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More than money
Hoping to provide new revenue streams for companies and more convenience for consumers, some ATM operators and their partners have begun deploying machines capable of cashing checks.
Hoping to provide new revenue streams for companies and more convenience for consumers, some ATM operators and their partners have begun deploying machines capable of cashing checks.
Michael Marcinko, president ofNubanc Inc.,said that a prime location for these machines is in traditional check-cashing stores, which use them primarily to eliminate the need for repeat customers to stand in long lines."In the check-cashing business most stores generate 50 percent of their business on Friday afternoon, creating a 'feast or famine' scenario. Check-cashing machines are a great way to off load this demand from their tellers during these peak periods," Marcinko said.
Marcinko calls the terminals CCMs, or check-cashing machines. According to Marcinko, Nubanc's development team invented the first remote management system for check cashing in 1993. It was also involved in 7-Eleven's groundbreaking 1997 pilot of advanced-function terminals in Austin, Texas, and was at one time associated with Check Central, aGreenland Corporationsubsidiary that produced a check-cashing machine called the Max-Cash.
By the end of April, Marcinko said that Nubanc will have 19 installations, 10 in New York and nine in other states with a goal of 400 machines by the end of 2001.
San Francisco-basedInnoVentry Corp.is one of the earliest deployers of check-cashing technology. Formerly known as Mr. Payroll, the company 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.
InnoVentry has deployed about 1,100 check-cashing terminals to date, primarily Diebold-based machines plus a few from NCR, all running InnoVentry software. Nearly all are at retail stores such as Kroger, Circle K, Wal-Mart, Kmart and Albertson's.
Recently the company, a joint venture of the wholesale bank of Wells Fargo and Cash America International, Inc., obtained a $253 million infusion of capital from a syndicate of companies led by Capital One.
Plenty of places
Ken Karant, a consultant for hardware supplierDiebold, believes check-cashing machines are especially well suited for bank locations.
"On a Friday afternoon, you might have 50 people waiting in just two teller lines. And they are not all customers of that bank," Karant said. "If Joe the big-time customer comes in with lots of money to deposit in the bank, you don't want him to have to wait behind all these other guys. The machines will help migrate the non-customers off teller lines and allow a bank to serve its customers."
But Marcinko said the best locations are grocery or convenience stores. "Convenience stores and food stores are the most ideal location for CCMs because they provide the most convenience to the customers." Convenience is the reason that many supermarkets now offer services like dry cleaning and photo developing, he added..
ATM America, a Leesburg, S.C.-based ISO that has purchased some Nubanc units and is currently scouting locations for them, is interested in any sites "that are currently cashing a lot of checks now," said Vance Rowland, the company's director of marketing.
Rowland is convinced that the check-cashing market will be a lucrative one for deployers. "The profit and revenue models look good. In fact, they look better than the ones for ATMs right now," he said.
ATM America, a Triton distributor, is comfortable with the Nubanc hardware because it has some of the same components as a Triton 9640. From a maintenance and service standpoint, Rowland said, "Our primary concern is to make certain we've got a good piece of equipment."
Know your customer
Just who uses these machines varies by location, but Marcinko believes that the "unbanked," or those without traditional bank accounts, represent about half of the customer base.
"These are in many cases immigrants from Mexico and Central America where they grew up without their parents using banks so they traditionally don't open bank accounts," Marcinko said. "They also may not have the identification required by banks to open an account.
Some customers may have a negative listing with Check Systems, a database used by banks to open new accounts, Marcinko said. Others have bank accounts but want all their money right away rather than having a hold put on their funds for several days at a bank, a common reason cited by some small business owners.
One of the newest clients, Marcinko said, is the Internet bank customer with direct payroll deposit. "They receive regular expense checks or tax refunds and don't want to wait for their deposit to arrive via U.S. mail."
Consultant Karant said that 60 percent of customers at check-cashing machines have some kind of banking relationships. That's why he prefers to call the majority of CCM clients "underbanked" or "self-banked," as opposed to "unbanked."
