Citizens Trust Bank of Atlanta, a community bank and one of the oldest minority-owned financial institutions, has stepped forward to offer financial services to the unbanked.

The $245 million-asset bank, which has 11 branches, has agreed to distribute a debit card developed by Directo Inc., an Atlanta technology company founded last year by T. Stephen Johnson, a prominent banking consultant who also started Netbank Inc., an Internet-only institution.

Rhen Cain, president and chief executive officer of Directo, said the debit card, called Direct 2 Cash, is a "simple, straightforward," and inexpensive way for people who lack credit and do not qualify for traditional checking accounts to gain access to cash.

"If they are employed and their employer offers direct deposit, they are eligible," said Mr. Cain, a 23-year veteran of the former NationsBank Corp. who once led its treasury management services group. "It is a first step in helping an employer move to an all-electronic payroll, and it is a wonderful step to help people who don't qualify get something through their employer."

Banks have been leery of offering services for the unbanked, since there is little or no opportunity for profit. Unbanked people do not usually perform fee-generating transactions, and when they come in to cash checks, they tend to ask a lot of questions and increase congestion in bank lobbies, bankers say. But congressmen and regulators are putting increasing pressure on banks to serve this population. Offering services to low-income, unbanked people, moreover, can help banks fulfill their Community Reinvestment Act obligations.

Citigroup Inc. struck a deal in January with the National Check Cashers Association to issue debit cards for recipients of government benefits. Citicorp Services Inc., a Chicago-based Citigroup subsidiary that handles electronic benefits transfers, is establishing deposit accounts for unbanked people who sign up with participating check cashers. The bank issues debit cards for those accounts that customers can use at ATMs, point of sale terminals, and check cashers.

Janet Eissenstat, associate director of the American Bankers Association, said unbanked people typically have to do business at expensive check-cashing outlets, which charge 3% to 6% of the face value of the check. The Treasury Department, meanwhile, estimates the costs to low- and middle-income families of check-cashing and bill-paying can exceed $15,000 over a lifetime.

As many as 10 million U.S. households do not have a banking relationship, and James E. Young, president and chief executive officer of Citizens, said there will be a growing emphasis on the unbanked this year.

And with no more Y2K concerns, congressional leaders and regulatory agencies are starting to act. "Bankers expect to have to deal with this issue," Mr. Young said. "Major banks have planned here. They will probably not want to move off the dime until somehow the government sounds the gong."

Serving the unbanked has been an elusive goal, Mr. Young said. Many banks require a credit check, proof of address, and proof of employment. Directo says it will help Citizens build a deeper financial relationship with employers and their unbanked employees, who may one day become bank customers.

The unbanked population is a drag on the economy, said Treasury Secretary Lawrence Summers at a recent Consumer Bankers Association conference in Washington. He said the unbanked population weighs on employers and society because it costs 42 cents to process a paycheck, but just two cents for the government to pay its employees electronically. Private-sector employers incur similar costs.

Mr. Summers said Democrats in the House and Senate will introduce legislation that would authorize a $30 million test program in fiscal 2001 to broaden access to banking services. The $30 million would finance pilot strategies to help low- and moderate-income Americans open low-cost basic bank accounts. The legislation includes measures that could significantly expand services to the unbanked by providing incentives for financial institutions to offer low-cost first accounts. It would also offer incentives to banks to expand access to ATMs and the Internet.

Still, the burdens of carrying out such programs and servicing the unbanked would largely be borne by banks, and they are hardly relishing the prospect of entering a market that might lead to additional branch traffic in the least profitable segment of the market, Mr. Cain said.

"I would not say they have resisted it, but traditionally the banks are not excited about offering these low- cost, no-frills accounts to low-end families or individuals," he said.

Mr. Young at Citizens predicted the ETA program would ultimately become a reality, though it certainly has a long road to travel. "I think technology is moving in the direction of this now."

Citizens' agreement with Directo will provide a boost to the development of affordable, efficient financial services targeting a segment of the market that most banks have previously avoided.

