= Subscriber content; or subscribe now to access all American Banker content.

What I Learned While Pretending to Be Unbanked

LOS ANGELES — If you live in a big U.S. city, you probably whiz through an intersection like this one all the time.

On the southeast corner of South La Brea Avenue and West Pico Boulevard sits a payday loan shop. In the same strip mall is a 7-Eleven that sells financial products to consumers who don't have bank accounts. And just to the west is a check cashing store. Taken together, these nonbank retailers form a mini-financial hub for residents of a hardscrabble neighborhood that abuts the showy wealth of L.A.'s West Side.

At lunchtime Wednesday, all three stores were doing a brisk business. Inside an Ace Cash Express location, a clerk asked an elderly customer, who was leaning on a walker, for his address. It was a question without a good answer. "Right now I'm in the hospital," the man explained.

On a more typical day, I might have been one of the motorists driving past this corner without much thought. But today I was here as part of a team of white-collar types who were trying to walk in the shoes of the unbanked. We dressed down, but our efforts to blend in only went so far. In a move that verged on self-parody, we'd arrived at La Brea and Pico in a chauffeured town car.

The exercise was organized by the Center for Financial Services Innovation, a Chicago-based organization that gets support from various banks and foundations, as part of "Emerge: The Forum on Consumer Financial Services Innovation," a three-day conference held by the center and American Banker focused on improving consumers' financial health.

We'd been given a series of tasks to complete: buy a prepaid card, purchase a money order, cash a pair of checks and so on.

Every transaction took longer than it seemed like it should, but still, our money quickly started to dissipate. We were charged $6.15 to cash a $105 check, then another five bucks to send a $40 money transfer. In one store, we peered at the fee schedule posted on the wall: to borrow $100, we'd pay $17.64, which translates to a 460% annual percentage rate on a two-week loan.

It all brought to mind James Baldwin's famous quote: "Anyone who has ever struggled with poverty knows how extremely expensive it is to be poor."

Some of what I saw surprised me, even though I frequently write about financial services for the unbanked.

First, it looks to me like it will be a long time before check cashing and the various related financial services become fully automated.

The 7-Eleven store that we visited had an ATM that customers can also use, at least in theory, to cash checks and receive money transfers. The process didn't work for our group. The ATM took our photo, and instructed us to make a phone call to complete the registration process. But after being transferred twice, we eventually gave up.

The Ace Cash Express store had no self-service kiosks, just an old-fashioned queue to speak with a clerk. When we got to the front of the line, it became more apparent why many stores in this industry look like dinosaurs: we had to provide a lot of detailed personal information in order to complete some fairly simple transactions.

Later, when we walked into a nearby JPMorgan Chase (JPM) branch, the contrast was striking. Customers were directed to touch-screen kiosks. The teller window was hidden in the back, completely out of sight to most visitors.

Another surprise came near the end of the day. While we'd been trying to complete our various transactions, one member of our team, perhaps naively, had turned over a raft of personal information, including her Social Security number and her date of birth.

Later we spoke with an entrepreneur who knows the payday loan industry inside and out. He said that it was a mistake to trust the store with sensitive personal information. "You'll have a fun bombardment of offers," he said sarcastically.

In the end, the distance between the actual customers of these stores and gawking interlopers like me seemed vast.

The abundant signs printed in Spanish attested to the difficulty many recent immigrants have in opening bank accounts. Other customers have lost their banking relationship, and probably aren't getting a new one anytime soon.

One older man was talking on his cellphone while he stood in line at the check-cashing store. "I didn't write that check," he said, over and over again.

Kevin Wack is a Los Angeles-based reporter for American Banker. The views expressed here are his own.


