Improving customers' lives through mission-driven lending
For more than 60 years, Sunrise Banks has been lending for positive social good. Based in Saint Paul, Minnesota, it claims to be the “world’s most socially responsible bank”. It’s a tall claim – but judging from the contents of its latest social impact report, one that it proudly lives up to.
In 2022, Sunrise's Twin Cities Road Crew toured Saint Paul and neighboring Minneapolis, helping nearly 150 teachers to deliver lessons in financial literacy and empowering 3,300 low-to-middle-income students with the confidence to save, spend and bank wisely.
Last year, Sunrise Banks provided US$1.245bn in loans including nearly $150mn to consumers – as well as $1.1bn to businesses and the third sector, including $25mn to affordable housing projects, $87mn towards economic development, and $186mn for the region’s small businesses. It is this local yet high-impact lending that is the driving force behind Sunrise’s mission as a responsible, community-driven lender.
What is Sunrise Banks?
“Sunrise Banks is a social enterprise that just happens to be a bank,” says Tyler Seydel, the company’s Chief Fintech Officer. He believes there is a “double bottom-line” component to everything the bank does. Of course there is the usual margin component, which allows it to remain profitable and sustainable. But more important is the mission component, which champions positive social impact through the products they offer.
While it’s easy to measure profits (many fintechs will know the feeling of seeing them eroded by the rising cost of doing business), how difficult is it to measure social impact? “You can measure it by way of some of our external manifestations,” Seydel continues. These include being a certified B Corporation as well as a Community Development Financial Institution (CDFI), which means the US treasury recognises Sunrise Banks for providing financial services specifically to low-income, underserved communities and those most in need.
The bank is also a Global Alliance for Banking on Values (GABV) institution – a benchmark that holds it to various standards in the provision of economic, social and environmental development. Community-mindedness and sustainable value are so ingrained to the way Sunrise Banks operates that staff get 40 hours of paid volunteering time every year and, in 2022 alone, the business donated almost $9,000 to various good causes during Charitable Giving Week as a result of employees’ own generosity.
“Sunrise Banks is very forward and active in putting mission with margin,” Seydel says. “That way, we can do sustainable good for our communities and our other stakeholders.”
Fostering fintech collaboration
Although Sunrise Banks is based around the Twin Cities Metro region, Seydel himself is based in Sioux Falls, South Dakota – where the business has a fintech partnership division. A graduate from Colorado Tech, he previously worked for Meta Payment Systems, where he says he faced an inflection point: choose to go down the client relationships and partnerships route, or pursue regulations instead.
He went after regulations – a decision that ultimately led to a career in regulatory compliance, joining Sunrise Banks in August 2012 and, following “opportunity after opportunity”, several senior roles in sales, operations and business development. He was appointed to his current role, Chief Fintech Officer, a year ago.
The fintech division at Sunrise Banks, which Seydel is now charged with heading up, is focused on fintech partnerships and creating opportunities for entrepreneurs who have conceived a way to lift up communities or make consumers’ lives better. “What we do in the fintech division is take those dreams and find a path to saying ‘yes’ – although we’re not the Make-A-Wish Foundation,” Seydel is keen to point out, stressing that there must be value alignment between fintechs and the bank’s own social mission and regulatory sustainability.
The bank runs the full gamut of collaboration – from pairing with fintechs who already have a product in the market and simply want another issuing or sponsoring institution, to co-creating from scratch with like-minded innovators who arrive with the seed of an idea in search of expertise to make it come to fruition. Alternatively, a third route might include the bank itself conceiving an idea that would benefit its customers and seeking partnerships that will enable it to facilitate that product launch. “Those are typically the three delivery channels in which the bank does fintech books of business,” Seydel says.
In order to understand what their customers need, Sunrise Banks needs to first know who they are. Thankfully, the organisation boasts a diversity of thinking; the bank’s 319 employees are majority female (55% versus 45%, to be precise), with almost a quarter (23%) coming from underrepresented social groups. The bank’s staff speak a wide range of different languages – from native American tongues such as Choctaw to world languages like Farsi, Mandarin, Amharic and Tagalog.
