STRATEGIC PARTNERS
ATMs are usually available only to bank customers. But some companies think it makes sense for the "unbanked" to get their cash at an ATM. by Ann All, editor
February 21, 2002
A bank customer visiting a nearby ATM to get cash probably doesn't feel like a member of a privileged club -- but maybe he should. Most ATMs are still off limits for the millions of Americans without bank accounts.
No one seems sure how many American adults don't have bank accounts, but financial experts agree the number of "unbanked" or "marginally banked" is significant. A 1995 Federal Reserve Board survey estimated 13 percent of the population, or more than 30 million people, didn't have checking accounts.
It's a lucrative market. Annual transactions in what economists call the "non-bank financial industry" amount to about $200 billion. Check-cashing services alone produce just over $1 billion in profits on $55 billion worth of checks.
Many of the "unbanked" are also government benefits recipients, a group that's garnering plenty of media attention because of the government's EFT '99 mandate to deliver most federal funds electronically rather than by paper check. According to the Treasury, 10 million benefits recipients lack bank accounts.
The EFT mandate is designed to reduce fraud and save taxpayers approximately $100 million a year. The government also believes electronic deposits will be safer and more convenient for most recipients.
The Debt Collection Act of 1996 authorized a new type of account for "unbanked" benefits recipients called the Electronic Transfer Account (ETA). The Treasury published guidelines for ETAs last November, proposing they be offered only at federally insured institutions, cost no more than $3 a month and require no minimum balance, among other features.
Groups as diverse as the Consumer Federation of America and the Electronic Benefits Transfer (EBT) Council have expressed dissatisfaction with the government's proposal. Final ETA rules aren't expected until later this year, but several companies are already lobbying for the business of the unbanked.
Directo Inc.
Atlanta-based Directo Inc. is introducing a debit card designed to appeal to farm and factory workers without bank accounts -- "just working people who don't have a checking account," said Directo executive vice president Jim Segars.
Directo debit cards could be used at ATMs and POS terminals, like any other bank card. Workers could withdraw all or part of their pay at an ATM. Fees will be charged for each transaction, but Segars said they will be less than what most check-cashing outlets charge.
Directo is marketing the card as a money saver for companies that employ "unbanked" workers. That's how David Stovall, vice chairman and CEO of Habersham Bank in Cornelia, Ga., plans to sell it to some of his corporate clients. He points out that a company with 4,000 employees "could save maybe $100,000 a year in payroll costs" by depositing workers' checks directly into either existing accounts or new Directo accounts.
Participating banks would split transaction fees with Directo, while gaining new deposits and using Directo as a selling point to attract commercial business. "There is no question this is a way to attract business customers," Stovall said.
Segars sees the card as a good way to introduce the "unbanked" to banking. "We want to see if we can't show them there are better approaches to handling money than carrying around large amounts of cash," he said.
Stovall believes accounts opened for Directo card users would be acceptable under ETA guidelines. "I think this is totally the kind of product that would fit with it (ETA)," he said.
Mr. Payroll
Fort Worth, Texas-based Mr. Payroll deploys automated check-cashing machines at locations like convenience stores and supermarkets, and even at bank branches.
Mr. Payroll, a wholly-owned subsidiary of Cash America International, started with manned kiosks at convenience stores in 1990. Responding to customers' requests for more private transactions, Mr. Payroll began developing an automated model in late 1996 and deployed its first prototype in June of 1997. Since then the company has deployed 85 machines in 19 states.
Banks, including Wells Fargo, Bank of America and First Union, have placed Mr. Payroll machines at off-site and some on-site locations. David Doremus, the company's director of public relations, said on-site machines solve the problem of "unbanked" customers waiting in teller lines to cash payroll checks.
While Doremus said the profile of a typical Mr. Payroll customer has gotten more upscale in recent years, he acknowledged that those without bank accounts remain the company's "core customer."
A customer using a Mr. Payroll machine gets touch-screen and audio prompts to enter his Social Security number. If a number isn't on file in the company's database, the user is prompted to pick up a telephone on the front of the machine. The call is routed to a customer service representative, who asks several questions to confirm a customer's identity. A computerized photo of the user's face is taken to help establish his identity for subsequent transactions.
