Can Dora Help Credit Unions Find A Foothold For The Future?

Two years ago, USALLIANCE Financial ($2.0B, Rye, NY) CEO Kris VanBeek sent an early morning email that would change how the credit union and possibly the industry serves financially vulnerable members.

“What is Chime?” he asked the credit union’s chief technology officer Kevin Randall.

Part of that question was easy to answer. Part of that question was not.

On its face, Chime is a San Francisco-based fintech that provides fee-free mobile banking services and issues debit cards. It was founded in 2013 and was valued at $1.5 billion in early 2019. By the end of 2019, it boasted 3.3 million account holders nationally.

Why Chime resonates with millions of people required deeper reflection from Randall and his technology team.

Credit unions offer checking accounts, savings accounts, IRAs, HSAs, CDs, auto loans, mortgages, HELOCs, credit cards, personal loans, and lines of credit through branches, call centers, ATMs, and digital channels. That’s a complicated mix of products and delivery channels.

“It’s hard to have a consistent, high-quality user experience for all those products across all those channels,” Randall says. “The member experience is where Chime succeeded. It picked one product: checking. It picked one channel: mobile. And it got them perfect.”

That focus resonated with Randall.

In 2015, USALLIANCE’s board of directors asked the credit union to concentrate more on the needs of the unbanked and underbanked, specifically related to financial health. That same year, the credit union assumed the assets, shares, and most loans from the $12.2 million Bronx-based Bethex FCU. According to U.S. Census data, 85% of Bronx residents are either Hispanic or Black; the median household income of $41,400 is less than two-thirds that of New York state’s $72,000; and 26.4% ofresidents live below the poverty line, more than double state and national rates.

As Randall learned more about Chime and its nationwide popularity, something occurred to him.

“As we started to conceptualize what we could do, we realized our efforts to serve the unbanked and compete with Chime were not mutually exclusive,” Randall says. “They can be the same thing.”

Unfortunately, the credit union’s actions to date were not working to serve that purpose.

“We realized we were turning away potential members because they didn’t qualify for a USALLIANCE checking account,” says Kristi Kenworthy, the credit union’s former assistant vice president. “We were basically referring them to alternative banking options, including neobanks. Why couldn’t we have our own solution?”

The Credit Union Neobank

USALLIANCE set out to build a solution that would make a difference for its Bronx-based members, but it also wanted to make a difference beyond its own field of membership and reach into the lives of the more than 60 million unbanked and underbanked Americans.

“We wanted to make a bet on upward mobility,” Randall says. “We wanted to provide a service to individuals who were either excluded from the banking system or excluded themselves.”

The credit union spent nine months building a custom back end, naming its solution Dora after credit union pioneer Dora Maxwell. For the front end, USALLIANCE partnered with BankingOn.

“Chime set the standard for user experience,” Randall says. “It made us up our game.”

Consequently, Dora has a slick design and easy-to-use functionality. It also has native, best-in-class Spanish-language capabilities.

“Advertising, website, app, onboarding, emails, disclosures, text messages we had to get the Spanish right,” Randall says. “And we did.”

Dora, the mobile-only application through which new users can open a fee-free checking account, which cannot be overdrawn, that comes with a debit card, went live in August 2020.

Users register for the app, USALLIANCE runs the necessary KYC processes, and in real-time an account and card are created.

“It’s fast,” says Kenworthy, who has been the managing director of Dora since January 2021. “We think it rivals the experience you see with Amazon, Uber, or any of the other apps people might be accustomed to using today.”

Within the app, users can easily set up direct deposit, set pin controls, freeze and unfreeze their card, and even fund their account through remote deposit capture. Digital issuances and virtual cards are coming next. There is no minimum balance and no monthly fees. The account is insured by the NCUA up to $250,000, and users have access to a network of surcharge-free 30,000 ATMs. These benefits helped Dora receive a national certification for financial empowerment in February 2021 through Bank On Boston.

“We built a response to Chime,” Randall says. “But to do it in the spirit of the cooperative movement, creating a product accessible to everyone, regardless of history or language or past trust issues, is exciting.”

For the first year, USALLIANCE did little to market Dora. The app was available on the app store, where it gained users organically. Those users helped the credit union prioritize updates and organize its developmental roadmap for example, adding an international payment option to keep users from sending money through Western Union or MoneyGram.

Today, USALLIANCE is marketing Dora with industrywide aspirations.

“We had a feeling we were onto something,” Randall says. When we asked ourselves, “Is this product bigger than us? We felt pretty comfortable with the idea that it was.”

The Future Of The Industry?

The liquidation of Bethex FCU, which was an active community cooperative, is a sad story for the credit union industry. It’s also one data point in a larger trend of industry consolidation. Between fourth quarter 2015, when Bethex FCU was liquidated, and today, the industry has lost approximately 1,000 credit unions.

There are a variety of reasons for this consolidation, but what’s clear is that it’s often prohibitively expensive and challenging to operate a credit union especially one with a narrow field of membership or without economies of scale. That reality got USALLIANCE thinking.

“Is there a way to offer Dora to other credit unions?” Randall asks. “Could it help them serve members in their own way? Could it help retain some of the rich diversity in the movement?”

The credit union isn’t sure. But it’s not ruling out the possibility.

“There’s something intriguing about having a credit union plug into this digital solution and no longer need to expand physically in a way that isn’t sustainable for its business model,” Randall says. “In the long-term, we’d love to say Dora is the credit union industry’s neobank solution.”

Although USALLIANCE owns the technology, the credit union sees an opportunity to partner or even split ownership in a CUSO with other credit unions to build out a network of hundreds or possibly thousands of cooperatives. To that end, the industry’s willingness to cooperate will prove valuable; as will the fact that through Dora credit unions won’t compete against one another they’ll compete against Chime, which now has 12 million customers, and other major banks to serve the 67 million Americans who are un- and underbanked.

“It’s not about recutting slices of the same pie,” Randall says. “The pie is getting bigger.”

USALLIANCE is excited about the future and Dora’s potential. Getting the technology right was the first part. That credit unions are already on the existing payment rails and already have lending authority will make adding deeper functionality to Dora easier. And adding credit unions to Dora’s network might help the industry curb future consolidation as well as set a stronger standard for service.

“If we don’t change as an industry along with consumer expectations, demographics, tastes, and preferences for new products and digital delivery, we’re no longer going to have a seat at the table,” Randall says. “The idea that we can band together as an industry with our own fintech to bring more members into the credit union fold is a radical and exciting concept.”