Help The Underbanked Make The Right Choice

What happens when the targeted market is out of your credit union’s reach? For Redstone Federal Credit Union, the solution was to start up a CUSO.

Yun Ma

By Yun Ma


In November 2012, Redstone Credit Union ($3.4B; Huntsville, AL) formally opened the first location of its check cashing business, Right Choice Money Services. Before the opening, Redstone CEO Joseph Newberry noted that, “For the nearly four out of 10 Alabamians who do not use traditional banking organizations, Right Choice Money Services offers a welcome and competitive alternative.”

The town of Decatur, where Right Choice opened, sits 25 miles east of Redstone’s headquarters in Huntsville. Located in Limestone County, the area boasts a contingent of employees in the engineering sector, along with an underserved population of low-income households, including a significant Hispanic segment. According to the 2010 Census, documented Hispanics make up 12.4% of Decatur’s population, the second most prevalent minority group.

Joyce Dye, president of Redstone Services Group LLC, which oversees Right Choice, says that the idea of starting up the CUSO began about five years ago. Having lived in California, where bilingual financial services catering to Hispanics abound, Dye noticed that there was nothing comparable in Alabama. To address this discrepancy, all of Right Choice’s staffers are bilingual. She estimates that 60 percent of Right Choice customers are Spanish speakers.

Instead of buying a CUSO, Dye and her team decided to build it from scratch, hiring the manager in-house, someone who understood the targeted market, and who could carry the co-op’s “people helping people” spirit to the new business. They launched Right Choice with a soft opening in July 2012, allowing themselves a few months to publicize the business and get to know the neighborhood. In addition to check cashing, the CUSO also offers pre-paid debit cards, bill-paying services, wire transfers, and money orders.

Here, Dye spoke about the reasoning behind starting up a new CUSO, and the learning experience she and her colleagues have gained.

How did you come to see the need for a check cashier business in the Decatur area?
We felt there was a real need in Limestone County. Quite candidly, there were an awful lot of check cashiers and payday lenders that were really ripping people off. And even though Redstone has two branches in the Decatur area, we saw there was a real need to help the population that was not using traditional credit unions, banks, or other financial institutions.

According to the FDIC study, about 32% of the state of Alabama is considered underbanked, which is amazing. Either they’ve been turned down for checking accounts because of past problems, or they just don’t trust financial institutions. That’s what helped us make the decision to start Right Choice. As a credit union, we’ve been charged according to Congress by serving people of modest means. But we’re not really serving people of modest means as a credit union if we’re only serving the people who qualify to get checking accounts and loans. We have to remember there’s a huge population out there that’s underbanked.

It sounds like there would be plenty of check cashier options in Limestone County. Why would customers choose to use Right Choice as opposed to another check casher?
In my opinion, there are three reasons. The first is our fees are very, very affordable. We aren’t even close in what the others are charging. I’ll give you an example. Our competitors might charge $3 or $4 in reloading fees for a prepaid debit card, but for us, it’d be $1. Our fees are just very, very competitive and affordable. Keeping our fees competitive and as low as possible will result in our breaking even with a modest profit.

The second factor is that, we cash any check. And I really want to stress that: we cash any check. When you drive up and down the street, you’ll see a lot of check cashiers that will only cash government checks or only a certain type of check. We will cash any check. All of our check cashing is done through an online service provided by Chexar. As a part of our agreement, Chexar assumes 100 percent of the risk.

Lastly, we will accept any ID -- even from other countries, as long as they're not on the OFAC list.

I think there is a genuine acknowledgement that we want to help people when they come in. We have a dedicated staff that understands the needs of this market; some of them come from that market, and they really understand the individuals. They try not to talk above them but at the financial level at which these individuals may be dealing.

What would you say is a primary concern of Right Choice customers?
When the customer first comes in, they worry, “I’m not legal to be here. I won’t have the right ID or visa. They want to see my citizenship papers.” Now, obviously we don’t ask that information. Once they come in and they understand we accept identification from any country, and they realize we cash any check, they feel very comfortable with us. They don’t feel any intimidation.

Our interest in starting a check cashier actually goes back about five years ago. When I came to Redstone after being in California, I was surprised we didn’t have anything bilingual. That just wasn’t heard of in Alabama. We had a couple of board members who were very interested in serving the Hispanic market here. And so we kept talking. Our president got involved, and there was a lot of conversation.

