The Challenge of Making Divvy Accessible to People Without Bank Accounts

Divvy on launch day: yellow light, wait
Currently, to unlock 300 bike-share stations, you need a credit card.

To use Divvy you must have a debit or credit card. Currently, there’s no way around that, so even though an annual Divvy pass is a bargain at $75, the system is unavailable for many Chicagoans. A significant share of city households — 12.7 percent — don’t have bank accounts, according to graduate research by Michael Carney at the University of Illinois at Chicago’s College of Urban Planning and Public Affairs. That translates to at least 135,000 people and perhaps more than twice that number, Carney’s demographic research indicates.

The Chicago Department of Transportation has set out to make Divvy more accessible to “unbanked” residents. CDOT’s strategy is to partner with organizations that can take on the liability of the membership and replacement bike costs, and to promote Bank On Chicago, a program run by the city treasurer in which banks reduce the barriers to opening a checking account.

CDOT Deputy Commissioner Scott Kubly says the agency has “talked to a few nonprofits and talked to a few churches” but that interest has been light so far. Making Divvy accessible to unbanked Chicagoans, he said, has been the department’s biggest challenge in rolling out the bike-share system. (The second biggest challenge: siting stations.)

One issue the organizations have had with the proposed arrangement, Kubly said, is the perceived risk involved. “I think it’s a question from shared liability standpoint, I think there’s some concern about that,” he said. “I think there’s a desire to see how it rolls out a little further.” Kubly pointed out that the department can focus more intently on the issue after the rollout of the first 300 stations this year.

After interning at CDOT in 2012 and helping to site bike-share stations, Carney looked into how other bike-share programs in the United States were engaging unbanked residents as part of his graduate studies. Carney reviewed the efforts of seven current and planned bike-share programs across the continent and produced a report [PDF] including strategies that CDOT has adopted.

Here’s how Carney summarized the three major recommendations to Streetsblog:

  1. Lower fees: Many of the bike share professionals I spoke to found that costs of membership were a barrier for many residents, so they offered annual memberships for a lower charge. The City should offer a reduced membership fee for people who qualify as low-income. This income verification could be tied to eligibility for other forms of public assistance, such as LINK or Housing Choice Vouchers.
  2. Hedge risk: Without a credit or debit card, unbanked bike-share members cannot be held accountable for bikes that are lost, stolen, or damaged when in their care. The City should establish partnerships (public and/or private) to subsidize the cost of offering reduced fee memberships and to hedge against the risk of losing bikes.
  3. Conduct proper outreach: The City should partner with bike advocacy and community groups to engage Chicagoans at the grass-roots level and educate them about the benefits of bike share and how they can join. Nice Ride MN in the Twin Cities works with non-profit partners to set up educational bike rides that take people on a half hour tour, show them what they can do with the system, and how they can sign up.

These recommendations have informed CDOT’s strategy. “I think all three of his recommendations are being implemented,” Kubly said.

Alderman Danny Solis (left) with ward residents on the Divvy ward ride. Photo: Alderman Solis's office.

The agency is talking to different human service providers — choosing to keep the names private — about taking on the liability for the bike’s replacement cost, promoting Bank on Chicago to increase the number of people with bank accounts, and talking to the Department of Child and Family Services to promote Divvy and banking among their clients. In terms of outreach, Kubly said that CDOT and Divvy staff have gone to meetings in Lawndale and Bronzeville, talked to teens at the Kleo community center, rode in the Bud Billiken parade, and conducted rides in the 3rd ward with Alderman Pat Dowell and 25th Ward with Alderman Danny Solis.

One development that may also play a role: Ventra could make Divvy accessible to more people because it provides a debit card without a bank account (the cards can be loaded with cash at designated retail stores). It’s too early to say whether this will make a difference for Divvy, but Kubly said CDOT has started conversations with CTA about how Ventra could be integrated into the Divvy system.

Updated 9-9-13 to add a photo of the Divvy ride with Alderman Solis.

  • Chicagio

    I’m kind of surprised that the cost of membership was listed so prominently as a hardship. $75 for virtually unlimited transportation is cheaper than any other mode of transportation besides walking. Perhaps a payment plan could alleviate this. (3 installments of $25?)

    Before reading this article I would have assumed the over-borrow and lost bike risks would be the largest difficulty. The over-borrow issue could be easily solved kind of like the cash balance Ventra card.

    The lost bike issue is a toughie. Can’t say i have any ideas on that beside simply transferring the risk to another individual/organization. (Side note… divvy has been pretty timid with releasing stats, i’d be really interested in know if/how many members have been charged $1,200)

    Solid article, btw.

  • Anonymous

    I wonder how may of the 135,000 unbanked live in the core Divvy area.

  • It would be great to see a well-heeled bike advocate step forward and offer a grant to underwrite the liability for unbanked Divvy memberships. Paging Colonel Pritzker!

