Union Bank Cash & Save Program

8/3/2019 Union Bank Cash & Save Program

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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.

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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



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.

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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.


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.



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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




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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-


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




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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]


© 2003 Fannie Mae Foundation. All Rights Reserved.



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Documents

Union Bank Cash & Save Program