Are you looking to transition Right Choice customers into Redstone credit union members?
That is the ultimate goal. We know that won’t happen for everybody. There is a population of people who will never want to use a bank or a credit union. They want to regularly send money back to family in Mexico or wherever, but they do not want to deal with checking accounts. They want to deal solely in cash. Maybe they’ve had bad experiences in the past, but that’s just the way they are. So we’ll help them with everything else — prepaid debit card, bill-paying services, money orders, money transfers, cash checks, whatever it may be.

We are, however, helping some people get into the credit union. They may not have thought they could join a credit union, but now we’re helping them to get into one. Maybe someday we’ll help them with that first car loan.

In our Right Choice location, we have one window that belongs to the credit union, which will make only Redstone transactions. If we see an opportunity where someone can transition into one of the services that the credit union offers, we simply move them to the credit union window and address that service with them. In the short time we've been open, we have not yet transitioned customers, although we have discussed the opportunity.

I will point out that we also have very limited services available at that Redstone window. First and foremost, this is a Right Choice office. The only things we offer at that credit union window, are we’ll open that shared secure credit card for you, a checking account, and we’ll take a deposit. But anything else you want to do, we’ll send you to the credit union branch, probably a two-minute drive away.

Why did you decide start up your own check cashier instead of buying one out?
We felt we wanted to customize our CUSO to fit the culture of Alabama. We didn’t really see check cashing organizations here in our area – I hate to put it this way but — that would be worthy of Redstone buying. We felt we wanted to start small, form our own organization and make it to really build something around the credit union, as opposed to buying something and making it form to the credit union. We thought we would just build it to fit the needs of people of modest means, who are either unbanked or underbanked.

When you first established Right Choice, did you hire staff from within Redstone, or look outside?
We were very lucky. When we started this office, knowing that we wanted to eventually open a facility like this, we had a bilingual gentleman, Peter Alvarez, who is now the general manager of Right Choice. Before that, he was serving as an assistant branch manager, and was also manager of Redstone’s Hispanic program, which has since grown into Right Choice. Peter in turn hired staff from both within Redstone and outside.

In starting Right Choice, our first inclination was to go find someone who had a lot of experience in the check cashing or the title loan business. I’m glad we didn’t do that, because I think they would’ve brought in too much of a business mentality, and we would’ve lost the cooperative spirit of the credit union. Now, as we expand, would we hire more employees from outside? Maybe. But I know we will have to keep the Redstone ethos.

Why did you decide to do a soft opening for four months?
We’d meant to open earlier, but some products, such as the prepaid debit card and the check cashing, just took a little bit longer. We got ahead of ourselves in planning [laughs]. We found the facility we liked, had all the work done, and the staff picked out. Instead of keeping it closed, we did a soft opening with much more limited hours.

Primarily, it was a public relations effort for four months. Our employees spent a lot of time doing street marketing, talking to various businesses in the area, leaving fliers in Laundromats and gas stations. They reached out to people, community groups, and churches. It benefited us an awful lot in that we really got to know the community. Even though we didn’t plan it, I’d do it again if I was opening up a second store.

What advice would you give to other credit unions looking to start a CUSO?
I think you have to think about a CUSO as doing one of two things. Either start a CUSO because you want to offer your membership services that the law will not allow you to do as a credit union, or start a CUSO because you want to offer a service that could be provided better through a CUSO than if you did it yourself in a credit union.

We’re also finding ways that CUSOs can in turn give back to their credit unions. Right Choice has a prepaid debit card, and Redstone was talking about offering a prepaid debit card to its members. We kind of looked around and said, “Why would you go talk to other vendors? Why don’t you let your CUSO give you the prepaid debit card? We’ve got one. It works! It’s great.” We’re in the process of talking about that, it’s not finalized.

There are things that CUSOs can develop that they in turn can give back to their credit unions. It saves the credit union the development time and everything else that takes away from its priorities.

Even though Right Choice is only a few months old, what kind of feedback or results have you seen?
It’s going to take time, but we are growing. We are ahead of proforma in terms of the number of transactions that we expected to have. We just closed December, and I haven’t seen the numbers, but I understand that we are 10 times ahead of transactions of where we were four months ago.

I think one of the neatest things we’re tracking is that our customers come back. Ninety-eight percent of the people we serve come back. I find that incredible. When I look at our log sheet every day, it reads: “regular customer,” “regular customer,” “regular customer.” We’re not losing people, which I really like. They feel that human connection with us.