The need to identify with the bank’s diverse customer base is clear to see. Although the region is less deprived than Minnesota as a whole, there are still 270,000 people living below the poverty line – and there is a real mixed picture when it comes to poor and rich. It is a melting pot that neatly encapsulates the spirit of America, with lots of opportunity but also lots of wealth inequality. Sunrise Banks’ four retail locations, spread throughout Minneapolis, are strategically located in low-to-middle income census tracts to help the bank better serve its underrepresented customers. The Twin Cities region has plentiful graduate prospects too, with Sunrise Banks partnering with local universities on a successful internship programme.
Bringing affordable lending into reach
The core tenet of high-impact lending revolves around providing credit to as many customers as possible. Seydel puts it: “How can we take a product, have the lowest interest rate we can, and make it easy for them to repay so they don't even have to think about it? All they need to think about is what they're going to use that money for, and everything else happens on the backend without them needing to do a thing.”
One way the bank does this is by removing the need for credit checks in some products – which rely on an often-outdated snapshot of a customer's circumstances, and can marginalise those customers most in need of credit. If a borrower is in full-time employment and earns enough to be able to repay their loan, why shouldn't they be considered a safe debtor? Traditional credit checks, which have been accused of being outdated in the past, place surprisingly little emphasis on a borrower's earnings and instead focus on debt history and the promptness with which they repaid previous loans. In theory, a customer's financial situation could have worsened and their ability to repay deteriorated – but so long as they have repaid loans in the past, they are likely to be accepted by traditional lenders.
Sunrise Banks turns this antiquated process on its head. The effect is a suite of lending products that boost financial inclusion for the bank's customers and drive down the cost of referencing. “With credit checks, there's going to be a document; there's going to be some compliance risk there; there's going to be a need for us to capture consumer information for us to run them through and provide them disclosures,” Seydel explains. “If you can take that component and design a product without doing a credit check, and remove all that complexity, then you'll reduce the cost. That's what we did.”
So doesn't the removal of credit checks add extra risk? In short, yes. Seydel acknowledges that there is inherently more risk, but the bank takes measures to ensure a customer's ability to repay and guard against lending to customers who can't afford it. Credit files don't contain information about earnings anyway, so Sunrise Banks is focusing on a metric that it believes is more central to a customer's ability to repay.
“What you're doing is knowingly accepting a marginal amount more risk,” he continues. “It’s all about driving down the credit product cost, it's about inclusivity, and it's about creating an environment that allows people to participate.”
Doubling down on financial inclusion
One of the ways Sunrise may improve its credit decisioning in future is by utilising open banking, which will connect directly to a customer's bank account and provide a clearer picture of their incomings, outgoings, and transactional history. But that still stops short of a full credit check. It stresses that this would be to aid the impact of what it already does; and, as a social enterprise, it has no plan to compromise on its mission in pursuit of greater profit margins.
Seydel says: “When we start to talk about open banking, gaining access to that data will allow us to look at underserved communities and structure products that appeal to them. When you look at Sharia-compliant loans, for example, you can't have interest rates with those. So how does the bank go about ensuring that margin? For us, that's secondary to how we actually structure that product.”
Another way Sunrise Banks improves financial inclusion for its customers is by allowing all customers – regardless of their race or background – to have access to the financial system. The diverse approach it takes to its workforce is mirrored in the work that it does with its customers, including those who are most often excluded from accessing financial services. This includes migrants.
Some migrants, particularly undocumented migrants, may lack a social security number (SSN), making it difficult for them to bank, save and borrow. But Sunrise Banks has a purpose loftier than one person's immigration status, so they have created innovative ways to ensure they can still offer products and services to that customer. One product replaces the need for a SSN with an individual tax identification number (ITIN), which an undocumented migrant is more likely to possess. It's all about creating products that are tailored to unique demographics or customer groups, the bank says, rather than just being another rejection letter along the way. In turn, doing good creates a competitive benefit for the bank. “If those customers need to get a mortgage and they have an ITIN, there's nowhere else in the Twin Cities to go,” Seydel says. “You're coming to Sunrise.”