  • Anonymous

    I’d also be very curious. I guess my guess is that no one has?

  • Anonymous

    Regarding the photo caption, aren’t there currently only 200 stations?

  • Fred

    To me, it is not unreasonable, in 2013, to expect people to have electronic payment methods.

    My curiosity is WHY people are unbanked. Is it a personal preference to use cash? Are people opposed to ePayment because they think Big Brother is tracking their spending habits? Is the barrier of entry to a bank account too great?

    For the first 2 groups, they can suck it up and deal with it. For the third group, the concentration should be on getting them banked.

    Its somewhat mind boggling that its even possible to go though life without a bank today. Can you really pay ComEd bills and car payments using only cash? You would have to do and pay everything locally, you can’t mail cash.

  • Anonymous

    The barrier of entry is too great for many low income workers who do not get regular paychecks. Sometimes, they can’t afford checking accounts because they don’t have minimum balances that don’t incur fees. Sometimes, there is actually no time of the day that the banks are open that they can get to them to open accounts. That there are no branches near where they live or work complicates the calculus of when when a low income wage worker could get to the bank to open an account. Sometimes a problem with a overdrafts with prior bank account means they can’t get an account, especially as banks have merged and carry their blacklists over to the new institutions.

    Sometimes, it’s a social conditioning barrier. Sometimes, their income is so low or so inconsistent, it’s just not worth having a bank account and making sure it’s not incurring fees and the like.

    There was a large comprehensive FDIC report on this about 4 years ago, http://www.fdic.gov/householdsurvey/2009/executive_summary.pdf; http://www.fdic.gov/householdsurvey/2012_unbankedreport.pdf; http://www.economicinclusion.gov/ The summary does not go much into the reasons why people people are unbanked but it was about 17 million adults in the U.S. who do not have bank accounts.

  • Anonymous

    I’m confused how Ventra or other prepaid debit/credit card options would mitigate risk of loss for Divvy. If I can anonymously purchase a Ventra card and load the non-transit account with $50, wouldn’t Divvy only be able to capture whatever funds are left when they decide to charge the $1200?

  • Much of this stuff is done through currency exchanges, which is why they are so common in low-income neighborhoods.

  • Fred

    Not being able to afford a checking account is a real issue.

    I find it hard to imagine that someone could at no point, ever, get to a bank one single time to open an account. These people have to be paying bills, in person, for things during business hours. Are they knocking on their landlord’s door at 3am to pay rent? I highly doubt it. Once an account is open, many banks have ATMs that accept cash deposits, so they wouldn’t have to go during work hours to make deposits. Is there really any place in the Divvy service area that isn’t walking distance from a bank? And once they have Divvy, it makes getting to a bank that much easier.

    So if you could find a way to waive the bank fees for low income individuals, wouldn’t that solve the problem for a significant portion of the 135k?

  • I think the answer to your question is “yes”. I presume the retail purse on Ventra works the same way as the prepaid debit card you receive when you sign up for AT&T DSL or some other promotion.

  • Thanks for the answer, @Lizzyisi:disqus.

    Carney’s research was based in large part on the FDIC report from 2009. FDIC updated the report for 2011, as required by law to update it biennially.

  • Yes, there are, and there will be 300 by the end of the month.

  • With Carney’s maps, it would be easy to count this. I’ll suggest it to him.

  • You can pay bills by mail if you buy money orders from currency exchanges (24hrs) … paying the currency exchanges fees for doing so, of course. And if you don’t have the money now but will in two weeks when your boss gets back to you, you go to the payday loan place down the block for cash to give to the currency exchange, etc. Landlords usually accept rent by mail or put under their door. Do you pay your landlord electronically? I’ve never had one who let me.

    Being unbanked is really expensive, but being banked isn’t a simple, inexpensive breeze either, especially if nobody in your family has ever had an account and/or you’re not very familiar with them.

    Swing-shift jobs, or even just working two jobs (with no bank near enough to get to on lunch or a break) can easily let you out of all potential walk-into-a-bank hours. There are also wide swaths of Chicago that are very inconvenient to any ATM, much less the specific one for your bank (I used to live on the West Side, and it was over a mile to a Chase ATM in any direction — luckily I was going downtown regularly and they’re all over there).

  • Anonymous

    In the last few years, prepaid debit cards from companies like GreenDot have become quite popular and are a good alternative for people who do not have bank accounts. Getting a card is very easy, they’re sold at places like CVS and the fees aren’t unreasonable.

  • Yeah, but if someone has $50 on it and their Divvy gets lost, what does Divvy do to recoup their $1,200? You can’t overdraft a prepaid card.

  • Anonymous

    Good point…I dont know. Dont they put a $100 hold (or something like that) on your account when you buy a 24 hour pass?

