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Transcript of Union Bank Cash & Save Program
8/3/2019 Union Bank Cash & Save Program
http://slidepdf.com/reader/full/union-bank-cash-save-program 1/8
Cash & Save, located in Southern
California, is a hybrid check-cashing
service and transitional network of
bank branches started by Union Bank
of California (UBOC) nine years ago to
increase its customer base and to help
low- to moderate-income check-cashing customers move to traditional
banking services. This network has benefited both the bank and the low-
to moderate-income communities it serves.
Cash & Save is profitable, has low operating costs, and provides a wide
range of services. Moreover, 45 percent of its customers have made the
transition from check cashing to conventional bank products. The
Cash & Save model extends its reach by providing its transitional
banking services, such as the Nest Egg savings account, through Nix
Check Cashing, a successful California outlet. In 2000, UBOC bought a
60 percent stake in Nix and created the Nix Alliance. As of May 2002,
20 Nix outlets offered UBOC banking products, in addition to check
cashing, through this alliance. By the end of 2002, 10 more outlets
were added. Cash & Save branches are separate from the Nix Alliance
and continue to expand, with branches inside major supermarkets and
retail establishments identified by UBOC’s Corporate and Commercial
Banking Groups as customers and prospects.
1
Cash & Save—Union Bank of California
A hybrid banking service
offering check-cashing
services, full-service
banking products, and
financial literacy training
Cash & Save, Union Bank
of California, CA
Check-cashing depository
Check cashing, Nest Egg
savings accounts, basic
checking accounts, money
orders, and money wiring
143,000 low- and moderat
income check-cashing
customers in California
▼45 percent of repeat
check-cashing customers
have moved to traditional
banking products.
▼Cash & Save offers high
competitive check-cashing
prices.
▼ Financial education
offered in collaboration
with community-based
partners has allowed man
customers to rebuild their
credit.
▼ Cash & Save has facili-
tated immigrant banking
initiatives and has created
Individual Development
Account matched-savings
account programs.
Name andLocation
Business
Model
ServicesOffered
ConstituencyServed
Success andOutcomesto Date
T R A N S A C T I O N S A N D B A S I C B A N K I N G
CASESTUDY
Innovations in Personal Finance for the Unbanked:Emerging Practices from the Field
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HistoryFounded in 1993, Cash & Save is a business unit of
UBOC, which is the third-largest commercial bank inCalifornia and has $34 billion in assets. UBOC has
260 branches in California, Oregon, and
Washington, including 200 traditional branches in
California and 50 that are located inside supermar-
kets, plus six traditional offices in Washington and
Oregon. Cash & Save combines check-cashing services
and transitional products with traditional bank prod-
ucts. Transitional products include a savings account
Cash & Save is a lower-cost alternative to traditional
banking outlets and does not require customers to
have an account with UBOC to cash checks. Cash &
Save accepts deposits, and many branches have full-
service ATMs. It offers a complete range of check-
cashing services, including payroll and government
check cashing for non-account holders; transitional
banking services; and full-service banking products,
deposits, and mortgages. The staff is multilingual,
and branches are open seven days a week.
Cash & Save emphasizes combining products, serv-
ice, and education to turn check-cashing customers
into depositors and savers. Its partnership with
Operation Hope Inc. and other community-based
organizations enables low-income consumers to gain
access to financial literacy training, education, and
counseling services.
Cash & Save became profitable in 1999 and exceeded
profit margins in 2000. The Nix Alliance has been key
in increasing UBOC’s scale and profitability. This
alliance shows how check-cashing outlets can be good
partners for traditional financial institutions in their
efforts to reach the unbanked. Through the Nix
Alliance, UBOC has tapped into the many advan-
tages that check-cashing outlets offer–-volume and
scale, lower operating costs, an existing investment in
fixed costs, customer familiarity, many locations in
the target markets, an established presence in the
community, and an existing facility to which extra
services and features can be added inexpensively.
However, the alliance has been criticized because
check-cashing companies are often perceived as
profiteers, and consumer advocates are unhappy
when banks team with them.
2
T R A N S A C T I O N S A N D B A S I C B A N K I N G Cash & Save—Union Bank of California
“We started Cash & Save to meet basic transaction
needs at a reasonable, below-market cost and provide
a channel for individuals to enter the mainstream
financial services market through a model of transi-
tional products, financial literacy, and collaboration
with community-based organizations,” says Yolanda
Brown, senior vice president, Union Bank of California.
