An Underbanked Opportunity

CUs’ mission aligns well with the needs of 68 million consumers.

February 6, 2013

Located in a small strip mall on a commercial street in Decatur, Ala., Right Choice Money Services looks like any other check-cashing outlet. Once you step inside, however, you immediately notice differences.

Large, prominently displayed signs inform customers of all fees. “Part of what sets us apart from competitors is that we’re not trying to hide anything,” says Peter Alvarez, general manager. “We show all our fees up front.”

But the most notable feature that sets Right Choice apart from local “fringe bankers” is how it treats its customers. “Our employees really want to do what’s right for the consumer,” Alvarez says. “They’ll strike up conversations to figure out how to help. We hire people who have a personal mission for service.”

Right Choice has an advantage in its search for service-focused staff because its employees already work for a credit union. Right Choice leases its employees from $3.3 billion asset Redstone Federal Credit Union, Huntsville, Ala. Redstone Federal created Right Choice as a credit union service organization  to serve unbanked and underbanked consumers.


The decision to look like a typical retail financial services storefront was deliberate. “Many folks who are unbanked or underbanked are intimidated at the thought of going into a traditional financial institution like a bank or credit union,” Alvarez explains.

Redstone Federal’s strategy for serving the unbanked and underbanked is only one of many possible approaches, says Karen Biddle Andres, senior manager and consultant for advisory services at the Center for Financial Services Innovation (CFSI).

“We’re just beginning to scratch the surface in terms of the models that are emerging,” she says.

Final frontier?

Financial services revenues from serving unbanked and underbanked consumers totaled $78 billion in 2011, according to a study released by CFSI and Core Innovation Capital in September 2012. The report predicts revenues will hit $85 billion in 2012.

“This is the last remaining ‘white space’ in financial services,” Biddle Andres says. “What makes it so exciting and compelling is that there’s a lot of uncharted territory here. There’s a lot of opportunity for credit unions to reinvent themselves to serve this market.”

CFSI’s mission is to help financial institutions figure out how to do just that. Twice a year, CFSI hosts an Underbanked Solutions Exchange where participants share ideas and best practices. Since forming in 2008, the group has grown from five participants to 18, including seven credit unions.

Biddle Andres has witnessed an evolution in thinking among Exchange members over the years. Early on, she says, the focus was on transforming unbanked and underbanked consumers into more traditional members or customers. Consumers could start with cashing checks or buying prepaid cards, for instance, and then move “up the ladder” into other financial products.

But what Exchange participants have learned is that it’s crucial to serve consumers in their current circumstances. “Some people are just fine with check cashing, prepaid cards, money transfers, and money orders,” Biddle Andres says. “They don’t need to move up the ladder at all. Staying on the rung where they are could be the best place for them.”

NEXT: 'Don't push it'


CUNA Strategic Services alliance provider:
1. ICUL Service Corp.

‘Don’t push it’

Redstone Federal learned this lesson quickly. Initially, membership growth was the objective, but no Right Choice customers have signed up for membership with Redstone Federal—and that’s alright, Alvarez says. “We are truly serving the unbanked and underbanked by providing the products and services they need, want, and use,” he says. “We’re not trying to fit them into what we think they should be.”

As Right Choice gains consumers’ trust and loyalty, some might choose to become Redstone members to take advantage of additional services, such as savings accounts and loans. “But we don’t try to push it,” Alvarez says.

Right Choice had its grand opening on Nov. 16, 2012, preceded by a “soft” opening four months earlier. The store initially offered check cashing and money transfers, and then added bill pay, money orders, and prepaid cards during the following months.

Right Choice provides lower-cost products and services than similar providers in Decatur, Ala. For example, Right Choice’s check-cashing fee of 1.3% to 2.9%, depending on the check amount, beats local competitors’ rates of 5% to 6%.


Another way Right Choice outdoes the competition is through more consumer-friendly policies. While competitors such as Walmart cash only government or payroll checks, usually up to $1,500, Right Choice cashes all types of checks in any amount.

Customers get immediate access to cash, with no holding periods. Behind the scenes, Chexar Networks is the company deciding whether to cash the checks, mitigating some of Right Choice’s risk.

To date, the store is on track with business volume projections, and it’s serving the expected mix of customers. They include unbanked and underbanked consumers of all ages from diverse ethnic backgrounds, as well as customers of traditional financial institutions—Redstone Federal members included—who like cashing checks at Right Choice to gain immediate access to their funds.

Before embarking on this type of venture, credit unions should determine whether doing so will be financially viable, and the potential reputation risk: Will members view the credit union in a negative light for getting into this line of business?

“We positioned this by saying that, as credit unions, we’re charged with serving people of modest means and the underserved,” Alvarez says. “So when questions come up, we have the right answers. Member reaction has been very positive.”

A ‘kiosk’ approach

Centris Federal Credit Union, Omaha, Neb., adopted a completely different strategy for serving the unbanked and underbanked. A new division of the $475 million asset credit union called Centris Express placed 10 Nexxo Financial Corp. kiosks in four branch offices and four supermarkets.

While some institutions choose not to use their flagship name on alternative-banking outlets, Centris Federal believes its name is a strong selling point.

“We’re consistently voted the best credit union in Omaha, so we believe our name means something to the community,” says Laura Castro de Cortes, vice president of alternative financial services. “Even if people haven’t heard of Centris Federal, they notice us when they see our kiosks in supermarkets.”

The kiosks have been in place at all locations since June 2012. Kiosk users can cash checks, buy money orders, send money, pay bills, and purchase cell phone minutes. Reloadable prepaid cards will be added during the first quarter of this year.

The fees at Centris Express are competitive—a remittance transfer costs $7.99, compared with the community average of about $11.

Early on, half of kiosk users were Centris Federal members who liked the convenience of getting services while grocery shopping or when a branch office was closed. Since then, nonmember use has surged, now accounting for about 75% of transactions.

“That’s a good thing because we want to take Centris to those who don’t know about us,” Castro de Cortes says. “Maybe this is the way to start a relationship.”

That said, she acknowledges that many consumers might not become Centris Federal members. “I’m not going to go to them and say, ‘Hey, you didn’t drink the Kool-Aid yet,’ ” Castro de Cortes says. “Maybe they’ll join five years down the line. Maybe they won’t, and that’s fine.”

In the meantime, consumers can obtain the financial services they need at a fair price. The kiosk approach is just one way to go, she emphasizes.

“I’m not saying we have the perfect formula, because we’ll always be tweaking what we do as consumers’ needs change,” Castro de Cortes says.

Getting started

Credit unions that are considering serving unbanked and underbanked consumers should do their homework first, says CFSI’s Biddle Andres.

For starters:

► Research your customer base. Begin by looking at your own members and employees.

Many of them could be considered underbanked, having a savings account and a car loan with you but nothing more.

Many may be regular users of check cashers and other alternative financial service providers. “When you start digging, you might find that 20% to 30% of your members are underbanked,” Biddle Andres says.

Consider, too, that many unbanked consumers could be among the highly coveted young-adult market. Look for overlaps in the market segments you want to reach.

► Watch for emerging technologies. Many small technology start-up companies are offering exciting new options for delivering financial services, Biddle Andres says. Be on the lookout for useful partners.

Rethink financial education. Financial education is more vital than ever, but CFSI recommends a new twist: Focus less on knowledge gain, such as that which results from a classroom seminar, and more on behavior change.

“We call this financial capability—a new version of financial education,” Biddle Andres explains. “Given their mission, credit unions are the obvious choice to help people build their financial capability.”