Banks have long been looking to innovate in an industry that doesn’t change much and, in recent years, has been shrinking. Almost 1,900 bank branches closed in the U.S. in the years after the financial crisis between 2008 and 2013, according to data from Bloomberg News and the U.S. Census.
New York-based One Financial Holdings, founded in 2014, is a relatively new entrant to the expanding sector with the goal of providing financial services to an underserved market: lower-income communities. Those groups have been more severely impacted by bank branch closures, with 93 percent occurring in postal codes that had household income around or below the U.S. median, according to the 2013 Bloomberg report.
One Financial Holdings has created a mobile app service it calls Bee that offers online banking services meant to replace traditional checking accounts, and help people with low incomes pay less for costly fee-driven services, such as check cashing. The startup works in partnership with New York-based Community Federal Savings Bank, which is technically the custodians of Bee users’ funds, says co-founder and CEO Vinay Patel.
Bee already has a customer base in the thousands, Patel says, and One Financial Holdings is now seeking to sign up more by setting up booths throughout Manhattan, Brooklyn, and Harlem. The company is funding that effort, and further development of the app, with $2.65 million in raised in September from AXA Strategic Ventures, Fenway Summer Ventures, Blue Seed Capital, and previous investors Blumberg Capital, T5 Capital, and FundersGuild. The prior investors also contributed $1.9 million in an earlier round in 2014, which The Wall Street Journal previously reported.
One Financial created a mobile app, rather than a web-based online banking site, for two reasons. More people, even in lower-income areas, have access to smartphones today, and desktop or laptop computers are less common, Patel says. Building the entire service on a mobile app allows the company to limit costs, savings that Bee can pass along to customers, he says. By offering a mobile-only banking service, One Financial avoids the cost of brick-and-mortar branches.
One Financial charges fees for four of its Bee services, all of which its customers can avoid (usually by sacrificing convenience). First, it charges a $5.95 monthly subscription fee, which it deducts from the user’s account every month. But the fee is waived if the customer doesn’t have enough money in his account to cover it—unlike most banks, the company doesn’t allow overdrafts. That means customers can avoid the fee by transferring the money out of the account each month.
The most popular Bee service is one that allows a customer to almost immediately have access to the funds from a check when it is deposited, Patel says. Though most checks take a few days to clear, Bee allows customers to have access to the funds within 30 minutes if they pay a 1 percent fee, an attractive rate compared to the 2 percent to 12 percent fee that many check-cashing companies charge, he says.
One Financial also charges fees for making transactions in international currencies and for using ATMs more than twice a month. Since it doesn’t have its own ATMs, though, it does reimburse users for any fee the ATM owner charges on the first two transactions in a month.
Patel, a former McKinsey consultant, says another source of revenue for One Financial is the so-called interchange fee that Visa charges merchants when customers buy something using a Bee Visa card; Visa gives a portion of that fee to One Financial.
