Entering the third year of a joint venture with Nix Check Cashing of Los Angeles, Union Bank of California plans to convert another 17 of Nixs check-cashing offices this year into locations that offer a limited range of bank services.
The offices will not come close to providing everything a customer would normally expect from a bank branch and thats no accident, according to Tom Branch, Union Banks project manager for the check cashing locations.
We are still experimenting with the model, trying to figure out what the market will support, he said in an interview last week. After 40 years of banks abandoning these markets, a lot of alternative service providers have taken their place, and the trick is to find where traditional banking services can find an outlet, he said.
Though the community organization Operation Hope has a stake in the venture and offers financial guidance to would-be customers, other activists complain that, by linking up with a check-cashing company, Union Bank benefits from the high-return business but does not provide the branch services that it would in higher-income communities.
I think it would be great for check cashers to be integrated into mainstream banking Im just not sure this model will do it, said Arthi Varma, a policy advocate at the Community Reinvestment Committee.
One of the critics big concerns: A Union Bank customer cannot make a deposit, withdraw money, or cash a check for free at the bank/check-cashing offices. Instead, the customer uses an automated teller machine to make deposits or withdrawals. A customer that wants to cash a check must pay Nixs rates.
I dont think these are replacements for cash transactions, Ms. Varma said.
Whats more, payday lending a service Nix provides has come under fire recently in California. The state Legislature is considering a bill that would limit the number of times one of these short-term loans can be rolled over without offering a lower-rate payment plan.
But Union Bank, a subsidiary of the San Francisco-based UnionBanCal Corp., which is majority-owned by Bank of Tokyo-Mitsubishi Ltd., is convinced that an incremental approach is the right one to use in developing a market for branch services.
Richard Hartnack, the banks vice chairman, said in an earlier interview that the beauty of the joint venture model is that the bank can enter a new market with a platform that is already making money, and then slowly roll out bank services.
Banks lose money when they put branches in low-income areas certainly from an opportunity/cost standpoint, history has been that the returns arent that high, Mr. Branch said.
Union Bank has time to bring revenues from the bank services up to speed. The March 2000 deal that created the joint venture gave the bank a 40% stake in Nixs parent, Navicert Financial Inc., with the option to buy the remaining portion in the 10th year of the venture. Most of Nixs 47 offices are in Los Angeles area neighborhoods with few bank branches.
In the first year of the venture, Union Bank converted three check-cashing locations, and last year it converted 10. Conversion generally entails putting up Union Bank signs and installing an ATM, a phone that dials directly to the bank for loan and other account service, and a special teller window with Union Bank signs.
The bank is considering opening a hybrid location that would offer more bank services, said Mr. Branch.
But the real test is converting Nix customers to Union Bank customers. This is a key concern with activists who would ultimately like more people to use the banks lower-cost services.
Mr. Branch would not give figures on new customers, except to say that the number of Union Bank accounts at Nix locations at yearend increased about 500% from the end of 2000.
And despite its efforts to encourage check-cashing customers to open bank accounts, Union Bank must be careful that its bank services do not drain business away from Nix, which stands to lose money if a customer gets used to using a bank account for depositing checks and withdrawing cash.
