As banks struggle to find new sources of profits, some are starting to notice the poor customers they have long ignored.
While many bigger institutions are looking to ditch customers deemed unprofitable, by increasing checking account fees and other prices, a few are daring to move in the opposite direction. A handful of large banks are trying to hold onto more customers by offering them new products, including the so-called alternative financial services typically sold by check-cashers, remittance providers and other non-bank institutions.
Regions Financial Corp. recently rolled out a host of such services under a "now banking" program, in a bid to gain business from both non-customers and existing customers. The Birmingham, Ala., bank has expanded its check-cashing services at some branches, and has also started selling reloadable prepaid cards, money transfers, and walk-in bill payment services.
"We saw opportunity to strengthen our relationship with existing customers and meet the needs of the whole community," says Regions spokeswoman Evelyn Mitchell.
Such offerings come as banks have to work harder to find new business. New regulations have reduced the revenue that banks can earn from popular debit card operations, interest rates are lingering at all-time lows, and customer appetite for new loans remains weak.
Banks have generally neglected low-income consumers, seeing little profit in trying to attract business from poor people who live paycheck to paycheck. But now, as banks explore all options to boost their bottom lines, some are more willing to consider selling the alternative financial products these customers use. Now banks including Wells Fargo & Co., KeyCorp and U.S. Bancorp are increasingly trying to appeal to customers that their industry has largely ignored.
"We have seen a number of banks working on building out those transaction services," including check cashing and money orders, says Kimberly Gartner, vice president of advisory services at the Center for Financial Services Innovation. The non-profit organization helps develop financial services for so-called underbanked customers, who do not have or regularly use traditional bank accounts.
"A couple of [financial] institutions have made a real commitment, others are exploring it, and others are just talking about it and thinking more strategically," Gartner says. "Banks historically have been in the business of helping customers manage cash flow and make payments. More banks are realizing they can offer high quality products that underserved consumers need and also make money."
By offering services like check cashing and money transfers, banks can both bring in additional business from existing customers and attract those without a bank account.
Regions, for example, found that 30% of its customers were using financial services from a non-bank, according to a survey of about 2,600 customers last winter. And 41% of all the survey's respondents said that they would be interested in having Regions provide similar services.
The bank is also deliberately reaching out to potential new customers it once turned away. Regions previously would only cash the checks of existing customers or of non-customers who walked in with checks written by Regions customers. Now at certain branches, the bank will cash the checks of anyone who walks in, even if they are not existing customers.
For this service, Regions charges between 1.5% and 3% of the underlying check amount, with a minimum fee of $3. (It charges 5% for cashing money-orders.)
Those prices are competitive with most independent check-cashers, who also charge customers on a percentage basis, but more expensive than some of the most popular options. Longtime industry nemesis Wal-Mart Stores Inc., for example, charges a flat fee of $3 to cash checks of up to $1000, or $6 for checks between $1000 and $5000.
Regions spokeswoman Mitchell would not comment on competitors' pricing but says the consumer response to the new services "has been positive so far."
She declined to provide figures on enrollment to date because the program is relatively new: the bank started testing its new services in July and rolled them out to its branches in September. The services are in 1,200 branches to date, and Regions plans to offer them at every branch by the first quarter of next year.
KeyCorp, for example, has been offering some alternative financial products since 2004. The Cleveland, Ohio-based bank offers check cashing, money orders and other services, along with financial education classes, through its KeyBank Plus program.
"It's our job to help people find comfort with banks, where they might have felt ignored or uncertain in the past, and help them achieve financial confidence, stability, and their financial goals," Key executive Rodney Drake said in an Oct. 26 press release announcing his promotion to head of the KeyBank Plus program. The bank did not respond to a request for comment.
Mega-bank Wells Fargo & Co. has long competed with non-banks Western Union Co. and MoneyGram International Inc. to offer international money-transfer services.
The San Francisco-based bank also offers a secured credit card that requires collateral for consumers with bad credit or no credit history. In July, Wells teamed up with Spanish-language media company SaberesPoder to offer financial education classes across 13 U.S. cities.
Other traditional financial institutions, including American Express Co. and U.S. Bancorp, have unveiled prepaid debit cards in recent months. These cards, which customers can fund and use without having a checking account, are largely sold to low-income customers — and for the banks, they have the benefit of being largely exempt from recent regulations capping the profitability of debit cards.
But despite these moves, non-banks including Wal-Mart, Western Union, specialized check-cashing businesses and payday lenders continue to be the first resort for the estimated 60 million underbanked Americans.
Wal-Mart, in particular, remains in some ways the elephant in the room for banks considering an entry into alternative products, given its expansive reach across the country, low prices, and name recognition. The world's largest retailer did not return a request for comment.
"Banks are always a little bit concerned and they certainly keep what Wal-Mart is doing in the back of their consciousness," says Scott Strumello, a consultant with the Auriemma Consulting Group.
And for the most part, banks are not yet rushing to compete much with Wal-Mart.
"In terms of what's available there today, Wal-Mart is sort of targeting a customer that most banks are not catering to presently," Strumello says. "I don't necessarily sense that their customers are one and the same."