The challenges of today's economy
With much of the current debate about fintechs focusing towards profitability, Tyler Seydel believes that many of the integration partners they work with will switch from customer acquisition to customer retention. Instead of trying to recruit new users – and paying handsomely for the privilege – fintechs will instead seek to drive brand loyalty from the regular users they already have in their database. Incentivising them to use your product more, or spend more when they're on your platform, can be an incredibly powerful way of remaining resilient through a recession.
Banks will also have to adapt. When economic prospects worsen, it becomes more likely that governments will step in and provide assistance programmes for the hardest-hit consumers. This was the case in many countries, including the US, during the COVID-19 pandemic. “What we are doing as an institution is aligning ourselves more with government aid disbursements,” Seydel explains when asked how Sunrise is adapting to the bigger picture.
And as consumers feel the squeeze, their needs are going to change – and that is going to have to be reflected in the products that banks and lenders offer. A combination of recessionary economic forces, inflation, and bleaker job prospects mean that customers will require more small-dollar credit to tie them over between paychecks or welfare checks. It's also likely that, while their month-to-month requirements might remain low, some customers will require a greater frequency of credit – perhaps a few times a year, or at key holidays when funds are tight. Sunrise Banks' fair and low-interest model means it's ideally placed to assist customers in those circumstances without deepening customers' debt position.
“We are probably going to see a situation where some customers will need to cycle through some debt. They're taking out a product, paying it off, and maybe then taking out the product once again. We need to look at that and think seriously about whether these folks are becoming trapped in a cycle of economic conditions. What can we do to help them out?”
What's on the horizon for Sunrise?
In our conversations with Seydel, it's clear above all else that mission and purpose are the biggest motivations behind the bank's work. It goes without saying that, regardless of what the economy gives us, Sunrise will continue to prioritise its customers – championing financial inclusion, caring about people’s household budgets, and living up to its obligations as a socially minded business.
When he looks ahead, he can't help but reflect on a topic that has already made an appearance so far in our discussion. “Over the next 10 years, I think open banking is going to become a force in the United States,” Seydel predicts. “It's only going to continue to gain momentum. As you look at the state of globalisation, we'll be forced to deal with open banking or at least we're going to be seeing that as an opportunity.
“Then there's embedded finance. To most consumers, the idea of going into a branch is not an end-destination, it's a chore. When you pair those two together, that's going to be wildly powerful. Today, financial institutions have your information and they're in a position to know what you need before others will. In the future, non-bank platforms like Facebook might decide to vertically integrate and have their own institution. In that case, are they going to lower their prices in an effort to capture market share? Probably. Because there's a volume component there that's very real and true. I think we're going to see a lot of social platforms start to move into the banking space, because they already have that group of active users.”
When we think about the future of banking, it's easy to assume that will be branch-less. For many consumers it will. Technologies like open banking and embedded finance will empower more consumers to participate in financial services – and they won't need to visit a bricks-and-mortar branch to do so. After all, even in modern society, nearly 6mn American households are reported to be unbanked.
But contact-free banking doesn't work for all consumer groups, and the challenge for social banks like Sunrise will continue to be retaining a physical presence for customers that need it. That might include elderly customers or those without home broadband, which still number more than 20mn – or 8% of the US population – to this day. Keeping a branch open in a time of mass closures is not always financially viable, so alternative branch models – such as hubs or shared spaces – could signal the new era of in-person banking.
“We are looking at a branch of the future and exploring those options right now. We can't give too much detail because we're still in the exploratory phase,” Seydel teases. “But we're absolutely looking at what our lines of engagement look like for the future.” He mentions that this concept might include community spaces to draw in more people, or broader use of virtual tellers. Maybe you take the example set by embedded finance and situate mini-branches in establishments that customers still frequent regularly – like coffee shops or gyms.
The shared space model, which is being piloted in a number of regions already, raises the prospect that Sunrise Banks and all it stands for might one day be seen right next to some of the largest margin-driven lenders and big banks. So would Tyler Seydel be comfortable about the bank featuring side-by-side with one of the big boys?
“I would love if we had a shared banking space,” he effuses. “I would love it if people had the opportunity to understand the mission component of what we do, because getting that message out there can be tough. If anything, it would be a unique market study just to see how much our brand resonates. I guarantee, as soon as people start to understand our mission, they would pick us every time over one of the big banks.”
