Low-Cost Options for Low-Income Populations: Letter to the Editor
Heather Anderson’s Oct. 2 article, The Lowdown on Serving Low-Income Populations: Executive Editor’s Column, presented an honest and unbiased view of the challenges in providing financial services to less-affluent members of society: the population the credit union movement came into existence to serve.
The article highlighted the real-world problems associated with handling the financial affairs of financially-strapped consumers; most notably, the difficulty of crafting an acceptable risk and reward business case from a population that is unlikely to leave much money in the credit union, and may find it difficult to live within their means. Moreover, how could credit unions accomplish these objectives without charging fees that punish members for their precarious financial positions, or driving themselves out of business.
But the article’s cautionary message focused solely on the difficulties of serving members and cultivating prospective members only through traditional branch locations. It ignored potential alternatives.
In 2001, a New York community development credit union faced these same operating challenges in serving low-income members in the historically poor South Bronx. But it chose a novel way to expand its reach to members and prospective members far beyond its two existing branch locations, while lowering its costs.
By forming an alliance with the owner of a local check cashing operation, the credit union was able to provide its members with a dozen new points of service, many open 24-hours a day. These touch points also exposed the credit union to community residents who were eligible for membership.
After four years of discussions with federal and state regulators, Joy Cousminer, CEO of Bethex Federal Credit Union, formed an alliance with Joe Coleman, CEO of RiteCheck Cashing, to expand access to financial services to residents of the South Bronx. For decades, their common market was one of the New York metropolitan area’s most economically-distressed communities.
Ms. Cousminer realized that popular wisdom was wrong. Credit unions didn’t complete with check cashers. They each provided different but complementary offerings, often to the same customers.
The program began with Rite Check cashing checks for Bethex members for free. (Behind the scenes, Bethex paid a discounted fee for its members.)
But over the years, the program grew and became far more sophisticated.
Now, Bethex members—along with members of six other credit unions—can perform a wide range of transactions at several hundred locations of Rite Check and a half dozen other check cashing firms throughout Greater New York City.
Members can still cash their checks for free. But they can also deposit money directly into their share draft accounts, make withdrawals and make payments. Transactions are processed through a national eft-pos network via secure, debit card-accepting point-of-banking terminals on the counters at participating check cashing locations.
Since 2001, credit unions members have deposited more than $100 million through the alliance with local check cashing firms.
Not surprisingly, in the early years of the alliance, Ms. Cousminer’s peers were surprised by her decision to partner with a check casher. Why, they asked, would she do such a thing?
Her response usually focused on the unique, but undeniable economics of the solution. At roughly $200,000 to construct a branch, plus operating costs, how else could she add 12 fully-staffed locations immediately and pay for them just one transaction at a time?
Our Money Place
Two years later, a community group formed a similar alliance with a credit union and a check cashing firm to bring organized financial services back to Southwest Baltimore. This major urban community had seen its last bank branch closed eight years earlier.
In Our Money Place, Operation Reachout Southwest, the Social Security Administration, Baltimore Federal Credit Union and A&B Check Cashing operated a common facility out of an abandoned bank branch. The check casher operated four of six teller stations and performed all the cash handling in the facility. The credit union operated a single teller station. And the community group funded a representative, seated in the lobby, like a concierge.
This representative engaged patrons who were usually there to see the check casher in conversations about other financial services, financial needs and aspirations that could be handled by the credit union. She would help to complete account applications and guide potential members through the processes.
The credit union also deployed an ATM in the lobby, which soon became its most profitable, due to a preponderance of transactions producing foreign bank fees.
The Great Recession has taken a horrible financial toll on Americans of modest means. They need credit unions now more than ever. But serving low-income consumers through high-cost branches can be an agonizing and self-defeating strategy for credit unions.
Leveraging no-cost alliances to deliver credit union services to low-income consumers through low-cost facilities may not seem like rocket science, but they have been amazingly successful for those who have tried them. It might be an opportunity worth exploring.
Wellspring Consulting International, Inc.
Fort Lauderdale, Fla.