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Checking out the CashWorks program

The former InnoVentry principals who founded CashWorks -- having learned a few things about what really works in a retail environment -- are putting those lessons to work at their new company. Following a sales push by several ISOs, CashWorks now has more than 100 check cashing locations.

December 5, 2002

When InnoVentry collapsed suddenly in September of 2001, after deploying 1,200 of its automated check-cashing kiosks in 24 states, some ATM industry watchers compared the San Francisco-based company's rise and fall to the old story of the emperor who paraded proudly through the streets -- until a young boy pointed out he was wearing no clothes.

The real problem, said Ken Rees, InnoVentry's former chief operating officer, was that the emperor was overdressed -- crippled by a costly infrastructure and kiosks five times more expensive than a typical retail ATM.

(See related story InnoVentry is out of business)

When Rees and several other InnoVentry principals founded a new company called CashWorks in early 2002, their business was still check cashing -- but with a dramatically different model.

Eschewing the "big box" approach used by InnoVentry -- and 7-Eleven with its Vcom program -- CashWorks allows retailers to use their existing ATMs to dispense cash, supplemented with a point-of-sale terminal loaded with proprietary software used to authorize checks.

On the front lines

Rather than using an expensive in-house sales force, CashWorks is recruiting an army of ISOs to sell its program to their retail clients. Among those who have already signed on are Cardtronics, Momentum Cash Systems and Financial Technologies.

While CashWorks has had discussions with a few financial institutions, Rees said the company is focused on the ISO market -- at least for now.

"The reaction we've gotten from large financial institutions has been just about as positive as that from ISOs once we've gotten it in front of them. They're having the same problem as ISOs of declining transactions in their retail locations," Rees said.

The first wave of CashWorks locations has been almost all small "mom and pop" outlets, Rees said, because of the distributors' strong penetration in that market. "I think success in that market will give us the credibility and experience to go after larger chains," he said.

Brian Archer, Cardtronics' executive vice president of marketing, agreed that chains are a logical next step. "We've had some very sincere interest from large national chains. When you're dealing with a corporation, whether it's regional or national, it doesn't take them long to understand how this can benefit their business."

Archer said the Houston-based ISO has deployed CashWorks at more than 30 retail sites, following a successful four-month pilot at three locations. The company only recently began a strong sales push, he said. "We wanted to kind of put our toe in the water first."

CashWorks CEO Ken Rees with the PayPort terminal used for authorizing check cashing transactions in the CashWorks program.

One of the first locations now cashes 600 checks a month, said Archer, who noted that the ramp-up period -- as expected with any new service -- is somewhat longer than for traditional ATM transactions. Cardtronics promoted the service with special offers such as one free check cashing transaction for new customers, he said.

The sales cycle is longer as well, Archer said. "Any time you launch a new offer (for merchants), it's going to require more of an education effort. That's a function of an effective sales presentation."

Cardtronics experimented with several different fee structures during the pilot, Archer said, before determining that "2 percent was not an offensive fee to customers." He noted that Texas check casher ACE Cash Express charges 2 percent to 4 percent of a check's face value, while the Houston-based HEB grocery chain charges 1.5 percent to 2 percent.

With the right sales push, Archer said he believes that "CashWorks has the makeup to set the world on fire."

Tough in the heart of Texas

Yet not all CashWorks distributors give it glowing reviews. A highly competitive check cashing environment in Texas has made the program a somewhat tougher sell than he expected, said Bob Cannon, chief executive of Houston-based Momentum Cash. Cannon said he's deployed "a few" locations since late spring.

"Check cashing is basically unregulated (in Texas). Anybody and everybody can cash checks without a license or a special permit," Cannon said. "A lot of merchants don't mind assuming the risks because they know their customers, they know where they work. If they cash the checks themselves, they get to keep the entire fee."

With the CashWorks program, all fees earned from cashing checks are split between the merchant, the ISO and CashWorks, Rees said. CashWorks usually "sweeps" its fees, as well as the distributor's cut, from merchant accounts each week.

If unregulated check cashing markets in states like Texas create intense competition, Cannon said deployers may have to sort through complex legal issues in other states like California "where they have regulations out the wazoo."