  • I dunno. If so, does that mean you have to keep a $100 balance on your card at all times if you want to take out a Divvy? Minimum balances again.

  • Anonymous

    Yeah…I dont know if there’s really any great solution here, some people are just priced out of Divvy.

  • Anna Schibrowsky

    I worked a steady retail job with a guy who was unbanked. We even had the option of direct deposit, but he would take his check to a Currency Exchange each pay period and accept the 10% fee for cashing his check. I encouraged him to get a bank account, since it takes a lot of overdraft fees to exceed 10% of your paycheck. I don’t know if he ever did; it wasn’t my business to insist upon it. There are plenty of programs like Bank on Chicago encouraging people to set up bank accounts, but, like Elliott says, if you’re not familiar with having a bank account, it’s hard to understand the benefits of the change.

    Personally, I switched my personal and business checking from Chase to a smaller community bank to avoid the monthly fees. When you’re charged a fee unless there’s $4,000 or more in your checking account, that says to me that Chase checking is only for the extremely privileged.

  • Anonymous

    It still dumbfounds me that we teach all sorts of things in schools but financial literacy is not one of them.

  • Fred

    This is an example of someone I would have no problem telling that they must open a bank account to use Divvy. You might actually be doing him a favor!

    People with legitimate issues (highlighted by others in this thread) are the people that we should be concentrating on accommodating.

  • HJ

    Never going to happen. Who in their right mind would take on the liability for the potential theft of 4,000 bicycles at $1,200 a pop?

    The only way I see this ever having a chance at happening would be a system registered with State Identification, allowing DIvvy to contact the authorities if a bike goes over the time limit. But where does the line get drawn? 24 hours? 1 hour? 1 minute? How would Divvy recoup the missed overtime fees for someone who actually returns the bike, albeit 20 minutes late? Chicago doesn’t have the man power to deal with bike thieves and delinquent payments.

  • N

    Let’s assume everyone wants the best cash management system they can access, and that traditional banking systems aren’t available to everyone, either due to fees, geography, lack of knowledge, and/or lack of decent credit. [You can, by the way, pay all of your bills via money order and/or cash. It is not overly convenient, and is generally more expensive than traditional banking, but lots of people do it, particularly folks paid in cash to begin with (i.e. construction laborers, restaurant staff, etc.)]

    Additionally, while I agree about the cost-effectiveness of Divvy (if you leave and/or work near multiple stations) $75 upfront IS an obstacle for many low-income folks. Maybe they could offer an annual membership where you paid every month instead of all at once?

    I think working with the credit unions that are working on this issue to get the unbanked banked would be a good start – maybe those institutions could help figure out how to manage the risk of loss for people without credit cards?

    Right now, since divvy isn’t in the poorer City neighborhoods very thoroughly, if at all, this may be kind of a moot point. But we should recognize the limitations of divvy really being accessible to everyone.

  • Chicagio

    I guess the thing that puzzles me (and maybe this is my own ignorance) if a one time fee of $75 is problematic (or perhaps 3 installments of $25), then what other transportation system could these folks possibly be taking that doesn’t require that menial of investment.

  • The issue isn’t the cost for a whole year (which is usually higher), it’s having that large a chunk of change available and not already earmarked for other household expenses. In a household that empties its reserves every paycheck, there is no flex whatsoever, and buying bus fares $5 or $2.50 at a time is doable in a way that paying $75 all at once (or even $25) may not be.

    Terry Pratchett had a character named Sam Vimes monologue about his boots, which is the same problem, thusly:

    “The reason that the rich were so rich, Vimes reasoned, was because they managed to spend less money.

    Take boots, for example. He earned thirty-eight dollars a month plus allowances. A really good pair of leather boots cost fifty dollars. But an affordable pair of boots, which were sort of OK for a season or two and then leaked like hell when the cardboard gave out, cost about ten dollars. Those were the kind of boots Vimes always bought, and wore until the soles were so thin that he could tell where he was in Ankh-Morpork on a foggy night by the feel of the cobbles.

    But the thing was that good boots lasted for years and years. A man who could afford fifty dollars had a pair of boots that’d still be keeping his feet dry in ten years’ time, while the poor man who could only afford cheap boots would have spent a hundred dollars on boots in the same time and would still have wet feet.

    This was the Captain Samuel Vimes ‘Boots’ theory of socioeconomic unfairness.”

  • planetshwoop

    One detail that is absent from this discussion is the huge amount of paperwork required to open an account. Blacklist or not, one requirement is government ID and a SSN. (It’s not technically a requirement, but de facto is because of tax reporting required by banks.)

    That would be barrier for many I expect.

