Incorporating a social mission into a for-profit business plan is a trendy idea, but it isn’t a particularly new one.
In 1923, the Amalgamated Clothing Workers of America started a bank with a clear social mission: to give working-class families in lower Manhattan—namely the Eastern European immigrants toiling in New York’s textile factories—a safe place to park their earnings. It was one of 30 or so labor banks in existence at the time, and one of the only to make it out of the Great Depression, thanks to its size and its focus on deposit-taking rather than lending.
The mission steered Amalgamated into pioneering areas of banking. “We came up with the first free savings accounts for workers, the first unsecured loans for working people, which is now called a credit card but was called an installment loan when we did it,” says Keith Mestrich, the CEO of Amalgamated since 2014. “We did the first financing of affordable housing in New York City, which ultimately became the Amalgamated housing project in the Bronx—it still exists today. As pension plans developed, we had one of the first platforms to help union pension plans.”
But operating a purpose-driven business, in any industry, is not without risks. At the start of the new century, a schism in the American labor movement resulted in Amalgamated’s first deposit outflows and clouded its mission. The New York-based bank suddenly became focused on opening branches, as quickly as possible, in poor neighborhoods underserved by traditional banks. It wasn’t a total departure for a company with a history of serving working-class customers, but it was, Mestrich says, an example of “mission creep,” and an expensive one at that. Combined with a series of bad lending decisions that depleted capital, the strategy landed the bank in trouble with regulators in 2011. Mestrich joined Amalgamated the following year to oversee its operations in Washington.
“We had to figure out what we were going to be. Were we going to be a labor bank nationally, were we going to be just a good old community bank, were we going to be the bank for underserved neighborhoods?” Mestrich says. “There was too much and we had to get it focused.” Within months of his arrival, Mestrich landed the Democratic National Committee as a customer. Today the company banks an array of politicians, political organizations, and nonprofits with social justice agendas; it is preparing to expand its role in impact investing and fair-market housing; and it is making a direct appeal to progressive-minded consumers who are skeptical of big banks.
Mestrich spoke with Quartz At Work about how Amalgamated rediscovered a sense of purpose and how it has reshaped the business. He also talked about the bank’s role in the fight for an increased minimum wage, his own surprising support of free trade, and the unusual challenge of banking clients who are often at odds with the bank industry. The following transcript has been lightly edited for length and clarity.
Quartz At Work: How would you describe the mission of Amalgamated Bank today?
Keith Mestrich: We are a left-of-center, changemaker bank. But we have a lot of missions—they’re the missions of all of our customers. And that’s pushing us to think about the products and services we have for meeting the unique needs of those customers. For example, state governors across the country are taking away the labor movement’s ability to have the employer collect the dues and remit them in a single check to the labor movement. So they’re having to revert to, literally, person by person, collecting dues—not exactly an easy task. So we’ve put a product together that takes very good field-organizing technology that political campaigns use to cut turf and figure out where their supporters are, with modern payments technology that allows organizers in the field to maintain lists, figure out who signed up for dues and who hasn’t, and then put people on recurring bank draft, debit card payments, or credit card payments—a very bespoke product for a very unique need that no other bank would figure out how to try and do.
But you are still a bank.
We are still a bank.
And people really hate banks right now.
Yes, people really hate banks right now. We know people hold the banking industry and bankers responsible for what happened in the 2008 crisis—and by the way, they should. And the banking industry has done very little since then to regain that trust, whether it’s the Wells Fargo scandal or the LIBOR scandal or the London whale scandal.
Do you find that you get a pass with clients because you’re Amalgamated, because you’re union-owned, and maybe not seen as being in league with other banks?
Sometimes. And sometimes we have to hit a higher bar because of a sort of purity test that we have to go through. Sometimes things that they would give a pass to other organizations on are things where there’s an expectation that we would do better. But sometimes we also get the benefit of the doubt. You see that maybe when there’s a problem with a transaction. Maybe sometimes we get a little bit of extra patience when a mistake happens and people know it’s an honest mistake.
And you’ve been able to use that good-guy image to your advantage in Washington.
One of the things we did in Washington was really make a book of business by banking Democratic political organizations. It’s been wildly successful for us. We do all the banking for the DNC but also the DSCC [the Democratic Senatorial Campaign Committee] and the Democratic Governors Association, a lot of the infrastructural organizations that are out there, lot of campaigns and super PACs. We were Hillary Clinton’s bank for her campaign. We’re lining up the policymakers who are going to bring forward a lot of the things that our social-justice clients really want to think about, so there’s nice cohesion.
Are campaigns good banking clients?
Sure. They give us a level of prominence, that we can say we’re so-and-so’s bank. The fundraising cycle is long now, so Senate campaign accounts are particularly good for us. They generate fees because they’re highly transactional, so that’s where a chunk of the business comes in. So yeah, it’s been good for us. And we just do a couple things that make the difference. One is, if you were to walk into another bank with your Federal Election Commission filings, nobody would know how to open an account using that. But we know it, so we can do it very well. Political campaigns like to wire money late in the day because they’ll fundraise [all day]. Most banks close their wire room at 3 o’clock or 4 o’clock in the afternoon. We keep ours open until the close of the Fed window for our political clients, so it gives them some more time to do some things—it’s not that big a deal, but it’s a service that is bespoke enough for those clients to give them what they need.
How do you think about mission relative to the consumer piece of your business?
Historically our business had been like every other community bank. We’d put in a branch and draw a circle around it and try to get as many customers from that space as we could. We’re migrating to really think about a national distribution strategy, which will be a digital distribution strategy. When we think about our customer base, it’s not a geographic customer base. It’s who our values-oriented consumers are.
