Several banks see a pot of gold at the end of a federal mandate to convert most federal benefit payments into electronic funds transfers (EFTs) by January 1, 1999, but the nation's check cashers fear they could be left holding an empty bag. Government fees for handling EFTs are minimal, but big banks like Citibank hope to find profit in volume. Theoretically, one bank could serve electronic benefits transfer (EBT) recipients across the whole country, cutting deeply into the $50 billion in checks cashed each year at check cashing outlets. Citibank, which has EBT contracts in 27 states, has a $1 billion contract to deliver public assistance through plastic cards, point-of-sale terminals and ATMs in New York. That project has been placed on hold while check cashers litigate against it in court. The check cashers hope to offset potential losses by working with banks, becoming distribution points for electronic payments. The Check Cashers Association of New York is testing a program in conjunction with Chase that will enable EBT recipients to get their cash at personal teller machines (PTMs) installed at 18 New York City check cashing stores. And Illinois check cashers have joined Corus Bank and LaSalle National Bank in a program called SecureCheck that allows government EBT recipients to pick up their payments in cash or check form at 712 check cashing stores. "Some banks would like to get the check cashers out of the loop altogether. But that's not our game plan at all," says David Johnson, evp and chief operating officer at Corus, who says that Corus views check cashers as good bank customers. "We want to make the check cashing outlets continue to thrive and provide them with services." SecureCheck also puts the bank in touch with potential customers in the unbanked population. Cashing government checks accounts for about 25 percent of the check cashing industry's business. To offset losses stemming from the government's EFT mandate, check cashers hope to increase sales of other nonbank transaction instruments like phone cards, lottery tickets and transportation cards. The check cashers are also getting into traditional banking. "In central and southern states, check cashers are moving into small loans," says John Caskey, a Swarthmore College economics professor and author of "Fringe Banking," a history of the check cashing industry. "Check cashers advance small amounts at very high interest rates for post-dated checks. The challenge, he says, is how to make this profitable since they are dealing with high-risk consumers." -peterson

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