  • planetshwoop

    One idea that might work (and I haven’t seen in these discussions of the unbanked previously) is the concept of creating a small fee to pay into an insurance pool to cover the losses. This is how pension insurance and the FDIC work.
    The idea would be that each time someone buys an annual membership or a daily rental, a small portion of the rental fee goes into a “trust fund” that could be used to pay out for bikes lost due to the unbanked. One there is a promise of funds, ie future cashflows, it’s easier for a govt agency or even bank to loan against the anticipated money. It also alleviates social organizations having to put up money for their members.

  • Tom Hagglund

    From informal conversations with unbanked co-workers at various jobs, my impression is that an aversion to traditional banking often stems from avoiding putting one’s earnings in view of creditors (particularly ex-spouses) and the tax man. Staying in the shadows of a cash-only economy can be useful to some.

  • Fred

    So this whole conversation is about aiding tax evasion?

    I still say if you are unbanked by choice, not due to other hardships (eg, the above) then too bad for you with Divvy. Open an account and put minimal money in it if you want to use Divvy.

  • Anna Schibrowsky

    According to the FDIC’s 2011 report on the unbanked, only a third of never-banked households and a quarter of previously banked households choose to be unbanked.

    Here’s a chart from page 27 of the report, which is available at http://www.fdic.gov/householdsurvey/2012_unbankedreport.pdf

  • Anonymous

    It’s simply not true that someone in a city like Chicago cant open a simple checking account because they dont have enough money. Maybe in some small town, but not in a city like Chicago. When they cite this as a reason, presumably they do so because they think the banks have balance minimums they cant meet, or that the flat fees are too burdensome given the size of their account.

    Many banks offer checking accounts with little or no balance minimums and no monthly fees. Are there catches? Sure. You might not get hit with fees for using another bank’s ATM, or you might not earn any interest, or you might need to make a certain amount in monthly deposits, the bank might not be right down the street from you, etc. But look, when you’re not a profitable customer for businesses, whether they’re banks or otherwise, you cant expect them to cater to your every convenience. First American Bank has a great product for low income people. TCF’s is good and so is MB’s.

    I think many people who cite “not enough money” as a reason are oftentimes being disingenuous about it, and honestly I suspect a good portion of them just dont feel like bothering educating themselves for a variety of reasons, some legitimate and others not.

  • Anonymous

    Divvy doesn’t put a hold on your account when you buy a 24-hour pass.

  • Anna Schibrowsky

    In the survey, there were separate items for “Do not have enough money” and “Bank account fees or minimum balance requirements are too high.” “Do not have enough money” was the top reason, while “Bank account fees or minimum balance requirements” was only the reason for 4.0% of “never-banked” and 7.1% of previously banked households.

    “Do not have enough money” likely means different things to different survey respondents. For some, it might mean they are living payday to payday and don’t accrue “enough money” to justify setting up a bank account. For others, it could mean they rarely have the minimum amount required to open an account. For my bank’s free checking, the minimum is $100. Michael Carney’s #1 recommendation in the OP is to reduce the $75 membership fee for low-income people. If the $75 fee is a barrier to entry, a $100 deposit may be, too.

    Interestingly, “Banks do not have convenient hours or locations” was only given as a reason for not having an account by 1.5% of “never-banked” and 1.4% of previously banked households, but “The place is more convenient” was the primary reason for using non-bank check-cashing (51.8%) and non-bank money-order (54.7%) services. People don’t not have bank accounts because banks are inconvenient, but they do use alternative services because they are more convenient. Once they’ve identified viable alternatives, their perceived value of bank accounts is likely reduced.

    Certainly some people are misinformed about the availability and costs of banking services. Giving their primary reasons for using non-bank alternatives, 2.4% of unbanked households indicated “Banks don’t cash checks,” and 2.0% indicated “Banks do not sell money orders.” Banks and programs like Bank On Chicago need to do a better job educating and correcting misinformation. People need to be willing to learn, but we can’t put the entire onus on them to learn what they don’t know they don’t know.

  • Some banks run credit checks before opening a checking account and deny it on this issue. They will likely issue you a savings account, though, which only comes with an ATM card and not a card that can be used as debit/credit.

  • I like this idea. It could even be run by Alta Bicycle Share, Inc, to share losses amongst all cities where they operate bike-sharing systems.

  • Thanks for sharing this story. I hadn’t heard of this particular version of the theory (Vimes boots), but I’d heard of the general concept.

  • Divvy already offers $10 discounts to corporate memberships and the corporation is invited to pay the whole or a portion of the employee’s membership.

    It seems that Divvy can extend this discount to other member types and it doesn’t seem unreasonable to set up a “three installments” system except that installment systems usually begin after some kind of credit check.

    It appears that Kmart’s layaway program doesn’t run credit checks, but has a $5 fee.

  • I particularly like Mr. Pratchett’s formulation, to the point that this issue is “the Sam Vimes’s boots problem” in our household idiolect.

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