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called the Nest Egg and money orders. Nest Egg
accounts come with six free money orders a month,can be started with $10, and offer electronic transfer
accounts and regular checking and savings services.
In 2000, UBOC purchased a 60 percent equity stake in
Navicert Financial, Inc., known as Nix Check Cashing,
and established the Nix Alliance. Nix is a 34-year-old
company with 600,000 customers served by 47
branches in Southern California. The creation of the
Nix Alliance made all UBOC banking products—
including Cash & Save transitional banking products,
ATMs, consumer deposits, loans, and small businessproducts—accessible through 20 Nix outlets. Moreover,
Nix has modified its prices for check cashing and some
of its other products to benefit the consumer.
In addition, UBOC has a partnership with Operation
Hope Inc. (OHI), a community development corpora-
tion, through which low-income consumers gain
access to financial education and counseling services.
Business ModelProgram/Product Description and OutcomesUBOC sees the unbanked as a potential new market
and is reaching out to low- and moderate-income
households that do not have a relationship with a
traditional banking institution. It offers this customer
base a range of financial products that aim to increase
savings, homeownership, and small business activity.UBOC’s goal is to move low- to moderate-income
customers to conventional banking, while creating
loyalty and capturing a significant portion of the
unbanked population.
UBOC studied the California banking industry exten-
sively in order to maximize the impact of its Cash & Save
division. Studies showed
that over the past twodecades, there had been a
significant decline in bank-
ing services. Between 1984
and 1999, the number of
banks in the state declined
by a dramatic 28 percent,
and the number of branches
fell by 23 percent. Meanwhile, services provided by check
cashing and payday lending operations had filled the
gap, with more than 3,500 new licenses granted in
California since the 1980s. The shortfall was aggravated
by increases in population. UBOC saw substantial
opportunity in this growing market but realized that tra-
ditional banking models were not appropriate and that
new models were needed. This realization led UBOC to
start Cash & Save as a new business unit in 1993. Since
that time, this service has expanded to 15 branches.
With 143,000 customers,
Cash & Save is a profitable
operation and continues toextend its reach by expand-
ing inside high-volume
supermarkets and retail
establishments. Nix, with
600,000 customers and 47
stores, offered a viable parallel
delivery option: Stores were
spread throughout the area
and already supported a fixed investment through
their check-cashing operations. In 2000, UBOC pur-
chased a 60 percent stake in Nix and established the
Nix Alliance, whose locations feature a UBOC no-
charge ATM (even for customers of other banks) and a
new accounts information window where UBOC staff
are available to discuss bank and OHI products. UBOC
has supported the Nix Alliance with staff specifically
designated for program development and operation.
T R A N S A C T I O N S A N D B A S I C B A N K I N G Cash & Save—Union Bank of California
Because volume is
critical for success,
UBOC’s main strategic
focus for Cash & Save
was to achieve scale
quickly and to gain
immediate access to a
large customer base.
Over the past two
decades, the number ofunbanked households in
California has increased
significantly and now
represents a large,
mostly ignored market.
1 Cash & Save branches are federally chartered bank branches regulated by the Office of the Comptroller of the Currency. Nix stores are not and do not engage
in branching activities. Legal agreements between UBOC and Nix govern the expectations, roles, and responsibilities of the respective parties.
8/3/2019 Union Bank Cash & Save Program
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As of May 2002, 20 Nix stores had converted to the
alliance model,1 and by the end of 2002, a total of 30
outlets were slated to offer UBOC banking products and
services along with traditional check cashing.
“The Nix acquisition allows [UBOC] to, in effect, gain
a presence in a marketplace where there are far too
few banks,” says Thomas Branch, a senior vice presi-
dent at the bank. “Our strategy is to work with Nix to
provide access to mainstream financial services to
encourage financial education.”
Products/Services and Pricing
In part because of increased market competition and
tighter regulation, the rates for check cashing in
Southern California have dropped during the past
few years. For example, to cash checks up to $1,000,
Nix charges $1.85, compared with a typical charge of
$3 in the San Francisco area. Nonetheless, as part of
its alliance with UBOC, Nix has agreed to lower its
check-cashing prices. It also has agreed to modify its
payday loan product to limit the number of rollovers,
offer consumer education information, provide a
description of all alternatives to payday loans, dis-
cuss the risks and problems with the applicant, and
provide a one-day waiting period during which the
customer can decline the loan with no penalty.
