San Ramon-based firm offers financial services to those denied accounts at traditional institutions
By George Avalos, CONTRA COSTA TIMES
An East Bay startup is betting it can make it easier for low-income people to deposit or cash paychecks and pay their bills.
AccountNow Inc. hopes to tap into what it believes is an underserved market: people who do not have, or might not be able to obtain, a bank account. The online company offers them ways to set up an account they can use for financial services, and build up their credit status along the way.
San Ramon-based AccountNow does not intend to go head-to-head with banks by offering people services they could get at a traditional financial institution. Instead, the company has decided to scout for customers who have no banking relationship and do things such as cash their paychecks at the 24,000 check cashing outlets in the nation.
"We are trying to provide a service to people who have been shut out of banks," said Tim Coltrell, chief executive officer of AccountNow. "Our customers are people who have had trouble with bad credit or bounced checks who cannot get bank accounts."
The company offers services akin to some of the check cashing outlets, but AccountNow goes beyond those products. AccountNow offers a debit card, automatic check deposit and online bill pay. People can get cash out of an ATM on the MasterCard network using the debit card. The first 10 ATM transactions are free and after that the charge is 50 cents a transaction. The accounts are backed by the FDIC and MasterCard Zero Liability.
AccountNow charges as much as $9.95 a month to open and maintain the account, have a debit card and use all of the services, which works out to about $120 a year, company executives said.
People can improve their credit history because AccountNow teams up with Pay Rent Build Credit Inc., a national credit bureau that specializes in collecting and updating nontraditional credit history information.
AccountNow says it believes the field of potential customers is fertile. A 2002 General Accounting Office study found that 20 percent of U.S. households, or 22 million families, have no bank account. In the East Bay, that ratio would equate to 177,000 families.
Some people cannot get checking accounts at banks because they have landed on a negative list. But some banks such as Wells Fargo will attempt to allow some of them to get an account on a case-by-case basis, but only after the consumer has cleared up his outstanding balances.
"You have folks who had trouble in the past with bad checks, they got in a negative file, they somehow got bounced out of the system," said Greg Pacheco, AccountNow's chief marketing officer. "You also have immigrants."
Sherrie Wheeler, a Pleasanton resident, has been using AccountNow for six months. She had been with a bank, but because she lived in a rural area, the bank was not convenient. She rates AccountNow highly.
"I was going to a check cashing service and I decided to see how this worked," said Wheeler, who works for PG&E. "I love it. I can go right on the Internet and pay my bills. I don't have to wait in line at the bank. No more stamps, no more going to the post office. It's great."
Wheeler also likes the ability to steadily improve her credit score.
"Because I have all of my bills being paid out of their account, they keep a tally of it and they report that to the credit bureau," Wheeler said. "You are paying on time and you get a good score on your credit report."
Wheeler has improved her credit score enough that she is getting ready to buy a house in San Ramon.
AccountNow has wound up on the radar screens of the venture capital community. The company has landed $15 million in venture financing, including a $12 million round in 2006 that was led by Invesco Capital.
"What they get from AccountNow looks and feels like a checking account," said Esfandiar Lohrasbpour, general partner with the Palo Alto office of Invesco and an AccountNow board member. "We give them a much cheaper and more efficient way to handle their finances than the way they do now."
By some estimates, check cashing companies charge 1 percent to 3 percent of a person's paycheck. Wheeler said she was getting charged 6 percent. Even at 2 percent, somebody with a $20,000 annual wage would pay fees of $400 a year.
California Check Cashing Stores executive John Eager declined to comment. His Oakland-based company has about 60 Northern California outlets. One official with the paycheck cashing industry, however, said more industry rivals, including AccountNow, have emerged lately.
A Federal Reserve Bank official said the issue of unbanked consumers is crucial for the central bank.
"People can keep more of their own money if they can get into the mainstream banking system," said Lena Robinson, regional manager of community development with the Federal Reserve Bank of San Francisco. "It can cost them significantly more to use checking cashing or money order services."
These fees can hit people less able to afford them.
"Those who are in low-income groups disproportionately tend to be unbanked," Robinson said.
Privately held AccountNow would not disclose any financial information or how many customers it was signing up. But the company is expanding its offices from 5,500 square feet to 17,000 in the next month. AccountNow has 50 workers and expects to hire more soon.
"We are starting to see substantial growth in our business," Coltrell said.
George Avalos covers the economy, jobs, insurance, stocks, and banks. Reach him at 925-977-8477 or firstname.lastname@example.org.