safe transaction and savings 

account offerings; and developing a tool kit of resources 

institutions can consult as a way to approach their internal 

operations staff about options for offering safe transaction and 

savings accounts. He then asked whether Committee members had 

any other suggestions for next steps, in response to which Mr. 

Beck suggested sharing the pilot data with other federal agencies 

that focus on economic inclusion; and Mr. Cisneros suggested that 

the FDIC partner with BankOn cities in a second phase of the 

study to see how the outreach capabilities of the BankOn programs 

might produce different results. 

There was a brief discussion, during which Committee members 

asked and received clarification from Mr. Sandier about ING’s 

marketing approach for the pilot. In addition, Mr. Annibale, in 

response to information presented on the costs associated with 

safe transaction and savings accounts, suggested that one way to 

reduce costs is to work through intermediary partners such as 

community organizations and that, for very small accounts, one 

way to encourage banks to offer the accounts is to make them 

eligible for CPA credit. 

Acting Chairman Gruenberg, noting that the discussion had 

been helpful and acknowledging that the challenges are clearly 

April 26, 2012 
237 

significant, stated that the safe account models for transaction 

and savings accounts were among the more promising approaches he 

had seen to providing low-cost accounts to those who lack access 

to the banking system. Regarding next steps, he indicated that 

the FDIC would follow-up on Mr. Cisneros’s offer to work with the 

BankOn groups and others to encourage as many institutions as 

possible, particularly some of the largest institutions, to offer 

the accounts; that, in follow-up to Mr. Eakes’s suggestion, the 

FDIC will develop to the extent possible a realistic cost 

analysis for the safe accounts; and that staff would keep the 

Committee apprised on its progress. 

Acting Chairman Gruenberg next thanked the safe account 

pilot institutions for their participation and presented 

certificates of appreciation to a representative from each of the 

nine institutions. He then announced that the meeting would 

recess for lunch. Accordingly, at 12:15 p.m., the meeting stood 

in recess. 

* * * * * * * 

The meeting reconvened at 2:06 p.m. that same day, at which 

time Jonathan N. Miller, Deputy Director, Policy and Research, 

FDIC Division of Depositor and Consumer Protection, moderator of 

the panel on "Mobile Financial Services Update," noting that the 

afternoon session was a continuation of a discussion begun at the 

Committee’s December 1, 2011, meeting, advised that panelists had 

been asked to explore the potential of mobile technology as tools 

to reach the unbanked and underbanked to bring them into the 

financial mainstream. Providing a framework for the panel 

presentations, he reminded Committee members of several of the 

highlights from research shared at the December meeting, 

recalling that findings have shown that mobile phone adoption is 

higher among minorities, as is smartphone ownership; that among 

mobile phone owners, African Americans and Hispanics engage in 

mobile banking at higher rates; and that the underbanked are more 

likely to use mobile banking than the general population. He 

then introduced the panelists, identifying them as Jeanne 

Hogarth, Manager Consumer Research Section, Consumer and 

Community Affairs, Board of Governors of the Federal Reserve 

System; Mike Neale, Director of Business Operations-Internet 

Solutions, Jack Henry & Associates ("Jack Henry") ; Carolyn 

"Betsy" Flynn, President and CEO, Community Financial Services 

Bank ("CFSB"); and Paul Galant, Chief Executive Officer, Citi 

Global Enterprise Payments. 

Ms. Hogarth shared the results of an FRB survey conducted in 

December 2011 and January 2012 by Knowledge Networks, an internet 

panel provider with a random sample nationally representative, 

April 26, 2012 
238 

probability-based data set. She stated that the report, which 

was released in March 2012, included a number of key findings on 

mobile banking and mobile payments by the unbanked and 

underbanked, with "mobile banking" defined as "using a mobile 

phone to access your bank account, or other financial account" 

and "mobile payments" defined as "purchases, bill payments, 

charitable donations, payments to another person, or any other 

payments made using a mobile phone." She advised that included 

among the key findings were that 21 percent of all mobile phone 

users used mobile banking within the past 12 months, with 12 

percent having used mobile payments during the same period, and 

that 42 percent of smartphone users, comprising 44 percent of all 

mobile phone users, used mobile banking within the past 12 

months, with 23 percent having used mobile payments during the 

same period. Explaining that the survey used a definition of 

"unbanked" that is similar to the FDIC’s definition in its 

Household Survey and a definition of "underbanked" that differs 

from the definition used by the FDIC in that it does not include 

those who have used money orders, she further advised that the 

survey results showed that the underbanked are more likely to be 

between the ages of 30 and 44, be less educated, be minority, 

have a lower income, and be working or self-employed, whereas the 

unbanked are more likely to be between the ages of 18 and 29, be 

less educated, be minority, have a low income, and be laid-off or 

looking for work. 

