Article

ATMs and the unbanked: an emerging convergence

Un- and underbanked Americans pay $45 billion a year in fees; the ATM industry is figuring out how to claim its share.

April 19, 2012 by Suzanne Cluckey — Owner, Suzanne Cluckey Communications

A recent report by Javelin Strategy & Research revealed that one in six members of Gen Y have chosen to join the ranks of the underbanked. Why? Because on any day, they can walk into any one of 7,847 Walgreen's stores (among others) and, for $4.95, purchase and load a Green Dot card, which they can then use just like any bank-account connected debit card at any ATM or retail outlet in the U.S.

"It's a transactional product; you can get it instantly," said Arjan Schütte, principal and general manager at Core Innovative Capital, a firm that seeks out and invests in promising technologies for the unbanked. "You can pick up a card, go to the cashier, give them $20 plus a couple dollars to buy and load the card — and you're off to the races."

Schütte said his investment firm is interested in the prepaid market as a means to reach the unbanked. "We think that prepaid as an instrument can serve as an alternative to what, to this customer, is an expensive checking account … we think it can be a growing market of people who are interested in these types of products."

But prepaids are not a perfect solution for the un- and underbanked. Network branded prepaid cards have come under fire from consumer watchdog groups for transaction fees they call excessive, and Congress has held hearings on the issue. Still, Schütte said, card fees may seem a better option to the cash-preferred than a bounced-check charge that can drive the price of a carton of milk up to $40.

And despite the criticism of fees and the rumbling about regulatory action, prepaid cards are an increasingly popular fixture in the financial landscape. The Mercator Advisory Group estimates that this year, $552 billion will be loaded onto network-branded prepaids.

Which explains why many in the ATM industry continue to venture into the prepaid distribution market. It does seem destined that the ATMs and network-branded prepaid cards will become increasingly intertwined: The technology now exists to dispense prepaids from a multi-cassette ATM, as does the software to load the card with any desired value.

In concert with a cash-in ATM, an operator dispensing NBP cards could offer an end-to-end transaction that does exactly what providers like Green Dot do now — but at potentially tens of thousands more outlets.

There are serious legal considerations to be addressed, though, including the question of money laundering — a potential issue with any prepaid card. At the same ATMIA conference where the latest cash-in/cash-out machines were being exhibited, attorney Carol Van Cleef, who represents financial services companies in regulatory and compliance matters as a partner at Patton Boggs LLP, warned a workshop audience that it was incumbent upon ATM operators to know the laws and how they work.

"The regulation [18 USC § 1960] says you're only a seller [a party that receives funds or value of funds for load or reload] if you move more than $10,000 a day," Van Cleef said. "But you have to have policies and procedures in place to make sure you don't move over into seller territory."

Van Cleef also brought up 18 USC § 1956 and 1957, codes that make it a crime to knowingly conduct a transaction involving the proceeds of any specified unlawful activity. "You might know you have an ATM in a high drug-dealing area, and you have reason to know that drug dealers are using it — you've got to know," she said. "The more opportunities you put on that machine the more opportunities you are creating for it to be used for criminal activities."

Still, operators will find the rewards worth the risks. And those who go looking will find the technology capable of offering up the rewards. Nexxo has spent this spring demo-ing its K3000 "Bank-in-a-Box", an ATM hybrid that allows consumers to cash checks, buy money orders, load prepaid cards, pay bills, send money, top up phone minutes and withdraw cash all at one machine — and all without a bank account.

Unlike other multi-function kiosks, the Nexxo ATM creates and saves a customer account. So there's no for the user need to enter information over and over with each use of the Nexxo ATM, a clear advantage over solutions such as the Walmart billpay kiosk.

Adding multi-function ATMs to their fleet can enable operators to capture a piece of the un-/underbanked market and the new revenue streams it represents, Schütte said. He expressed some lingering doubts about the efficacy of many check-cashing solutions, but said that just recently he'd seen initial-use cases that look promising.

"I'd say it's still early days," he said. "But I think there are indeed some interesting pilots going on … I'm not holding my breath, but … I think there are a compelling new set of candidates to make that a reality."

Doug Fecher, CEO of Wright Patt Credit Union, said his CU will add video-teller assisted check-cashing machines later this year. The FI is also looking at other innovative new ATMs and kiosks that would expand services to the un- and underbanked market.

Said Fecher, "ATM-types of machines that allow [the un-/underbanked] to get access to money or a way to pay for things without maintaining a 'relationship' with a bank or credit union I think is the answer."

For more on this topic, visit our multi-function ATM research center.

About Suzanne Cluckey

Suzanne’s editorial career has spanned three decades and encompassed all B2B and B2C communications formats. Her award-winning work has appeared in trade and consumer media in the United States and internationally.