The National Check Cashers Association and Citigroup have struck a deal to issue a debit card for recipients of government benefits.
The initiative, meant to assist people without bank accounts, will also help the check cashers, which will be able to handle transactions as state and federal social service programs convert from paper to electronics.
The partners plan to start issuing debit cards soon to participating members of the association, which represents 3,500 of the nation's 6,000 check cashers.
Chicago-based Citicorp Services Inc. will establish deposit accounts for people who sign up with participating check cashers, and will issue debit cards for those accounts. The cardholders will be able to use the cards at ATMs, point of sale terminals, and check cashers.
Charges will range from $3 to $6 for monthly maintenance, and $1 to $2 for withdrawals and point of sale purchases.
How much would go to the check cashers has not been disclosed.
The association said the transaction fees will help check cashers cover fees they must pay to regional funds transfer networks.
Citicorp Services, the leader in electronic benefits transfer, has contracts with dozens of states for the paperless delivery of state and federal benefits.
The debit card will represent another distribution channel for the 10 million federal benefit recipients without bank accounts.
"It's a great way to reach the unbanked," said Mark E. MacKenzie, executive director of Citicorp Services, a Citigroup subsidiary. The project, he added, gives Citicorp "an ability to get a significant amount of accounts and transactions-which is what our goal is."
Check cashers, which thrive in low-income neighborhoods and places where bank branches are scarce, will offer debit cards similar to those linked to standard checking and savings accounts.
"Even those without a bank account can enjoy the advantages of getting their benefits or payroll deposits electronically," said Stephen Wolf, chairman of the check cashers' association's Electronic Funds Transfer '99 committee.
Executives also characterized the debit card as a market solution to help the Treasury Department reach its goal of distributing all benefit payments electronically by yearend.
The department's suggested method, electronic transaction accounts-or ETAs-has been criticized by bankers, who question whether the $3 monthly fee is enough to attract participants.
"Banks neither have the time, place, or inclination to market to these 10 million consumers," said Robert A. Bucceri, president of Chaddsford Planning Associates of West Chester, Pa. "Payment service providers are saying to banks, 'We will take on the customer relationship, we will take on the marketing, we will take on the training of personnel-you provide the account number, the routing number, and the authorization engine.'"
The deal between Citicorp Services and the National Check Cashers Association comes two years after the Check Cashers Association of New York tried to block the bank's winning bid for the state's EBT contract in federal court.
The New York group teamed up with Transactive Corp.-which at the time was a rival electronic benefits transfer contractor-to challenge the bidding procedure Citicorp had followed.
A federal appellate court in New York dismissed the case in 1997, clearing the way for Citibank to proceed with a rollout in the state, as it plans to do this year.
Last year Citicorp bought Transactive, which had been owned by Gtech Corp., a gaming machines company based in Rhode Island.
Mr. Wolf said check cashers have accepted the fact that a large portion of their paper check volume-such as Social Security and Supplemental Security Income payments-is moving toward an electronic system.
"The idea that they might all go to some direct deposit form was a threat to some of our business volumes," Mr. Wolf said. "We wanted to (create) a product that we felt was beneficial to us as well as to our customers."