Fiserv Inc. is working to offer its walk-in bill-payment service in branches of banks that are trying to reach the underbanked, a large and potentially lucrative market.
The effort is a new frontier for the Brookfield, Wis., financial technology company, which has agreements with retailers to offer the CheckFreePay service in 12,000 locations around the country.
Fiserv said Monday that Nuestro Banco, a $16.3 million-asset start-up in Raleigh that targets Hispanics, now offers the service.
David Flores, Nuestro Banco's chief executive officer, said in an interview Wednesday that it is serving as "a test lab" for Fiserv "in integrating these secondary products into the traditional banking platforms."
The start-up, which agreed in April to use a Fiserv core processing application, formerly used a different Fiserv bill-payment service but switched to CheckFreePay because it offers next-day payments.
Nuestro Banco's business model is based on attracting customers who do not use traditional banking products and "over time migrate them into a checking account," Mr. Flores said.
The next-day payment service is essential for such customers, who frequently "come in at the last minute to pay the bill."
Along with check cashing, wire transfers, and calling cards, bill payment is an important nontraditional offering for consumers, Mr. Flores said.
"At their early stage, their needs are fairly simple," he said. "They work, they get paid, they need to cash their check, send money home, pay their bills, and call home to let them know they sent the money."
Paul Harrison, Fiserv's senior vice president and general manager for CheckFreePay, said in an interview Monday that most of the interest in "bringing services like bill payment in-house" is from small institutions that view it as a "differentiator," though Fiserv does have one "superregional organization that is showing interest in this."
Traditionally, walk-in bill payment has been "delivered through check-cashing organizations … and mom-and-pop-type bodegas and convenience stores," Mr. Harrison said.
Offering the service "is a very logical step for financial institutions" that see an opportunity in attracting large numbers of consumers who make little use of traditional bank products.
Fiserv bought CheckFree Corp. in December.
"Now that we are part of Fiserv, that is something we are very interested in," because Fiserv serves a lot of community banks and credit unions, Mr. Harrison said. "So we look at how we can take a service like bill payment and make that part of the core processing service Fiserv offers."
Mr. Flores said CheckFreePay is "integrated into the overall banking platform, so it allows us to gather data on the transactions and behavior" of clients who may not yet be traditional banking customers.
"That helps us to then identify the optimum point to introduce further banking services to them."
Nuestro Banco, which Mr. Flores said "offers everything from check cashing to commercial lending," opened its first branch in September and plans to open two more each year, at first focusing on North Carolina.
"The long-term vision is to become a regional bank in the Southeast," he said.
About a quarter of Nuestro Banco's check-cashing customers have opened checking accounts — a percentage far higher than it expected, leading it to boost its initial projections for its loan and deposit portfolios by about two and a half times, to $16 million each by the end of the year, Mr. Flores said.
The company divides its target market into three groups: recent immigrants, "the more acculturated, and the acculturated," he said.
"What we seem to be attracting is a segment of the customer base that's between that segment one and segment two," Mr. Flores said.
The quick conversion rate may be a result of a significant number of customers who receive guidance from immigrants who have been in the country longer, he said.
Jennifer Roth, an analyst with TowerGroup Inc., a Needham, Mass., independent research firm owned by MasterCard Inc., said, "Having the whole walk-in bill payment integrated into the retail branch is very different."
The service is "a great way to try and reach out to the unbanked," she said, though there are strong reasons for bill-payment providers to maintain relationships with retailers and stand-alone check cashers, such as the ability to offer extended hours at a wider network of locations.
