Recently in Check Cashing Stores Category

I am midway through reading Gary Rivlin's new book, Broke, USA. As CNN Money contributor Dan Okrent puts it in his review, Rivlin's book is about the industry of "vulture finance." It exposes large and small financial services companies that prey on financially vulnerable people because they can and because they find it lucrative.

So I was understandably skeptical when I flew out to Miami a few weeks ago to attend the Underbanked Forum, a conference organized by the Center for Financial Services Innovation.

Was I about to jump into a pool infested with loan sharks?

The conference turned out to be quite good. Several presentations and topics were true eye-openers. Here's the bottom line: for the broke, there's still hope for fair financial services that support flexible modern life and encourage financial responsibility.

Not just the fringes of the economy
Who cares? A lot of people should. The FDIC puts the number of under-banked and un-banked households - i.e. people who can't access the kind of credit and banking services that support mainstream life in the U.S. -- at about 30 percent in its December 2009 survey.

Add in younger people who are just starting to build their financial lives but have a world-weary cynicism of big banks. Also add more experienced adults who've been wronged by their banks lately, and there's a potential pool of 100 million people who demand better financial services.

With numbers like that, it's not surprising that a segment of the financial services industry is mobilizing to do a better job of being inclusive, understanding and creative about addressing customers needs without gouging them at every turn.

Too much downside, not enough upside
At the conference, design firm Ideo and non-for-profit D2D Fund reported on their analysis of people banking and non-banking behaviors.

Most striking among their findings: the upside of having a bank account often is perceived as being less than the downside of hidden fees and other practices that filch money. What's the point of hoping to earn roughly one percent interest on a few hundred dollars in your savings account while taking the risk of being hit with a $29 overdraft fee on your checking account?

Speakers highlighted two emerging alternatives to traditional savings accounts that offer a bigger potential upside for people who are starting from scratch:

• Starter savings accounts offered at an eye-popping five percent interest rate from established players such as US Bank and start-ups such as Mango Money.
• A "Save to Win" pilot conducted at a Michigan credit union offered prize drawings, including a grand prize of150,000, for people who saved.

According to the speakers, financial service providers tend to fund these programs out of marketing budgets rather than operational profits. It makes all kinds of sense to channel money directly into the pockets of first-time customers from the TV ad budget spent hawking big banks during Wheel of Fortune.

A nicer kind of access
Rivlin's book says that check-cashing and payday lending outlets have expanded so much in the past few years that they now outnumber McDonald's and Burger Kings combined.

In spite of the poverty industry's survival skills, as mentioned in a recent post by Rivlin, I believe that this trend will start reversing, fortunately.

Here's why. First, a very large percentage of the under-banked are connected and using the Internet several times a week. (Migrant workers not born in the US are the exception.) So creative minds can rapidly deploy new financial services at the very low costs made possible by not having to deploy physical outlets.

Second, the government will mandate that federal benefits be distributed electronically by 2013, avoiding the need for recipients to cash paper checks at a significant cost.

And even in the brick-and-mortar world, companies such as Mango Money are piloting new kinds of stores that are a lot more welcoming than check cashing parlors and less intimidating than bank branches.

Innovation, innovation, innovation
It's the word I heard the most often at the conference. There were plenty of sessions showcasing new ideads in credit, savings and payments. While Twitter's co-founder Jack Dorsey displayed showmanship with the "Square" credit card reader for iPhones and iPads, my pick for most intriguing initiative goes to GoalMine, a company intent on selling investments off of j-hooks at your nearest convenience store. When GoalMine deploys its service, people will be able to buy $50 worth of investment in a mutual fund as easily as they pick a $50 gift card today.

Overall, the good news is that there are many of us who care about serving the un-banked, under-banked and ill-banked. While I did not hear the word "affordability" very often, competitive spirits seemed to be high and will bring more just pricing quickly.

The unbanked and underbanked consumer segments are under increasing scrutiny to understand what they want and need in prepaid card products. In a December 2009 impact note entitled Prepaid Debit Cards: Barriers to Adoption, payments industry advisory Aite Group LLC analyzed why some consumers choose prepaid cards while others do not.

In November and December 2008, Aite surveyed 400 frequenters of eight check cashing stores in urban and rural communities in Virginia. For the purposes of its research, Aite delineated checking account holders (underbanked) from those that lacked checking accounts (unbanked). Aite then segmented respondents into five categories: adopters, rejectors, unreached prospects, purchase intenders and lapsed owners.

This segment represented 30 percent of respondents. Aite found that adopters have embraced prepaid cards; not only do they try them but they reload them as well. According to Judy Fishman, Aite Analyst and co-author of the report, adopters consider themselves technologically savvy and willing to try new things. Consequently, they have incorporated prepaid cards into their lives.

Unlike adopters, rejectors have no interest in prepaid cards; because they make up 43 percent of Aite's research, prepaid providers might take heed regarding why.

"They feel the cards are either a problem or a mystery," Fishman said. "And they know about them. They know they're there. But at this moment in time, they don't have any interest in trying them." Fishman attributed rejectors' reticence to a lack of technological sophistication, as opposed to lack of education. "I think the adopters are more willing to use products that are a little higher up in the hierarchy of complexity," she said.

Fishman advises providers to reach rejectors by conveying to them clearly and concisely the benefits of prepaid cards, such as that they are safer to carry than cash. "And in what ways does it give them an opportunity to participate in channels that are currently not available to them if they rely fully on cash or money orders," she said. Unreached Prospects Seventeen percent of research participants were put in the unreached prospects category. These consumers are unaware of prepaid cards and tend to be both younger (25 and under) and older (over 45) than adopters. They are more involved with technology than rejectors but prefer to pay with cash.

According to Fishman, for the younger unreached prospects, the idea of a prepaid debit card has not sunk in; for the older consumers, debit cards are a newer product and have yet to recognize prepaid cards as a natural extension to them.

The report recommends mass marketing and in-store demonstrations as ways to familiarize unreached prospects with prepaid cards.

The other two categories, purchase intenders (5 percent) and lapsed owners (4 percent) were not analyzed in the report because these groups are small and "appear to be already sensitive to the product [and] would be apt to be caught in a broad category," Fishman said.

She recommends that prepaid card providers continue to reinforce brand and product adoption, as well as the reloading of the cards by adopters.

Additionally, providers should focus on convincing unreached prospects to try prepaid cards by providing them simple and relevant information.