Rees said that CashWorks is licensed or supported in 30 states -- including California. "We get the license for the ISO," he said.

While he believes "the jury is still out" on CashWorks, Cannon said it has the potential to become "a nice add-on over time."

Neil Johnson, chief executive of Euless, Texas-based International Merchant Services, another ISO with a handful of CashWorks locations, said the program hasn't taken off as he anticipated. Like Cannon, he's found that many smaller merchants know their customers and are comfortable taking the risk of cashing their checks for a fee.

"I think this will really work better for chains with multiple locations where there is external ownership," Johnson said.

The incredible shrinking box

Perhaps the single most important difference between CashWorks and InnoVentry is the cost of the hardware. The CashWorks hardware, a Hypercom 5700 POS terminal that is sold under the name PayPort, will generally retail for perhaps $2,000, Rees said. Archer said Cardtronics is selling a program that includes the PayPort, a service call to the ATM to load the necessary software, a signage package and transaction processing for $1,995.

Because the initial outlay for hardware is so low, Archer said, "the break-even for a merchant is minimal." He predicted that many merchants will pay for the PayPort upfront rather than leasing it, the typical financing arrangement for an ATM.

After CashWorks inked agreements with Triton and Tidel, the manufacturers produced software upgrades that make it possible for the PayPort to interface with their machines. The first to sign on with CashWorks in early 2002, Tidel invested $500,000 in the company. Triton made CashWorks part of its Waves program of advanced functionality, along with Western Union money transfer and Euronet prepaid phone recharge.

Triton machines are set to go "live" with CashWorks later this month. "We've already pre-sold a number of Triton locations. There was a lot of pent-up demand there," Rees said.

CashWorks expects to sign agreements with more manufacturers in 2003, Rees said. "We are confident of having at least two, if not three, additional manufacturers by the end of the first quarter."

Not entirely automated

Another key difference between CashWorks and InnoVentry is CashWorks' manned authorization procedure. A check cashing customer must present identification to a clerk along with his check. The clerk checks the ID, then swipes the checks through the PayPort for approval, "usually in under a minute," Rees said.

While InnoVentry used an expensive biometric camera to identify its customers, Rees said the system was flawed. "With InnoVentry, you never truly knew who a customer was the first time. A customer could use a stolen check to enroll. All the biometrics could tell you was whether the person who came back a second time was the same person from the first transaction."

Though he wouldn't disclose figures for either company, Rees said that CashWorks' loss rate is 30 percent lower than InnoVentry's.

In contrast to InnoVentry, where all first-time customers were referred to a call center via a phone installed at the kiosk, Rees said that fewer than 40 percent of CashWorks first-timers are referred to a call center. Rees said that if the transaction is referred to the call center, it takes five minutes to determine whether funds can be authorized.

Thirty-five percent of InnoVentry's repeat customers were referred to a call center, versus just 10 percent of CashWorks customers, Rees said.

Adding more transactions

The next step, Rees said, is to add more transactions to the PayPort platform. He named money transfer as a logical candidate, noting that many who purchase money transfers want to pay in cash. So while ATM manufacturers such as Triton are making it available via their machines, they don't include a cash acceptor.

"The best cash acceptor in the world is a clerk. He's already there, and he doesn't jam," Rees said.

At least one CashWorks distributor, Financial Technologies, plans to launch its own advanced functionality platform using a Hypercom 5700 terminal by the end of 2003's first quarter. Tommy Glenn, president of Financial Technologies, said the FTI Sales Manager will offer six transactions in addition to CashWorks check cashing, including prepaid phone recharge, money transfer and credit/debit card processing.

Glenn said that merchants want to minimize the number of devices behind their counters and will welcome the opportunity to choose the transactions most appropriate for their location from a comprehensive menu of options. "For instance, check cashing, credit/debit processing and ATM would be a great combination for a liquor store," he said.

Like Rees, Glenn believes a POS terminal offering advanced functionality is most effective when combined with an ATM. In fact, he said, the added revenue from new transactions might make it possible for locations that previously couldn't afford an ATM to purchase one.

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