Regarding use of mobile technology, mobile banking, and 

mobile payments by the underbanked and unbanked, Ms. Hogarth 

advised that there were slightly different patterns between the 

two, with the survey indicating that, among the underbanked, 90 

percent have mobile phones, with 57 percent having smartphones; 

nearly 28 percent use mobile banking and an additional 22 percent 

planned to use it within the next 12 months; and 17 percent use 

mobile payments, with three out of five using it to pay bills and 

one out of five using it to transfer money. She further advised 

that, among the unbanked, 63 percent have a mobile phone, with 26 

percent having smartphones; 10 percent use mobile banking and 19 

percent planned to use it within the next 12 months; and 12 

percent use mobile payments, with two out of five using it to pay 

bills, one out of three using it to make purchases, and one out 

of four using it to transfer money. She noted, however, that 

when asked what types of mobile banking activities they engaged 

in, although the three most frequently cited activities for all 

groups were checking account balances, receiving text message 

alerts, and transferring money between accounts, there were both 

similarities, such as the substantially similar percentages of 

each group using mobile technology to check account balances, and 

differences, such as the significantly larger percentage of 

underbanked respondents using mobile technology to transfer money 

April 26, 2012 
239 

between accounts than either banked or unbanked respondents. She 

also pointed out the different reasons for not using mobile 

banking, indicating that the unbanked, obviously, most frequently 

cited not having a bank account, whereas the banked and 

underbanked most frequently cited being able to meet their 

banking needs without using mobile technology and security 

concerns, with hackers cited as the number one security concern 

among all groups. 

Turning to mobile payments, Ms. Hogarth reported that the 

primary means of making such payments was through their web 

browser for the underbanked and by using a downloadable 

application for the fully banked; that the most frequent source 

of funds for mobile payments for all groups was a credit, debit 

or prepaid card, with few respondents in any of the groups likely 

to charge funds to their phone bills; that the most frequently 

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Next, Mr. Neale explained that Jack Henry currently offers 

Short Message Service ("SMS") banking, Wireless Application 

Protocol ("WAP") based mobile banking that is essentially 

supported on any basic browser phone, and downloadable 

applications for iPhones, iPads, and Android phones, which 

products he characterized as "white-label products" that appear 

to the end-user as the client’s application; that it has as the 

client base for its public facing products community banks, 

ranging from de novo banks to those with assets up to $18 

billion; that it services the online banking applications of 

about 80 percent of its core clients and the mobile applications 

of about 40 percent of its core clients; and that from a user 

standpoint, the company is seeking a doubling of growth year over 

year, with no indication of any slowing of growth. With respect 

to the company’s retail application functionality, he advised 

that Jack Henry’s offerings are fairly standard, providing users 

April 26, 2012 
240 

with the ability to make balance inquiries, transfer funds, pay 

bills, make person to person payments, receive actionable text 

alerts, lookup ATM and branch locations, and perform remote 

deposit capture. He also advised that, with respect to the 

current day potential value of mobile technology for unbanked and 

underbanked individuals, mobile offerings are generally not 

focused on the unbanked; that, for the underbanked, mobile 

technology provides immediacy of actionable financial 

information; and that mobile technology improves the availability 

of financial services from the perspectives of time and location. 

Mr. Neale then addressed future opportunities to use mobile 

technology to meet the needs of the unbanked and underbanked, 

suggesting that the expansion of Near Field Communication 

payments would be a way to reduce the risk of carrying cash; that 

the industry could focus on expansion of mobile technology to 

facilitate services that currently still branch interactions, 

including establishing a first-time relationship with a financial 

institution, opening an account, and purchasing and sending 

monetary instruments such as cashier’s checks and money orders; 

and that well-placed technology could also allow community banks 

to return to their role as educator of fiscal responsibility via 

online programs and in-flight advice on the prudence of a 

transaction. Having discussed what could be done from the 

standpoint of technology, he closed his presentation by offering 

suggestions on what can be done from the standpoint of policy to 

afford such innovations, noting that CPA-type credits, if they 

offered the ability to offset any potential operating losses and 

allowed latitude with respect to the elevated risk exposure of 

economic inclusion programs, would provide incentives for 

community banks to engage in outreach to the unbanked and 

underbanked; and that it was important to ensure that existing 

regulations keep track with technology and the ability of 

institutions to fulfill the essence of their original charters in 

a digital form and not bind institutions to older techniques. 

