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Banks Adopting More Strategies to Court Underbanked

Automation is making it easier and more profitable for financial institutions to provide services to lower-income customers. And offerings such as check cashing and money transfers are enticing the underbanked to form relationships with banks.

In-Branch Check Cashing

While second-chance checking accounts allow banks to begin to build relationships with the underbanked, many banks are opting to offer check-cashing services not tied to accounts. Others are partnering with traditional check-cashers to form mutually beneficial relationships, such as establishing a check-cashing station inside a bank branch. "Check cashing seems to be an area where banks are seeing success because the noncustomers are coming right into the banks' lobbies," says CFSI director Jennifer Tescher.

Banks are hoping that check cashing within a branch will convert users into traditional banking customers. On Nov. 1, 2007, for example, CheckSpring Bank of New York ($15 million in assets) opened its doors to the unbanked, immigrant markets in the Bronx. The bank, a subsidiary of CheckSpring Community Corp., uses check cashing as a hook to lure new customers into the branch and into more-traditional bank products.

"Folks in the market are unfamiliar with what bank products can do for them and what they are," relates Charlie Wilcox, president of CheckSpring Community Corp. and one of the bank's directors. Wilcox says CheckSpring designed all of its products -- including check cashing, bill pay, remittance services and checking -- to meet the specific needs of the underbanked. Just months after the bank's opening, check cashing and the bank's checkless checking account are the two most popular products, he reports.

In a thin-margin environment, CheckSpring has developed a technology-driven, cost-effective approach to banking for inner-city communities and clientele. The approach relies heavily on automation, according to Wilcox. For example, the bank's check-cashing system has been integrated into its main platform, which is provided by Outsourcing Solutions (Chesterfield, Mo.). "Most banks that offer check cashing have it on a separate platform," which slows down the process, Wilcox says, noting that the integration required a few unique enhancements to enable the system to handle frequent changes to the fee structure since check cashing fees in New York change about every six months.

CheckSpring's remittance service is conducted through a Web-based platform, but the basic information flows through the bank's main platform so that the institution can capture anti-money laundering and Bank Secrecy Act data, Wilcox explains. He adds that the bank currently is meeting with several third-party vendors about the possibility of offering prepaid cards to its customers. It also is developing a way to use alternative credit methodologies in the future, but currently does not do a lot of lending.

Hispanic banking initiative El Banco de Nuestra Comunidad also has capitalized on the trend of banks offering check-cashing services. The financial institution spun off its core platform to form Chexar, a technology, processing and network company that provides financial institutions and retailers with a centralized risk management system and consulting services that enable them to offer check cashing. El Banco de Nuestra Comunidad was founded in 2001 by Roswell, N.M.-based financial services company Nuestra Tarjeta de Servicios (now El Banco Financial Corp.) to provide FDIC-insured banking products along with innovative credit products and check cashing for the Atlanta-area Latino population. It became a division of Atlanta-based SunTrust Banks ($7.5 billion in annual revenue) in 2004 and now operates more than 12 branches.

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