(11) Comments



Comments (11)
Hopefully, this will finally demonstrate to American Banker & Source Media that hosting this important conference with the CFSI continues to be a mistake. The organization has a preconceived agenda that they seek to grind no matter the evidence that it is in error. It took being embarrassed by speakers for the last 2 years for the organization to finally admit that being the primary proponent of the terms "unbanked" and "underbanked" was wrong and counter-productive. This year they actively sought to undermine one of their premiere speakers - Dr. Lisa Servon - with a series of hokey field trips designed to contradict her extensive primary by taking selected participants on brief, chauffeur-driven, drive-by visits to non-bank financial service providers. Sadly, the CFSI appears to have succeeded with what was formerly one of American Banker's better journalists, but who now appears to too gullible to be taken seriously.
Posted by jim_wells | Saturday, June 28 2014 at 10:12PM ET
Kevin, I know you were at Emerge because we met briefly. So, where were you when Professor Lisa Servon made her presentation? I do appreciate your work but I would appreciate your approaching your subject with an open mind and leave the preconceived ideas at the door.

For some insight into NIX Check Cashing I suggest you read "NIX Land" by Tom Nix available at Amazon and your public library.

Regarding "automation," there currently exists expedited transactions for returning customers; just like at a bank.

Finally, from a macro perspective, bankers are not our friends!They have agendas as we all do; beginning with separating us from as much of our money as they can without coming into the crosshairs of the Feds and the State authorities.
Posted by Jer Trihouse | Saturday, June 28 2014 at 1:50PM ET
Kevin, Your writing does a disservice to your readers.

I participated in the same CFSI exercise.

One of the major conclusions of the EMERGE conference was that alternative financial service centers (AFCs) provide services that meet the needs of many consumers much better than banks and other providers.

For example, if you had conducted the CFSI transactions at Nix Financial pictured in your article, you would have been able to do most or all of the required transactions with a pleasant experience at significantly lower cost in much less time.

In fact, you probably would have cashed your check for about $2; the $6 you paid was probably charged at Chase, the location most participants in the exercise used to cash the check. AFCs, MoneyGram, Western Union, the USPS all charge less than $1 for a money order instead of $4. Seems like your group just made a bad choice.

Does a wall of touch screen ATMs at Chase demonstrate that banks offer a better alternative? Or does it demonstrate they don't have the personal service generally sought by many consumers?

I'm sure your readers have been bombarded with direct mail or e-mail offers from banks or credit card companies. Is excessive direct marketing a disease exclusive to AFCs?

You seemed to have missed the insight of speakers from Lisa Servon to CFSI Pres. & CEO Jennifer Tescher: AFCs are ahead of banks in meeting these consumer needs and that's why consumers take their business to AFCs.

Accordingly, you missed an opportunity to suggest that your readers re-think the traditional models of serving (or not serving) non-prime consumers. As Dan Schulman of AMEX indicated, this way of thinking is "crashing" and companies should change their paradigm as AMEX has done by offering services and pricing that look like those offered by AFCs.
Posted by CACInc | Friday, June 20 2014 at 12:05PM ET
It appears that this erstwhile professional journalist didn't try the same transactions at the Chase branch he "walked into" to experience how consumers without accounts would be treated there. Apparently fairness wasn't part of the agenda.
Posted by jim_wells | Tuesday, June 10 2014 at 1:09PM ET
Kevin- My Grad School marketing professor did a similar adventure almost 30 yrs ago but he actually lived in the area that he was researching. He had similar and maybe even worse experiences since it was before the spread of ATMs and usurious money lenders. Unfortunately after all these years nothing has changed. Operation Choke Point nor CFPB won't even make a dent.
Posted by RWHunter03 | Friday, June 06 2014 at 7:00PM ET
Same here. And your point is what? Now how about going to Colorado and let us know how the banks do business there for marijuna.
Posted by Gabi S | Friday, June 06 2014 at 6:01PM ET
The zeal of the federal examiners for Bank Secrecy Act exams will only ensure that "marginal" people will continue to lose their bank accounts. There is immense pressure placed on banks to close the account of ANY consumer who has even slightly "weird" transactions. Sure, you can try and "justify" why the accounts are okay, but at the end of the day, the fight with the examiners just isn't worth it. So the accounts get closed, the examiner is happy that they were able to enforce their personal opinions, and more and more people are pushed to these expensive non-bank providers.