Then, Ms. Flynn, in response to Mr. Neale’s recommendations, 

observed that CFSB offers financial education and counseling to 

its customers and would appreciate being able to receive CPA 

credit for those services. She also advised that CFSB has safe 

account-like products, such as a free, no minimum balance 

checking account and savings account with ATM card access, that 

are targeted at the unbanked and underbanked, but observed that 

existing regulations, which allow only three withdrawals per 

month from savings accounts, need to brought up-to-date to 

reflect the current financial environment. 

April 26, 2012 
241 

As a preface to her presentation, Ms. Flynn shared 

statistics on unbanked and underbanked households in the State of 

Kentucky and in Marshall County, advising that 11.9 percent of 

households in Kentucky are unbanked and 23.7 percent of 

households are unbanked, and that 8.7 percent of households in 

Marshall County are unbanked and 18.8 percent are underbanked. 

She then provided some of the findings of the "2010 Community 

Bank Technology Survey" and "2011 Payments Survey" conducted by 

the Independent Community Bankers of America, reporting that 893 

responses were received from more than 7,200 banks surveyed; that 

when asked whether they currently offer mobile banking, 15 

percent of respondents answered in the affirmative, 47 percent 

answered that they plan to offer it within the next 24 months, 

and 30 percent answered that they do not plan to offer it within 

the next 24 months, with 66 percent of banks with assets under 

$100 million indicating no plans to offer mobile banking within 

the next 24 months; and that, with respect to emerging payment 

products, there was a significant decrease in the percentage of 

banks that indicated they had no plans to offer products as 

mobile payments, consumer remote deposit capture, and electronic 

person-to-person payments within the next 24 months. 

Ms. Flynn next focused specifically on what CFSB is doing to 

reach the unbanked and underbanked explaining, among other 

things, that it currently offers online banking and bill pay, 

with the bank’s assets having increased 14 percent since 2009, 

despite a decrease of 15 percent in its in-person transactions; 

that the bank’s entry into mobile banking went live on 

November 1, 2011, primarily because it waited until there was 

some level of comfort with security; that the bank had, just the 

previous day, launched a website that incorporated a number of 

features that would, hopefully, benefit the unbanked, including 

online financial counseling; and that it offers translations for 

non-English speaking customers through an iPad application. 

Regarding future plans to reach the unbanked and underbanked, the 

bank has plans for launching a mobile website, remote deposit 

capability, implementation of a mobile application for merchants 

to process credit card payments, introduction of mobile online 

financial management alerts, international communication 

capabilities, and video conferencing. 

Mr. Galant began by advising that Citi has a presence in 106 

countries and consumer banking operations in 52 countries; that 

although approximately 81 percent of adults are banked in 

developed countries, only 28 percent are banked in developing 

countries; that Citi shares the Committee’s passion and sense of 

urgency around empowering consumers through financial inclusion; 

and that, in his opinion, mobile devices and the digital economy 

provide the means to commercially scale sustainable business 

April 26, 2012 
242 

models to reach out to the unbanked and underbanked in the United 

States and the rest of the world. He then advised that his 

presentation would center around three messages: that, although 

mobile payments can facilitate the mission of economic inclusion, 

economic inclusion is not an automatic result of such payments; 

that technology is important to the goal of economic inclusion, 

but it is not the complete answer; and that regulators need to do 

a lot more to prevent development of the shadow payments system. 

