If you’re tempted to believe that a bank is just a bank, don’t. You may have heard of socially responsible investing, the practice of putting your money where your morals are, but what about banking? Is there such a thing as a socially responsible bank? We are here to attest to the fact, there is.
What is a Socially Responsible Bank?
We get it. Banks are in business to make money. Typically, banks look at the world through a financial lens. When a customer comes in hoping to borrow money, the only thing the bank is worried about is how likely that customer is to repay the money with interest. The bottom line is king.
Have you ever asked yourself what your bank does with its money, ever wondered if profits go to fund practices you don’t believe in? If your answer is no you may want to give yourself a little grace. It wasn’t that long ago when the only banks available to us were brick and mortar, and as far as they were concerned what they did with their money was none of our business. But today, you have options. There are, literally, hundreds of banks you can research online, hundreds of organizations you can vet.
Many of these banks are purposefully socially responsible. Rather than strictly relying on financial information, instead of looking solely at the bottom line when making a decision, these financial institutions take a deep dive into the types of enterprises they loan money to. They work hard to avoid loans to individuals and businesses with a history of hurting their community, other people, and/or the planet.
While it sometimes seems as though the 1% rule the planet, there are still socially responsible banks that would rather use their money to improve the lives of everyday people, even if it leads to less profit.
Edelman, a communications firm that assesses how people feel about industries such as finance, recently released its annual Trust Barometer. What they found is that many people are still suspicious of financial institutions, even though the economic crisis of 2008 took place over a decade ago. No one seemed to be surprised when scandals emerged from big banks like Wells Fargo or Bank of America. It was as though people expected the worst. The younger the person surveyed, the less they trusted financial companies. In fact, less than 30% of millennials surveyed consider banks fair or honest.
There is no doubt that the reputation of the financial industry has taken a hit and people are looking for a new kind of banking experience. Into this gap has emerged institutions like Aspiration, a Los Angeles-based online bank. Launched less than five years ago, Aspiration Bank was recently named to The Most Innovative Social Good Companies List by Fast Company.
Aspiration’s CEO, Andrei Cherny, believes that there is a fundamentally broken relationship between people and their banks. After all, the general public has been counting on their local bank for generations. Perhaps it was naive, but customers seemed to believe that their banks would be faithful to them by putting their best interest first.
When it became clear that banks were primarily interested in their own interests, it made room for banks like Aspiration, financial institutions committed to being socially conscious and customer-centric.
To put this in perspective, the world’s largest banks invested nearly $800 billion in fossil fuel projects like coal mining and tar sands exploration over a recent 3-year period. There is no denying that such investments can be profitable. There is also no denying that both projects harm the environment in irreparable ways and contribute to climate change.
Aspiration, on the other hand, is a fossil fuel-free institution. Could they make more money if they invested in fossil fuels? It’s possible. The point is, banks like Aspiration have committed themselves to doing the right thing even when it’s the hard thing.
Customer Service
Being a socially conscious company does not mean that customer service falls to the wayside. In fact, socially conscious financial institutions know that they have to be better at customer service than the average bank. If they’re not going to make money through ethically questionable investments, they must make a profit in a different way. For Aspiration, that different way is through enhanced customer service.
For example, Aspiration Bank offers high-interest banking services, no fee IRA’s, a host of sustainable investments, and a large menu of other banking products. All they ask is that their customers pay them what they think is fair. Say you invest $50,000. The online bank allows you to decide how much you’re going to pay them for managing your investment. It can be as much or as little as you feel comfortable. When it comes to bank services like wire transfers, customers pay only what the bank pays to provide the service.
Aspiration has faith in their ability to provide the kind of customer service experience that will inspire their customers to compensate them fairly, and according to Cherny, customers do. He says that it’s a matter of treating people fairly and watching them return the favor.
Investing
More than 1/3 of young adults claim to save at least 10% of their salary each month. However, these same young adults (between the ages of 18 and 39) say they’re afraid of investing in the stock market. When they do invest, they are more likely than older investors to seek out socially responsible investments.
Banks like Aspiration make their investment goals and strategy crystal clear, helping to avoid ambiguity. For example, they won’t invest in a company that produces or promotes firearms, but they do look for companies with great environmental, social and governance (ESG) scores. The kinds of investment products that were once available to the rich are offered for a $100 minimum investment through their bank. Further, 10 percent of Aspiration Bank’s revenues are donated to charitable causes, a fact that can make customers feel even better about their decision to bank with them.
Is This for Real?
The question, of course, is whether a socially responsible bank can hope to compete with the big dogs, the banks who will do or say anything to make a profit. One of the driving forces behind many socially responsible banks is the idea that the more consumers learn about the power of their finances, the more likely they are to turn to a financial institution with values that mirror their own. Although most traditional banks would never consider removing fees or donating money to charitable causes, banks like Aspiration have found that it makes them competitive.
Their customers are simply a different breed. The person who supports a socially conscious bank tends to be the kind of consumer who refuses to shop at a store known for paying their workers poorly or to make purchases from a company known to harm the environment.
Although Alliance is a good representation of how a socially conscious bank operates, they are not the only players on the field. For example, an organization called the Global Alliance for Banking on Values is made up of 54 financial institutions and seven strategic partners operating in countries across North America, Asia, Africa, Latin America, Australia, and Europe. Collectively, these financial institutions serve nearly 50 million customers and hold nearly $164 billion USD of combined assets. During a time when many mainstream financial institutions have been rocked by scandal, these socially conscious banks with progressive values have flourished. It appears that customers are looking for a financial institution that shares their commitment to a better world.
Benefits of Socially Conscious Banking
- You know where your money is going. Not only are you able to help support causes you care about but you can avoid contributing to projects you don’t believe in.
- Like a traditional bank, your deposits are FDIC insured up to $250,000, allowing you to sleep easier at night.
- You save money by paying lower bank fees and earning higher rates on deposits.
- You feel good about what you’re doing. Rather than just wishing you could make the world a better place, you are able to become part of the solution. In addition to taking part in the bank’s investment strategies and charitable contributions, some socially conscious banks will make donations on your behalf, based upon how many debit card transactions you make.
It can be easy to forget that consumers hold the cards when it comes to social issues. Deliberately withholding money from institutions they no longer trust and investing in a way that benefits their fellow man is a good way to flex their collective power.
Dana George-Berberich is a freelance reporter and novelist. She has written finance articles for newspapers across the country and for companies like Dun & Bradstreet and Bankrate.