Adding insult to injury, the DOJ launches "Operation Choke Point" to put these providers out of business. This will only push the "marginal" populations further underground and straight into the hands of criminal enterprises that will be more than happy to provide services and "protection" - at a price.

Well done Regulators!
Posted by PRLynn | Friday, June 06 2014 at 12:41PM ET
When considering the inherent compliance risks, the high cost of maintaining and staffing the requisite retail locations; not to mention the lower liklihood of fostering and growing long-term and mutually beneficial client relationships with this particular customer segment, it is quite easy to understand why the relative costs are where they are with the aforementioned transactions. Keep in mind, these are transactions for immediate services rendered that we are talking about, not long-term clients; thus, the fee levels make complete sense.
Posted by | Friday, June 06 2014 at 12:37PM ET
The poverty tax is alive and well! Economic self-reliance, parity and power for the underserved is an imperative. When the US Census bureau (2010) reports 90% of household growth will happen in the lower income segment for 10 years and there will be ~$104billion spent in fees & interest for short & very short term loans in 2014 (up ~8% YOY for the past 2 years) (see CFSI's latest), and excluded from this number is the plethora of other revenues from this segment, something must be done!!

A rather enlightening experience Mr. Wack. Mine in NYC (Harlem) was much better. Carver Federal (using Chexar) was wonderful. My check was cashed swiftly. I too shared info and received no addt'l offers. My visits to purchase money orders & the like was also good. A HUGE thanks to the wonderful people at CFSI! Ace Cash Express presents a wonderful opportunity for banks to leverage the reach via partnership (or acquisition). F/I's understand the segment's opportunity, but experience trepidation when considering the reputational risks. Advocacy groups & the like may apply pressure without offering viable solutions and we've seen the outcome. This summer millions of consumers will be pushed back to payday lenders. The unintended consequences of getting banks out of "high cost" lending, is highER cost lending for the end users. In the final analysis, we must ensure that we help the very people we aim to. Voice of Customer is a very valuable piece of data. F/I's can certainly charge less. However, in exercise strategies to do so, they run the risk of being accused of attracting usage which not one bank is willing to endure. Unfortunately, they may choose to negate the risks all together and simply not participate. Did you catch what I mentioned is happening this summer? Added costs of regulation and "court of public opinion" trials & execution do more harm than good for the people that have a "bit more month at the end of their money." This perpetual cycle saddens me deeply.

No! Don't give away anything. But help the segment, the advocacy groups, regulators and businesses to (in the words of CK Prahalad) "...stop thinking of the poor as victims or as a burden and start recognizing them as resilient and creative entrepreneurs and value-conscious consumers & a whole new world of opportunity will open up."
Posted by kwright325 | Thursday, June 05 2014 at 5:02PM ET
not sure what the point is....Washington requires identity or knowing your customers, not assuming excess risks and growing capital through earnings...taking care of the unbanked is not within their business models unless mandated as another managing society Washington policy. As a result for-profit shadow banking activities have emerged with pricing skewed to be excessive but necessary to cover the cost of risk and transaction size. The only answer is automating the processes, educating the under-banked, creating a better job environment or just forget trying to solve the problem and let the Post Office do it.
Posted by Rhsmith999 | Thursday, June 05 2014 at 1:00PM ET
This is excellent reporting. Note that opening a bank account requires the same kind of personal disclosures, but you only have to do it once and in an environment conducive to believing that your privacy will be respected.
Posted by Ed Walker | Thursday, June 05 2014 at 12:30PM ET
Add Your Comments:
Not Registered?
You must be registered to post a comment. Click here to register.
Already registered? Log in here
Please note you must now log in with your email address and password.