Bringing financial services to the unbanked is quickly becoming big business in the United States.

According to Chicago-based The Center for Financial Services Innovation (in its May 2005 research report, "Retailers as Financial Services Providers: The Potential and Pitfalls of This Burgeoning Distribution Channel"), 22 million households in the United States are unbanked. And financial institutions and independents are trying to figure out how they can get a piece of the action.

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It's a good market to reach, says Will Sowell, general manager of CashWorks. "The underserved population … spends an estimated $10 billion annually on transactions such as check cashing, money orders, money transfers, prepaid cards and bill payments."

And Dave Grano, founder, president and chief executive officer of Oregon-based VERO - a financial technology company that is developing check-cashing methods to help FIs and retailers reach unbanked customers through ATMs - said the unbanked U.S. market is untapped. He added that the U.S.'s unbanked are "primarily" immigrants who "don't trust banks" and "find other ways to handle their funds."

Because FIs are fighting for ways to build their customer bases, the unbanked market offers potential for new growth. "Getting new incremental customers is very difficult for a bank because, typically, they're fighting for customers with another bank. There's not a gain (when an FI gets a new customer) because the customer is just moving from a different bank to your bank."

That's where VERO comes in. Grano's company has spent the last two years working on technology and solutions necessary to help FIs provide services that meet the needs of the unbanked.

His company also works with retailers, and for good reason. According to CFSI's report, the majority of the unbanked and underbanked are more likely to go to retailers for financial services. As a result, FIs have their work cut out for them in reaching the unbanked.

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Salisbury, Md.-based ESP Consulting Group found that only 52 percent of the U.S.'s ATMs are owned by FIs. The rest are owned and operated by independent sales organizations or retailers. "A fifth of ATM transaction volume growth, which represents 1.19 billion transactions and $2.4 billion in revenues, has been picked up by non-bank firms," the CFSI report noted. "This substantial growth in non-branch ATMs signaled a major turn in retailers' involvement in the provision of financial services."

That's a marked difference from the unbanked overseas. (Read also, Reaching the unbanked: Learning from South Africa's FIs.) In other parts of the world, FIs have spearheaded the effort to reach unbanked and underbanked populations. But in the States, alternative service providers such as check-cashing companies and retailers stepped up to the plate before FIs.

And there is a great deal of excitement about automated financial services at the retail level in the States, Grano said, which is why many companies are joining the force. San Francisco-based Swipe USA LLC, Burnaby, B.C.-based Info Touch Technologies Corp. and Louisville, Colo.-based Kiosk Information Systems Inc. are three such companies. But other companies also have jumped on the band wagon, including Tranax Technologies Inc., Pay-Ease Inc. and CashWorks.

What's Important The majority of the unbanked are black and Hispanic. The Hispanic population is the fastest-growing in the unbanked segment. Retail locations that offer services like bill payment and check cashing are preferred by the unbanked over banks.

"We're in the process of launching several projects in urban areas, but we can't talk about any of them yet," said Vijay Chattha, public relations spokesperson for Swipe USA. "I can say that overall we are coming at it from a retail standpoint. Basically, our goal is to bring dignity to some of those customers who are underserved or unserved right now. They told us they weren't getting service in the best places (from a security and fee-charging standpoint)."

Info Touch and KIS have partnered to develop solutions, such as bill payment and check cashing services, that reach the unbanked. It's a niche the two companies fell into, more or less, said Info Touch chairman and CEO Hamed Shahbazi.

"Phoenix was our original market, and it's a heavily Hispanic market," Shahbazi said. "Just by matching some of the services up with a demo, we were able to see what services were going to take off. … We were the first in the market to work with this segment of the population and that's where we're focused."

Prepaid products and bill-pay services were two offerings that took off.

Who are the unbanked?

Shahbazi said Info Touch and KIS's products specifically meet the needs of the Hispanic unbanked. But Jorge Fernandez, president and CEO of Coral Gables, Fla.-based Capture Systems LLC, disagrees. Fernandez, who spent last year working on a project to reach the unbanked in and around Miami, found that additional ATM options and check-cashing kiosks are not reaching the unbanked.

"The problem is that, as one unbanked customer put it, most of these services are designed by 'white folks' sitting in their air-conditioned offices," Fernandez said. "(They) focus more on the technology than on the actual service being provided. Most companies are focusing on automating the process, when in reality, that is not what the potential customer is looking for. They are looking for good, reliable and inexpensive service."

According to the 2000 U.S. Census, the majority is black and Hispanic. In fact, census figures show that 46 percent are black and 34 percent are Hispanic, and industry leaders like Shahbazi believe even those estimations are far too low.

In general the unbanked are people who have been ignored by FIs, so they've sought services like check cashing from other outlets. According to the United Financial Services Group, which operates 133 check-cashing outlets in 17 states, there are 13,000 CCOs providing services in the U.S. And according to the UFSG, they're cashing about $80 billion in checks every year.

Check-cashing outlets make sense for the unbanked, Fernandez said. Check-cashing kiosks do not. Companies that add functionality to a kiosk or ATM are wasting their money, he said.

"People in these communities have a network of retailers they know and trust. Even if they have to pay a little more, they know that Western Union is trustworthy, (and) it's a company they know. ... Also, these folks do not trust banks or technology back in their native countries, so why would they do it in a foreign land?"

Read also, Check cashing gets another chance.