Neither UBOC nor its Cash & Save division offers pay-
day loans. Several years ago, UBOC attempted a pay-
day lending pilot program through Nix stores, but it
had a high default rate that resulted in its termination.
Consumer Segment ServedCash & Save serves 143,000 check-cashing customers
in 15 branches. The Nix Alliance serves 600,000check-cashing customers in 47 stores.
TechnologyEach Cash & Save has several workstations with a
computer and a dispenser, and an internal vault for
funds. The computers hold transaction histories with
UBOC, plus photo- and signature-based computer-
ized identification.
Nix stores and UBOC are connected to the World
Wide Web and maintain a platform for conveying
and sharing information.
Location and HoursCash & Save branches are small, in some cases only
about 250 square feet. UBOC has Cash & Save
branches inside traditional branches, retail and
warehouse grocery stores, and a laundry center/
For members, 1 percent of the face
value of the check; for nonmem-
bers, 1.5 percent.
A $10 opening balance and $25
per month; the account earns
interest and is eventually rolled
over to a savings or a checkingaccount.
Six money orders per month are
included with a Nest Egg savings
account. Additional money orders
sell for 50 cents in Cash & Save
stand-alone branches. Most cus-
tomers find six money orders a
month sufficient for bill paying.
$15 for a $300 MoneyGram or $5
for a Cash Card (up to $1,000)
that can be used to transfer money
within the United States and
internationally.
This direct-deposit account
requires no opening balance.
A $1 opening balance, plus a $3
monthly charge; the limit is five
free checks a month.
Check cashing
Nest Egg savingsaccount
Money orders
Money transfers
Electronic transferaccounts
Basic checkingaccounts
TYPE OF SERVICE PRICE
Pricing of Services at Cash & Save
T R A N S A C T I O N S A N D B A S I C B A N K I N G Cash & Save—Union Bank of California
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multi-retail setting in Southern
and Central California.
Nix stores are spread through-
out Southern California. In
addition, UBOC has a large
number of local branches. The result is an extensive
network of branches and stores, sometimes tied togeth-
er technologically, to deliver services.
Moreover, the hours are convenient. Cash & Save
branches are open seven days a week, with extended
hours (9 a.m. to 7 p.m. on Monday through Thursday,
9 a.m. to 8 p.m. on Friday, 10 am to 6 p.m. on
Saturday, and 10 am to 4 p.m. on Sunday). Since
branches are relatively small, total staffing require-
ments are four full-time and a few part-time employees
per branch.
Education/Outreach/MarketingThe partnership with OHI and a number of other com-
munity-based organizations provides low-income con-
sumers with access to financial literacy training, edu-
cation, and counseling services. OHI now features
Cash & Save check-cashing and savings programs in
three of its inner-city Los Angeles locations. These
organizations provide homeownership counseling and
computer training to fulfill Cash & Save’s mission of
creating self-sufficient cus-
tomers in the future. Some
targeted training materi-
als are available for cus-
tomers wishing to obtain
a payday loan.
Cash & Save makes exten-
sive use of direct point-of-
sale marketing, with
brochures, ads, flyers, and
other similar marketing
materials, along with
referrals from current cus-
tomers and community-based groups. Through the
Nix Alliance, UBOC uses multilingual materials to
market its products to a broader customer base.
Bottom LineFinancial Costs and ProfitabilityAlthough detailed information is proprietary and not
available, Cash & Save is a profitable business unitfully owned by UBOC.
ProfitabilityCash & Save became profitable in 1999 and has sub-
sequently exceeded targets. The rate of return on
investment for the Nix Alliance is proprietary as well,
but it is likely that there has been a reasonable over-
all return from the start. This program has brought
the bank millions of dollars in new checking and sav-
ings accounts. The spread on these accounts, alongwith the fee income, has made Cash & Save prof-
itable and roughly equal to the rest of the bank in
rate of return on equity targets. The Cash & Save
operations that are placed in existing UBOC facilities
are more profitable than stand-alone branches
because they can take advantage of existing over-
head and infrastructure. Cash & Save has cumulative
losses of 2 percent of revenue. Given average losses
for check cashing stores in the state (between 4 and 6
percent), Cash & Save definitely stands out as a prof-itable enterprise.
Start-Up CostsThe bank subsidized start-up costs for both the Cash
& Save effort and the UBOC/Nix/OHI partnership.
