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In Depth: Financial & Investments) From the September 29, 2000 print edit ion

Pay cards pay off for firmstargeting the' underbanked'Anne Melfi Contributing Writer

Pay cards could be a passport for 30 million U.S. consumerswho don't have bank accounts to participate in the financialsystem.

Three Atlanta-based companies smelled oppornrniry and areoffering a card for the underbanked. It looks like a creditcard, acts like a debit card, allows the customer to receiveelectronic deposits, but is not tied to a conventional bankaccount. In the first three years of the industry's existence,each company has been shaping its product and feestructures differently for a variety of markets.

"We want to eliminate the embarrassment at the bank -- ofstanding in a long line to cash a paycheck, having to befingerprinted -- and the danger of carrying cash," said PaulClanton, vice president of sales and marketing at SkylightCorp., which won the American Staffing Associationendorsement.

Skylight markets to employers and to individuals by mail andTV ads that flash an 800 number, attracting mainlyminorities of all economic levels who are new to the UnitedStates and a few Americans with bad credit who want a newstart.

Employers pay nothing to provide the card to underbanked

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employees, so even transient workers get paid by electronicdeposit. The employee pays nothing to open the account.Skylight makes its money on the monthly fee, which theemployee pays along with a dollar for every ATMtransaction.

The first four transactions are free and Skylight instructscustomers to get their cash when they make purchases, sothere's no charge.

"We make our money on volume and service," Clanton said."If a customer uses the ATM 50 times a month. we call himup and teach him how to save."

The main challenge facing all companies is not the languagebarrier.

"Certain nationalities distrust banks, based on experience intheir own countries," said Rhen Cain, CEO of Directo Inc.,which chiefly targets the Hispanic communiry.

Directo is educating the underbanked on how the card canprotect them from high fringe banking fees, such as the 6percent charge at Check Cashers, and promote the card'sconvenience and prestige. Bearing the Visa or MasterCardlogo increases its functionality and helps employees build acredit rating. They can use it as a phone card or to wiremoney safely by phone.

Directo markets directly to employers. CEO Stephen Johnsonbrought Lewis Massey aboard Directo paftly because of hisconnection with Hispanic communities in Gainesville, wherepoultry processors have attracted 50,000 Hispanics, and inDalton carpet factory territory, with its 40,000 Hispanics.

Directo's client, Citizens Trust Bank, serves African-Americancommunities in Atlanta.

"These communities generally have a 30 to 40 percent turn-do'urm rate for checking account applicants," Cain said. Thebank can give turn-downs a form for their employer tocomplete and, if they employer offers direct deposit, the bankissues the card. Directo pays the bank a fee and gets apercentage of the monthly fee the bank charges thecustomer.

"Our primary revenue source is user fees of 75 cents at pointof sale and a $1 to $1.75 at the ATM," Cain said. Directo alsocharges a $5 start-up fee per employee, usually paid by theemployer.

Companies all over the United States have cards -- Citigroup

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Inc., Bank of America Corp., Bank One Corp., ePacific Inc., avariety of payroll companies and Western Union, a subsidiaryof Atlanta-based First Data Corp.

"We're offering the product to the teen market," said LannyByers, vice president at Colorado-based Western Union. "Theyounger generation, who have elected not to bank. In the lastthree to five years, banks have increased the fees they hit onpeople." Parents can load the card with funds and know it'snot carte blanche, because kids can only spend what's on thecard. The charge is $1 for every ATM transaction and 1.4percent on purchases.

"People can use the cash card as an alternative to transferringmoney anywhere in the world," Byers said.

He would not comment on the class-action lawsuit againstWestern Union charging unfair exchange rates for 25 millionwire transfers sent to Mexico through Western Union andMoneyGram over five years. The suit was settled out of courtin Chicago in May of 1999, with the company offeringcoupons for future transfers. The settlement raised the ire ofthe Hispanic communiry and inspired the Mexicangovernment to launch a campaign to educate Hispanics onthe best vehicles for money transfers.

Byers has his eyes on new horizons. He plans a pilot projectoffering a card to individuals in a limited launch at a fewWestern Union locations, and he's co-branded a card withRevelation America African American Baptist churches,which added prescription drug and other discounts to thecard.

"We're the engine behind Priceline.com," Byers said. lVhenyou win a grocery bid, enter your credit card number to payit and receive a Western Union card that says "PricelineWebhouse" to take to your grocery store. The price you'repaylng is secret -- the cashier doesn't know what you paid.

"Priceline pays us for servicing the plastic and processing,"Byers said.

The Western Union payroll card costs employers the same asit would to set up a checking account. It's cheaper in the longrun, because it reduces infrastructure, Byers said.

The industry still is too young to generate hard data onresults, especially since the underbanked leave no data trail.

"We believe it's been very successful," Byers said. "Peoplehave shown a need and demand."