Taxpayers that did not have their tax rebate deposited electronically should be receiving their checks in the mail soon, if they haven't already. Retailers out there are salivating over these checks and the increased consumer spending that they hope will accompany them. Many polls that I have encountered in the past few weeks indicate that the majority of Americans are planning on spending their estimated $110 billion in tax rebate checks on necessities, and not splurging on the extravagant purchases many retailers are hoping for. Goldman Sacs currently estimates that the average US taxpayer will spend only 50 percent of their tax stimulus.
Wal-Mart has lately been publicizing that it will let people cash their federal stimulus checks for free at its locations, with no purchase required. As an extra incentive, Wal-Mart said it will refund the purchase fee on its Wal-Mart re-loadable prepaid Visa debit card when any portion of the economic stimulus check is loaded onto it. The mega-retailer is specifically targeting the estimated 80 million U.S. residents who are unbanked with this promotional offer. This initiative is designed to draw consumers to the stores, not only to make purchases, but to also expose them to some of the financial services that Wal-Mart has begun offering.
In addition to offering low-cost check cashing at an advertised maximum fee of $3 for payroll and government checks, Wal-Mart also offers prepaid and payroll cards, money orders, money transfers, bill pay, and a credit card. The company realizes the opportunity in reaching underserved and unbanked individuals, especially in the current economic environment, as more people are willing to turn to non-mainstream financial institutions in times of increased financial hardship.
Wal-Mart is Just the Tip of the Iceburg
Credit unions no longer face competition only from banks and thrifts, but have begun to see many types businesses offering services to compete with those at traditional financial institutions. Credit unions need to provide the products and services that underserved individuals desire, use these basic services to gradually introduce people to their complete range of banking options, and differentiate themselves from other providers in terms of service. Let's examine two credit unions that who utilize check cashing services to successfully reach the unbanked:
Securityplus Federal Credit Union: ( Baltimore , MD $274 Million)
In 2003, Securityplus partnered with a check cashing outlet to bring financial services to Southwest Baltimore . Which had been without a local financial institution since the 1990s. The partnership formed Our Money Place , where Quick Cash check cashing, Securityplus FCU, and a financial counselor provided by the credit union, all share the same space. Securityplus provides all of their services that do not include cash, and they have an ATM on the premises. The financial counselor holds seminars, promotes CU membership, and provides financial counseling to individuals who come to the branch. In addition to cashing checks, Quick Cash also provides money orders, utility payments, stamps, and bus fare cards.
Both parties find this relationship mutually beneficial. The relationship with Securityplus enhances Quick Cash's reputation and provides the credit union with an excellent channel to increase their membership. Each month, an average of 700 transactions occur at Our Money Place , and the credit union attracts 10-15 previously underserved members. Securityplus successfully leverages this relationship and other community partnerships to reach the underserved and steadily convert them into members.
Tulsa Federal Employees Credit Union ( Tulsa OK , $413 Million)
Tulsa FCU offers a check cashing option that charges a flat 1 percent fee on cashed government payroll checks. Other check cashing options in their local area charge 3 percent or higher for the same service. The check cashing fee does not apply to members who have a ‘full' relationship with the credit union (direct deposit, an existing loan, or meet a minimum savings requirement).
Tulsa has used the check cashing product to convert many previously underserved individuals to members and has also found that it can serve as a successful channel to increase membership within SEGs. In 2004, Tulsa averaged about $17,000 in monthly fee income generated from check cashing. This figure has now fallen to about $6,000 per month, which is just fine with the credit union. According to Jack Carlow, CFO of Tulsa FCU, "We have succeeded in converting many of the relationships that initially started out as a check cashing relationship and turned them into active members. This is what we wanted to occur when we initiated this program."
Kavilanz, Parija. “ Wal-Mart unveils moves to pull in stimulus money .” CNNMoney.com