With respect to his first message, that enabling mobile is 

not the same thing as enabling financial inclusion, Mr. Galant 

pointed out that of the approximately seven billion people in the 

world, approximately five billion have a connected device; but 

that, despite the narrowing gap between the population and cell 

phone users, the gap between the banked and the unbanked is 

widening. He explained that while the ubiquity of mobile devices 

has led to a proliferation of technology companies that enable 

the mobile transfer of money, virtually all of the movement is 

within the same network because most of the networks do not allow 

movement of funds from one mobile carrier to another; and that, 

of the 70 million currently active mobile payment accounts, only 

about one percent can be appropriately characterized as bank 

accounts offering a full range of financial services. He 

suggested that if one onboards an unbanked consumer to a mobile 

financial money account with limited functionality and limited 

adherence to the Know Your Customer ("KYC") requirements of the 

USA Patriot Act, there is little opportunity to graduate the 

consumer to other products and services; but that, if one 

onboards an unbanked customer to a more bank-like financial money 

account with the same level of compliance with KYC requirements 

as one would for a typical bank account, there is an ability to 

introduce more transparency and to graduate the individual to 

more comprehensive financial services, including savings, and to 

include a financial education component. 

With respect to his second message that although technology 

is important to the goal of economic inclusion, it is not the 

complete solution, Mr. Galant noted that decreasing cost and 

increasing power is driving the growth in digital commerce, with 

the cost of internet access, dropping from $6,000 to $25 in 2011; 

the cost of a gigabyte of RAM, dropping from $3 billion in 1970 

to a projected cost of three cents in 2020; and projections for 

unlimited bandwidth, memory, and computing power within the next 

five years. He further noted that with compound annual growth 

rates for eCommerce and mobile payments of 15 percent and 123, 

respectively, mobile payments will be the fastest growing 

component of eCommerce flows, the reasons being that there are 

many more mobile devices and cell phones than there are personal 

computers and that mobile devices are much more powerful than 

April 26, 2012 
243 

personal computers in that they are always on and it knows who 

one is and where one is. He suggested, however, that despite the 

technological advances, banks need to demonstrate a great deal 

more leadership by partnering with nonbanks, such as members of 

the telecommunications industry that have the distribution 

capacity and expertise in connecting with customers, to develop 

sustainable business models to meet the goal of economic 

inclusion. 

Finally, with respect to his third message that regulators 

need to keep pace with technological advancements in the delivery 

of financial services, Mr. Galant advised that the explosive 

growth in digital payments has led to the evolution of what he 

termed a "shadow payments system," with various payments 

facilitators subject to inconsistent regulations and coverage. 

He stated that rather than giving attention to safety and 

soundness and compliance issues, payments facilitators focus on 

user interface and making the experience fun and easy for 

consumers, with the result being a graphical user interface and 

not a legally binding transaction. He, therefore, urged that 

regulators examine the rules for provisioning, storing, and 

accessing funds. 

A discussion followed, during which Committee members asked 

and panelists responded to a number of questions. Ms. Levere 

asked panelists what they envisioned a new pathway to financial 

empowerment might entail, in response to which Ms. Flynn noted 

that many customers, particularly young adults, no longer want to 

visit a branch to transact business and, therefore, she believed 

the pathway is electronic banking, which is also a very effective 

means of providing financial education; Mr. Galant reiterated 

that partnerships between financial institutions and members of 

the telecommunications industry, such as mobile carriers, cable 

companies, and satellite companies, would be critical to economic 

inclusion because financial institutions simply do not have the 

necessary distribution capacity; and Ms. Hogarth suggested the 

need to investigate strategies for using mobile devices to move 

beyond payments and transactions to facilitate saving and wealth 

building. Mr. Eakes asked for additional information on the 

mechanics of person to person types of transfers, in response to 

which Mr. Neale advised that there are different models, but one 

model involves the transferee providing the transferor with 

information such as an email address, the sharing of a secret 

that is meaningful to both parties, transmission of an email from 

the transferor to transferee containing a link to a website, 

where the transferee will enter his or her personal bank account 

information and the shared secret information, and ultimate 

settlement of the funds via traditional Automatic Clearing House 

procedures. Mr. Weicher observed that, according to the FRB’s 

April 26, 2012 
244 

Survey of Consumer Finances, the estimates of households without 

checking accounts has hovered around 12 percent since the early 

1980s, and asked why economic inclusion efforts appear to not 

have made much of a difference in the number of unbanked. Ms. 