Start-up costs for Cash & Save included program
development, kiosk construction, purchase of tech-
T R A N S A C T I O N S A N D B A S I C B A N K I N G Cash & Save—Union Bank of California
Location and long
hours of operationare important facets
of the business plan.
Realizing the importance
of economic literacy in
moving low-income indi-
viduals and households
from check cashing to
mainstream banking,
UBOC has ongoing part-
nerships with a number
of community-based
organizations.
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nology, staff training, and all losses incurred until the
break-even point was reached. The initial investment
was less than $200,000 per Cash & Save branch.
Start-up costs for the Nix Alliance included the pro-
gram development and the initial investment, which
totaled $18 million in equity investment, mezzanine
debt, and traditional senior debt. The breakdown and
terms of this investment package are not available,
but on average, starting a bank branch requires about
$800,000 for capital and staffing, and the figure is
much higher in many parts of California. It can take
a branch up to seven years to break even, so lossesduring the start-up period must also be covered.
Operating ExpensesDepending on the configuration of the branch distri-
bution channel, monthly operating expenses, includ-
ing staffing costs, range from $10,000 to $20,000.
Staffing costs for Cash & Save operations are modestly
higher than the costs for check-cashing operations.
Bank staff may have more responsibilities, especially
since banks are looking for ongoing relationships(which require well-trained staff for cross-selling, dis-
cussion, and customer assistance) rather than a series
of individual transactions. Because of technology,
policies and procedures, and local hiring practices,
Cash & Save’s operating losses are minimal.
EvaluationThe bank planned a thorough evaluation of the net-
work: A senior officer heads the Cash & Save effort,
and another senior officer was made responsible for
the Nix Alliance. Both programs are business efforts
and receive extensive attention from a business per-
spective, along with the social perspective. The bank
also created a community advisory board to review
and comment on its programs.
Major FindingsIn many ways, Cash & Save is a success story. Some
45 percent of repeat customers have moved from
check cashing to traditional bank products. This rate
started at about 3 percent in 1993, when Cash & Save
began, and has increased every year. The rate of
increase seems to have leveled off in the past two
years, however, and stood at only 2 percent in 2002.
Major findings from UBOC’s Cash & Save experience
include the following:
▼ The business model is viable. Cash & Save has demon-
strated that a business model that combines check
cashing with carefully thought-out transitional prod-
ucts can be a financially viable way to serve low- to
moderate-income, unbanked households. UBOC also
has made an innovative business decision to buy an
ownership stake in Nix, which offered it many busi-
ness advantages in reaching and servicing unbanked
customers. However, some consumer advocates and
industry participants have expressed concern that the
partnership might legitimate some of the abusive
practices of the payday lending industry.
▼ Scale and pricing are key to success. A key factor in the
success of Cash & Save is its business volume, which
allows it to operate at a scale where it can offer prices
that are attractive to customers and satisfactory to
consumer advocates and still yield a self-sustaining
profit level.
▼
Extended hours mean convenience for customers. Cash& Save branches are open seven days a week. These
extended hours have allowed Cash & Save to com-
pete with check-cashing outlets.
▼ Institutional commitment makes the difference. UBOC’s
executive management commitment has been partly
responsible for Cash & Save’s success. Long-term
financial backing was necessary to plan these pro-
grams and to stay with them—even when there were
T R A N S A C T I O N S A N D B A S I C B A N K I N G Cash & Save—Union Bank of California
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uncertainties—until they were able to prove their
value. The same level of access and financial backing
will be essential for anyone planning a similar venture.
Cash & Save and the Nix Alliance are check-cashing
depository models that have profitable yields and that
satisfy the needs of customers, potential business part-
ners, and consumer advocates. The UBOC experience
demonstrates the importance of careful thinking,
advance planning, ongoing evaluation, and long-
term commitment.
One of a series of case studies on personal financial services in distressed
communities. Compiled by the Fannie Mae Foundation. The opinions
expressed in these case studies are those of the financial organizations
featured, and do not necessarily represent the views of Fannie Mae
Foundation or its officers or directors.
Cash & Save—Union Bank of California
Yolanda BrownSr. Vice President445 South Figueroa, Suite 700Los Angeles, CA [email protected]
T R A N S A C T I O N S A N D B A S I C B A N K I N G Cash & Save—Union Bank of California
© 2003 Fannie Mae Foundation. All Rights Reserved.
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