InnoVentry's customers tend to be in their 20s and 30s with incomes in the $25,000 to $50,000 range, said Jeff Rubin, the company's senior vice president of marketing. There is a very slight gender bias in favor of men. "This is not an undesirable clientele,' he said. "That's a misperception. Many people simply choose to live this way."
Like Karant, Ken Rees, InnoVentry's executive vice president of business development, said he prefers the term "self banked." In a presentation at Thomson Financial Media's recent ATM 2000 conference, Rees said that approximately two-thirds of the company's enrolled customers have bank accounts but "can't wait three days for their checks to clear."
Rees called InnoVentry's customers "not just an underserved, but an actively abused, market segment." They desire an anonymous transaction, he said, because "they don't like going to a bank and being treated like a criminal or going to a sketchy neighborhood and working with someone behind glass."
Because they are used to paying the steep fees typically charged at traditional check-cashing outlets, they are "remarkably non-price sensitive," Rees added.
InnoVentry charges a typical rate of 1.75 percent of face value for government and payroll checks, Rubin said, but the amount can range up to 5 percent depending upon type of check and location. InnoVentry stopped cashing personal checks last summer.
Fees at a Nubanc machine are 2 percent for a government or payroll check and 10 percent for a personal check.
ID, please
Those using check-cashing machines must apply in some way to allow for identity verification. Potential Nubanc clients fill out a postcard-sized written application, which is then inserted into the Nubanc ATM along with the check to be cashed. The customer may then browse or shop in the store for about 10 minutes, Marcinko said, at which time he or she can return to the machine to receive their cash.
Marcinko said that Nubanc ultimately intends to mail its customers a prepaid debit card that can be loaded with the value of a check, then later used to make purchases at merchant locations where Visa cards are accepted or withdraw cash from Visa-branded ATMs. The card will be issued by a bank that Marcinko declined to name. The card is being tested now, he added.
Rubin said the InnoVentry machines rely on biometrics to aid in identification, both during the initial enrollment and subsequent verifications. A customer enters information via a touch screen and keypad that will include the amount of the check and his or her Social Security number.
"If they don't have a number, we can assign a number to use," Rubin said. "Then the machine asks the customer to remove any hats or sunglasses for a photograph. We don't need to assign a PIN or see a driver's license."
The check is then inserted and information is transmitted to a call center in Sacramento, Calif. If additional information is needed, Rubin said an "e-banker" at the other end will call the CCM (which is equipped with a phone handset) and speak with the client. <?xml:namespace prefix = o />
What's ahead
There are barriers to deployment of these machines, not the least of which is cost. The price varies depending on the number of bells and whistles, but Rubin said they are not inexpensive. "I can safely say they cost well more than two times that of a typical ATM."
The expense of the units, which industry sources say can cost up to $40,000, is an issue for ISOs like ATM America. One reason that his company opted to work with Nubanc, Rowland said, is because their machines are priced somewhat lower than others in the marketplace.
Marcinko believes that technology has been a more significant hurdle than cost.
"Up until a year ago there was not a reliable check acceptor available to install in these new machines," Marcinko said. "Also the software needs to be very sophisticated to avoid unacceptable losses."
Losses are definitely an issue. In fact, Greenland Corporation recently suspended its Check Central subsidiary check processing operations, as well as sales and distribution of the MaxCash machine, because of what it calls greater than acceptable check processing risk in its current software.
Marcinko believes CCMs will become the standard for many financial services as more services, such as the ability to purchase money orders and make wire transfers, are added to the machines. Nubanc intends to add payday check-cashing services, known as payday loans, in about 60 days. "In fact, we have over 10 services we plan to add to our ATMs by the end of 2001," he said.
Frank Petro, InnoVentry's president and CEO, noted that his company's deployments at retail stores like Kroger and Circle K are attracting a variety of different users, many with a more upscale profile than a typical "self banked" customer. InnoVentry intends to add products and services beyond check cashing to appeal to those users, he said. "We intend to acquire as much real estate as possible and then add other applications for other demographics."
CCMs and their automated services have already earned votes of confidence from consumers, Marcinko said. "As far the customer acceptance is concerned, I believe 7-Eleven and InnoVentry have proven that customers prefer self-service over single-service stores and standing in lines."
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