Hogarth responded that there was a slight dip in unbanked 

households in the late 1990s to about 9 percent and that, in her 

opinion, the unbanked population tends to parallel the country’s 

economic activity. Mr. Eakes also asked panelists whether the 

explosion of mobile technology has any implications for the scale 

of banks that will survive, in answer to which Mr. Galant, using 

Citi as an example, acknowledged that the bank spent nine months 

and millions of dollars in its partnership with Google to develop 

the Google Wallet mobile payments system, and that such costs are 

prohibitive for all but the largest banks; and Mr. Neale, 

agreeing that the costs can be prohibitive, advised that he was 

doubtful that mobile technology, in and of itself, would have a 

huge impact on consolidation within the banking industry because, 

he hoped, vendors like Jack Henry will be able to effectively 

manage those large investments and leverage them out across 

multiple clients. 

The discussion also briefly touched on the issue of the 

shadow payments system and whether the funds circulating through 

the system are insured or uninsured. Mr. Galant advised that, in 

addition to concerns about the security of funds circulating 

within the system, there should be concerns about the vast 

amounts of personal data sitting in data centers where regulators 

have no ability to audit safeguards once the information is 

distributed outside of financial institutions. He stated that, 

in his opinion, the misuse of the data is potentially much more 

destructive than the loss of funds. With respect to the 

insurance issue, Mr. Miller pointed out that, if accounts are 

structured properly, funds underlying prepaid cards can be 

insured; Mr. Galant suggested that consumers likely are not 

knowledgeable about whether their funds are insured; and Mr. 

Miller advised that, if there is reason to believe that the funds 

underlying prepaid cards or mobile payments systems are not 

covered by deposit insurance, the FDIC will pursue vendors for 

false advertisement. 

Next, Acting Chairman Gruenberg, after thanking panelists 

for an excellent discussion, observed that mobile financial 

services raise a profound set of questions for financial 

regulation generally and the future of the payments system in the 

United States, as well as the particular issue of how best to use 

the potential of mobile technology to expand access to the 

banking system. He stated that, with the concurrence of the 

Committee, he would like to make that issue an ongoing priority 

of the Committee and advised that Professor Fuchs had volunteered 

April 26, 2012 
245 

to chair a subcommittee to focus on the issue; to develop a work 

plan to present at the Committee’s September 2012 meeting; to 

identity a set of research questions and, perhaps, a pilot 

demonstration; and to give thought to other ways the Committee 

could engage on the issue. Acknowledging the need for bank 

regulators to focus on the future of mobile banking and its 

implications for the payments system, he further advised that, in 

addition to the FDIC, the topic was of interest to the FRB, the 

Office of the Comptroller of the Currency, and the CFPB; that 

focusing on the regulatory issues associated with mobile payments 

from the perspective of expanding access to the banking system 

would be a very constructive contribution for the Committee to 

make; that Mr. Miller had agreed to staff the subcommittee; and 

that those wishing to volunteer to participate on the 

subcommittee should contact Mr. Miller. 

Acting Chairman Gruenberg then stated that, in addition to a 

report on progress related to the new subcommittee, he 

anticipated that the September 2012 meeting agenda would include 

follow-up on the Model Safe Account pilot, particularly with 

respect to what avenues are available to expand the number of 

institutions, both large and small, in the United States willing 

to offer accounts meeting those standards; a report on the 

results of the 2011 Household Survey which, by virtue of the 

FDIC’s partnering with the U.S. Census Bureau, would be conducted 

every two years; and a report on the results of the second FDIC 

Survey of Banks’ Efforts to Serve the Unbanked and Underbanked. 

Returning to the Model Safe Account pilot discussion, Mr. 

Murphy suggested reaching out to see how many financial 

institutions offer accounts with features similar to the model 

safe accounts that might also be worthy of interest to the 

discussion on economic inclusion. Acting Chairman Gruenberg 

stated he agreed with Mr. Murphy’s suggestion and that the FDIC 

would do so. 

There being no further business, the meeting was adjourned. 

Robert E. Feldman 

Executive Secretary 

Federal Deposit Insurance 

Corporation 

And Committee Management Officer 

FDIC Advisory Committee on Economic 

Inclusion 

April 26, 2012 
Minutes 

of 

The Meeting of the FDIC Advisory Committee on Economic Inclusion 

of the 

Federal Deposit Insurance Corporation 

Held in the Board Room 

Federal Deposit Insurance Corporation Building 

Washington, D.C. 

Open to Public Observation 

April 26, 2012 - 8:48 A.M. 

I hereby certify that, to the best of my knowledge, the attached 

minutes are accurate and complete. 

Martin J. Gruenberg 

Acting Chairman 

Board of Directors 

Federal Deposit Insurance Corporation