We weren't the only ones to take on Capital Bikeshare’s new plans to bring the unbanked into the city’s growing bike community.
Reuters finance blogger Felix Salmon also wrote about it this week. As we wrote in Monday's Big Fix, the D.C. system is trying to pioneer a program that would help residents who don’t have bank accounts and credit cards (and there are a lot of them) over the barrier of bike-share systems that require plastic currency.
Salmon is skeptical of the new partnership – "the fact is, however, that there’s not a lot to like here," he concludes – and he’s right to caution that banks generally don’t behave as altruistically as community institutions would when it comes to serving low-income city residents who are unbanked for a host of complicated reasons. Several of his objections, though, have been anticipated by Capital Bikeshare, and may be based on a misreading of how the system would work.
The point of the "unbanked" program isn’t to entice new customers into banks that may exploit them by dangling a $25 discount on an expensive bikeshare membership fee. Bank on DC members who sign up through this program will indeed get a $75 annual membership at the reduced rate of $50. But based on the experience of 99 percent of existing Capital Bikeshare annual members, this fee will cover the entire cost of a year’s bike transportation, because annual members aren’t charged a usage fee for rides shorter than 30 minutes.
The membership fee, in essence, doesn’t just pay for access to the system; it pays for use of the system for an entire year if – like almost all annual members – members only ever need bikes to commute across town for less than 30 minutes at a time. Users who have such annual memberships never have a $101 hold placed on their credit cards, as Salmon suggests:
It’s easy to imagine someone opening their first-ever bank account with United Bank, using their debit card to pay $7 for one day’s biking, and then immediately getting hit by some whopping overdraft fee because of that $101 hold.
These are all legitimate concerns. But the $101 hold applies only to people who purchase a 24-hour or 3-day membership, and this is precisely why the unbanked program gives access instead to what Salmon notes is the "most expensive membership." The annual membership is in fact both the most cost-effective for low-income residents and through this program comes with the least personal financial risk. Capital Bikeshare also plans in the new year to roll out something similar to the type of "layaway" installment plan Salmon suggests to spread the cost of the $50 membership over an extended time period.
Salmon also notes one other big embedded financial risk – the $1,000 charge that can hit a bike-share user who loses, steals (or has stolen) a bike from the system. Through the unbanked program, if a member winds up in this bind, a majority of that cost is instead shared by the program’s partners: Bank on DC, the participating banks, the District Department of Transportation and Arlington County. The program has tried to remove not just the barriers to getting a credit card, but also the holding fees and penalties that are equally a part of making bike-share systems work for everyone else.
Now, all of this isn’t to say that the promise of affordable bike access will lure hordes of previously unbanked people into their first credit union, when as Salmon notes dozens of other strategies have failed. He may well be right that we won’t see this happen in significant numbers. But for the District residents who do sign up, Capital Bikeshare has attempted to increase access to bikes while decreasing the financial risk that comes with participating in the system. (All of which is also to say, yeah, figuring out how to do this is really complicated.)