News

Check-cashing one gateway to the unbanked

October 11, 2005

Dr. Larry Schulz of The Federal Reserve Bank of Atlanta told a group of investors at September's Unbanked Financial Services Innovation 2005 conference in San Francisco that the number of unbanked consumers in the United States is providing unprecedented growth opportunities for financial institutions.

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Dave Grano, president and chief executive of Portland, Ore.-based Vero - a financial technology company that has developed a check-cashing solution - agrees, but said that in order to effectively connect with the unbanked consumer, FIs must consider the demographic and cultural sensitivities of a largely Hispanic market.

According to Vero's research, about 56 million working Americans don't have a banking relationship. Of that number, approximately 50 percent are Hispanic. "Thirty-five percent of households in the U.S. have an unbanked member, which is an astronomically large figure as far as we are concerned," Grano said.

Some experts say even those estimates are low.

"Only in the last 18 months have people really begun to take a look at this growing population, and banks must continue to develop an understanding of different products and services that will target this segment," Grano said.

Cultural barriers

Historic instabilities in Latin American countries have created a tendency in Hispanic cultures to distrust banks, Grano said. "For example, in the past in Mexico, political change was a destabilizing force in the banking markets. Those cultural experiences carry over."

Traditional branch banking also has been inconvenient for unbanked and underbanked consumers. Jennifer Tescher, director of the Chicago-based Center for Financial Services Innovation, said, "Underbanked consumers are more likely to work odd hours or more jobs, and they are often using cash. When (the bank is) open from 9 to 5, that's not convenient, and underbanked consumers have fewer options for accessing services remotely." That makes check-cashing services at an ATM an attractive option.

Check cashing is an important gateway service, Tescher said, but it requires community education and understanding.

A credit union in point

The success experienced by one Denver-based credit union supports that point.

Denver Community Federal Credit Union - an FI with $200 million in assets, three branches and seven ATMs - launched a local campaign to reach Denver's unbanked Hispanic community about two years ago.

In February, DCFCU opened a branch in Sun Valley, a predominantly Hispanic Denver community where 58 percent of the households bring in less than $10,000 a year.

With a bilingual staff and community outreach efforts coordinated through a local financial-services foundation, the credit union had added 300 new members at its Sun Valley branch by the end of June, said Mary Ellen Litzau, DCFCU's chief corporate officer.

"We looked at a way to provide check-cashing services to these households at a better rate than they were getting from the venues in their neighborhood," Litzau said.