We think there is a whole group of people who don’t want to bank with their usual banks; we want to be the alternative. Believe it or not, the URLs for MoveYourMoney.com and .org had not been bought by anybody. I would have thought after Occupy Wall Street, somebody, would have bought them—even just the trolls that buy URLs—but they were available. So we bought them and are using them to offer ourselves to people as an alternative.
There are also people out there who, when you ask them what they think their money does, they don’t know. And if you were to ask them, do you really want your money supporting gun manufacturers or the fossil-fuel economy, or do you really want your money going to a bank that supports candidates who want to de-fund Planned Parenthood, there are a lot of people who would say, “No, I don’t want that.” We’re starting to think about a campaign to let people know that we don’t do those things.
Where does Amalgamated’s mission start for you personally?
I grew up in a small town in South Dakota. My dad was a country doctor—he bought the practice when he returned from Vietnam. I went to college in Michigan and moved to Washington DC after I graduated. I wanted to get a job in government. I thought I might work on health policy; I knew I wanted to do something in the area of social justice. I answered a blind ad in the Washington Post to be a research analyst, and it ended up being with the AFL-CIO, to do corporate research in support of bargaining and organizing campaigns.
I had never thought about going to work for the labor movement ever, and I ended up getting the bug and finding that being able to be involved in direct action in support of people who were trying to improve their lives was a great place to be. And I did that in one way or another for 27 years. I was fortunate enough to become chief of staff at the union that owns the bank, and in 2014 they asked me to lead the bank. Finance really powers a lot of things, and if we could actually help our clients just do the finance and administrative work for their organizations better, I think they’d actually deliver better on their mission, whatever that mission is.
You were one of the first banks to raise your minimum wage for employees to $15 an hour. What kind of hit did you take, and was it worth it?
Totally worth it. The most prevalent job in the banking industry is a bank teller. So in the wealthiest industry in the country, we have armies of people who are being paid poverty-level wages. It was our clients who were leading the Fight for $15 campaign in the fast-food industry and other industries; in the sense that we are held to a higher standard, we needed to do this.
The reality is, we didn’t have to move that many people up, so there wasn’t that huge of an economic impact—we only have 420 employees, most of whom were already making more than $15 an hour. But now everyone has at least that, including all of our interns. And we challenge the rest of the industry to do it. It’s helped us attract talent and it really said to our clients that we don’t just say the things; we actually try to live our values. We try to do that on other things as well. We have said we will not use the bank’s balance sheet to support the fossil-fuel economy. And while we still have one legacy loan on our books that’s in that category, we will not use our balance sheet anymore to do anything that supports the carbon economy.
How do you feel about Silicon Valley and the new guard of entrepreneurs who talk about starting mission-driven businesses and doing well by doing good? Do you admire it? Do you worry for it? Do you see examples of it being enacted appropriately?
I certainly think they’re trying to make the world a better place, in their own definition of what that means. I do think that’s a good thing. And I think it’s interesting to watch what’s happening with people who’ve made enormous amounts of money, as they start to think about what they should do with that money and take their early steps into philanthropy. I sit on the board of the Democracy Alliance, which is a group of wealthy individuals and organizations that do philanthropic giving and political activism. There’s not a lot of Silicon Valley billionaires there. But I very much applaud them for thinking about the wealth that they’re creating and what it might actually do.
If I had any criticism of them, it would be this: I think the impact of their technology is incredibly disruptive on a number of existing industries or social norms, and I don’t think they’ve done enough to be part of thinking through the public policy solutions we need to have for this. They’re disrupting all kinds of streams of work, and we are so unready for that as a society. And I actually don’t think universal basic income is the solution—not in a modern, western economy. I think we need a public works program to actually figure out how to do this. And bankers should care about that, by the way. It’s a major economic issue.
How would you guess this plays out?
I am hugely concerned that one of two things can happen—either just that disruption will happen and we’ll have tons of people who will essentially be unemployed and we run the potential of going into a long-term malaise like Japan has done, or, two, that we will see what I’ll call the massive Trump effect.
Even though we only have 4.3% unemployment, a lot of people believe they’re only one little thing away from that job being lost. I think a huge piece of what Trump has done is that he’s tapped into this unease. So now you run the risk of having a really adverse public policy reaction that allows us to not reap some of the benefits of recent trends in technology and trade. I would argue that international trade is a really good thing. It lifts a lot of boats and keeps consumer prices low. And we may not be able to capture the benefit of that because we may have a massive reaction against it.
That’s not a position I would have expected from someone tied to the labor movement.
I used to argue internally all the time that we were just on the wrong side of it, that instead of arguing against the change and fighting against change, lean into the change and figure out how you organize into the new economy. It’s super easy for me to say that as a non-elected official in the labor movement; it’s easy to be above it. But I think part of the reason the labor movement has had its difficulties is they have not figured out how to organize in the new economy.
Let’s not make that same mistake again. Are we going to be an inward-looking country or are we going to be an outward-looking global citizenry that gets to take advantage of all this kind of stuff? I know where I want to be, I know where I think we should be as a country, but it’s scary for a lot of people, clearly. And now we have, because of that, elected the president we’ve elected.
You’ve started work on a book with Mark Pinsky, a longtime community-development finance executive. What’s the book about?
It’s basically about the power of organized money. If you think about our potential client base, and where it is right now, our money—which is power—is dispersed across the financial industry. It’s not concentrated anywhere. What if we actually thought about bringing that together?
Large banks are powerful voices in our economy. Why not figure out how to create a powerful voice in our economy using our own resources? If you begin to add up the resources that the progressive change-making movement has, it’s pretty massive.