"These are normally unprofitable relationships for a bank," Mr. Young said. "I think the basic concern for bankers is whether or not you can provide a bank account that is not prohibitively expensive to the bank.

"It is nice to say that everyone deserves and should have access to a bank account," he continued. "The problem is the efficiencies the market will demand. In fact, the regulators themselves will demand an efficient operation of every bank."

Mr. Young said banks are gearing up in anticipation of regulatory prodding. The current "carrot" approach will by yearend become a "stick," he predicted. He said Directo's product might provide a model for the banking industry to emulate, with banks choosing it or developing similar offerings.

"This new product allows the individual inexpensive access to their cash and a way to purchase goods and services without any risk of overdrawing the amount of money they have in the account," he said.

The product essentially offers the functionality of a checking account, but with none of the associated operating costs of paper processing, stop-check orders, and overdrafts.

Instead of distributing paychecks, employers would deposit workers' funds into bank accounts and issue debit - or Directo - cards, which employees would use to gain access to their funds at ATMs or points of sale. Cardholders could also use the cards for recurring, preauthorized bill payments.

Citizens is proactively stepping into the market. Directo produces very little risk of loss for the bank. In fact, the cardholder would not even become a customer of Citizens.

Directo would own the relationship, while the funds would reside in one of several banks that Directo has allied with. The money would be moved from an employer's account to employee subaccounts held at Cardinal Bank, Fairfax, Va., or First National Bank of Chatsworth, Ga.

These banks would originate automated clearing house transactions, crediting the employee subaccount.

The choice of bank would depend on which credit card association the employer chooses to use because the debit cards have online and offline debt features built in. Cardinal is essentially affiliated with Visa while Chatsworth is a MasterCard bank.

Employers typically pay for these transactional accounts, and can afford to do so because of the savings realized from eliminating paper-check processing and distributions, Mr. Cain said.

"The cost of distributing paper checks is an enormous expense for many companies because they use overnight express services," Mr. Cain said. "They have all bank charges, the account reconcilement charges, and stop-payment charges."

Citizens would essentially distribute Directo cards and earn recurring monthly payments for every active Directo card. Personnel at all 11 Citizens branches have been advised on how to guide customers through the set-up process with their employers.

"It is not my customer, I am simply a referral service," Mr. Young said. "I can either turn them away or say, `I am sympathetic to your problem, here is an opportunity you might be interested in,' " he said.

One feature of the card is that employees can send companion cards to spouses or family members. A worker who wants to send money to family in another part of the country would designate the amount of the paycheck that can be withdrawn at an ATM by the companion cardholder.

"It is a wonderful feature because many immigrant workers today send money back home to family whether it is in Latin America, Eastern Europe, or Africa," Mr. Cain said. "Most of them do that through Western Union or MoneyGram, where there are fees involved and where the exchange rates are not as advantageous."

Citizens is the first bank to distribute Directo cards. Directo has worked mainly with employers for enrollment, signing up 23 corporations as customers. Mr. Cain said there are "several thousand active cardholders. Directo's business model calls for 50,000 accounts for it to achieve profitability.

The company derives a monthly fee for each individual account, which is paid by the employer. In addition, it earns transactional fees each time the card is used at an ATM or point of sale terminal.

Mr. Johnson formed the company in part because of the travails of his housekeeper, a Hispanic woman who helped him raise his family, Mr. Cain said. "The housekeeper's plight was not being able to establish credit, not having an account, not being able to get money back to her family," he said.

Because of job growth in Georgia, Mr. Cain said, there has been a large influx of Hispanic workers. More than 50,000 live in Gainesville, and another 40,000 live and work near Dalton.

"Steve saw there was a real market opportunity," Mr. Cain said. He said "Directo" and "Acceso," the companion card, are so named to inspire trust among potential Hispanic users. The company has raised $10 million of capital through two private placements with individual investors and venture capitalists.

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