For N.Y. Check Cashers, Credit Union Relationships Are a Whole New Market

ARLINGTON, Va. – The ongoing relationship between two New York City credit unions and check cashers in the city, after getting off to a somewhat shaky start, has continued to grow. Last week, Actors Federal Credit Union, a $77 million institution located in Manhattan and one of the institutions working with the check cashers, announced that four more area check cashing firms have signed on to work with the credit unions. That takes the number of check cashing outlets involved to 75, or almost 20% of the city’s roughly 500 check cashing outlets, and more than 100 if outlets on Long Island are counted. Actors FCU and Bethex Federal Credit Union, a $9 million credit union based in the Bronx began working with check cashers in 2002 by entering into relationships with two area firms. One dropped out of the program after it was purchased by a bank that did not want to continue the association, but the effort continued with Bronx-based RiteCheck, a firm with 11 area outlets. Now Joseph Coleman, CEO of RiteCheck, feels vindicated by the participation of the other check cashing firms. “The relationship we have been able to forge with the credit unions has been like a marriage made in heaven,” he said. It’s easy to see what the credit unions get out of the arrangement. Less expensive than shared branching, which requires a branch or a shared brick and mortar facility, working with check cashers gives Bethex, a community development credit union, and Actors Federal an affordable way to significantly increase their reach in what is an otherwise very expensive market. At each check cashing branch, credit union members are able to deposit cash directly into their accounts for no fee. They can cash checks and then deposit all or part of the funds into the checking account for $1.50 fee. They can deposit checks into savings for no fee and then transfer the money by phone into checking or they can deposit checks directly into checking for no fee. Both credit unions will place customary holds against checks cashed in the latter two options. But some in the credit union industry find it more difficult to see what check cashers, or financial service centers as they prefer to be called, get out of the arrangement. That’s because too few of them understand that the financial service centers look at transactions, which many credit unions understand only in terms of cost, as revenue according to Coleman. “We are really a transaction store,” he said. “What we sell are transactions. That item which many credit unions have to count as a cost, particularly for low balance accounts, we see as a source of growth.” Where previously a check casher might just cash checks, it also derives income from each deposit in a credit union member’s account, as well as having a population which might be interested in other products. New York does not allow its checks cashers to make the so-called payday advance loans. In addition to RiteCheck, NYC Check Express, Regina Check Cashers, KHL Check Cashers and Pay O Matic have started accepting credit union members’ deposits and cashing checks. Of the five, Pay O Matic is the largest, with at least 100 locations in the New York City and Long Island area. Coleman points out that credit unions and check cashers can and should enjoy a cooperative arrangement, since in many ways they are interested in serving the same populations of lower income people and the financial service centers can do so at a more affordable price. Coleman noted that his outlets provide the public with one level of financial transaction and that the check cashers do not care if their clients also become members of credit unions. “There is this largely mythical term, the unbanked,” Coleman noted. “More than 60% of our customers have relationships with financial institutions. A better term would be the different levels of banking relationship that we all have.” Looking at the situation from the point of view of the financial service centers as transactions stores, Coleman pointed out, credit union members reflect a whole new untapped potential source for more transactions. But Coleman admitted that the financial service centers saw relationships with credit unions as a one way into the heart of the financial services industry, as a potential source of respect for an service which, they say, society has undervalued for too long. He said that there are many in the check cashing industry in New York who looked forward five or six years into future when every check casher would be outfitted with the special terminals that allow the check cashers to accept deposits for the credit unions. Onward And Upward? There are signs that the relationship could he headed in the direction Coleman and other Service Center executives want. Bethpage Community FCU, the $1.6 billion institution which NCUA recently allowed to add roughly 2.7 million potential members from Long Island’s Suffolk and Nassau counties, has confirmed that it is looking at the possibility of entering into a relationship with New York check cashers. “We are definitely studying the idea,” said Kirk Kordeleski, CEO of the credit union. “We have been interested since it seems like the price structure would fit our needs and working with the check cashers would let us have outlets in many lower income areas,” he added, but stressed that nothing firm had been decided yet. Making Bethpage the third New York area credit union to start working with the Service Centers would definitely change their image, according to Joy Cousminer, CEO of Bethex. “Everyone would show them respect then,” she noted. Cousminer explained that Bethex had found the relationship with the check cashers to be a benefit in a number of ways. “They put relevant materials from us in their shops and we have gained members from that,” she noted. She also explained that their members would benefit when Pay O Matic finished taking all its 100 outlets to 24 hour a day, seven day a week service, something the firm hopes to do before the end of the year. “Imagine what that will mean for our members,” she said, “especially the ones who work nights.” She also explained that Pay O Matic had set Bethex up as distributor of the MasterCard branded prepaid debit cards, something that she said Bethex had wanted to do through its Visa relationship but had found prohibitively expensive. Now credit union members will be able to add money to the cards in the credit union, which will earn Bethex $1.50, or the check cashers. Further, Bethex will get interchange income from each card transaction from a card one of its members hold. “We have only had it for two weeks,” Cousminer said, “but it’s very, very hot.” But Steve Sobotta, marketing director for Actors, doubted whether his institution would ever offer the prepaid cards, explaining that different credit unions could take different parts of the relationship with the Service Centers. “It’s like ice cream,” he said. “Not all the same flavor.” Yet with all the growth in the relationship, both Coleman and Cousminer agreed that it was the regulated nature of the check cashers in New York that made it possible, both reassuring credit unions about the sort of firms with whom they began to work and setting the margins on each transaction to keep credit union members from being exploited. The tight margins also helped spur check casher interest in broadening the pool of potential transactions to include credit union members. -