Fees are charged for each transaction, ranging from 1.75 percent for a payroll check to 6 percent for a two-party personal check. The bank or retailer owns the machine, and Mr. Payroll splits transaction fees with them.
Consumer groups contend those fees are too high, but Doremus believes some customers could pay more for a bank account. "The fees associated with maintaining an account in which the balance doesn't rise above a certain level can be pretty punishing," he said. "For those folks, the fees associated with our solution can represent a savings."
Doremus may be right. According to the Federal Reserve Bank in Washington, four of every 10 "unbanked" Americans don't have enough money to open or maintain a bank account. Treasury survey respondents listed "not enough money" as the main reason for not having an account, followed by "don't need an account" and "bank fees too high."
Check Central, Inc.
Check Central, a wholly-owned subsidiary of the Greenland Corporation, installed its first automated check-cashing machine at a Santa Ana, Calif., food market for beta testing last month. In addition to check cashing, the machine handles money order purchases. Lou Montulli, chairman and CEO, said the San Diego-based company plans to begin delivering production units by the end of the first quarter.
Montulli said his company's kiosks may be a welcome alternative for those who are customers of storefront check-cashing outlets. The number of those outlets has more than doubled to about 5,600 since 1986. "By providing this type of a financial service at a grocery store or a c-store, we're going to bring a convenience to this customer they've never had before."
At sites where store owners have provided check-cashing services, Check Central issues its cards to customers with clean credit records. At a store with no existing accounts, a company representative is on hand for the first month to help customers fill out applications.
The machine scans a customer's first check but doesn't cash it. After a background check is conducted and a customer passes muster, he'll receive a Check Central card in the mail -- usually within 48 hours. Like Mr. Payroll machines, a phone can put users in touch with a customer service agent during a transaction.
Check Central charges 2 percent for cashing payroll checks and splits the fees with a store owner or distributor. Montulli contends that's not a bad deal for consumers, given the rising penalties for overdrawn checks at many banks. "When you start having to pay $20 or $40 for a bounced check and you do it a couple times a month, it no longer looks attractive to have a checking account."
Although initial government guidelines wouldn't allow benefit checks to be deposited at Check Central outlets, Montulli hopes the Treasury will rethink its stance. "We're certainly able to process that type of deposit as successfully as a bank can," he said.
7-Eleven Financial Service Center
The 7-Eleven convenience store chain just completed a successful pilot with Financial Service Center kiosks at 37 of its stores in the Austin, Texas area. Deployed by NCR, the centers offer a bevy of financial services, including check cashing, cash withdrawal, bill payment and Western Union money orders.
Margaret Chabris, 7-Eleven's public relations manager, said that while the centers were designed with the "unbanked" in mind, they attracted a more diverse clientele, including second and third shift workers who wanted to cash checks when they got off work.
Rob Evans, director of industry marketing for NCR, pointed out research indicates there's a striking demographic overlap of the "unbanked" and c-store shoppers. He said the overwhelming success of ATMs in c-stores suggests a similarly booming market for Financial Service Centers. "There's that initial realization that putting an ATM in a c-store is a good idea, but that thought has a second cousin. What if a c-store shopper doesn't have an ATM card?"
Customers seeking check-cashing services go through a one-time application process in which identification is scanned and transmitted to a customer service agent for confirmation. There's a sign-up fee of $2.50 and an additional charge of 1.75 to 6 percent to cash a check. Fees for other services vary.
Evans thinks most 7-Eleven shoppers are accustomed to paying for convenience. "It's kind of common knowledge that if I go to a c-store to buy a quart of milk, it's going to cost more there than at Kroger. Nothing's cheaper at the c-store," he said.
He added, "As much as cold beverages, snacks and tobacco products are convenience items, financial services may be a convenience item."
The centers were designed by Affiliated Computer Services and NCR, with an area for everyday transactions like cash withdrawals and check cashing and a separate area for more complicated services like processing money orders. Based around NCR's personaS-75 ATM, the hardware includes a money-order printer and a cash acceptor module.
Evans touted the flexibility of the personaS platform, comparing it to a PC that's configured for word processing, accounting, games and other functions. "You decide what you want it to do, spec it out and put the appropriate software on it," he said.
Chabris predicts 7-Eleven will roll out more of the centers. "We got the number of new customers we wanted and the number of transactions we wanted," she said. "With this hardware and software, eventually I think you could see even more services offered."
