unbanked employees using a check, or in some cases cash. In recent years a number of firms have developed payroll cards that enable employers to pay unbanked employees electronically. A payroll card is an ATM-type card that employees can use at an ATM machine to withdraw their pay in cash. In most cases, it can also be used as an on-line debit card. The card is linked to an electronic account that keeps track of the balance available to the cardholder. Although the number of payroll cards issued by mid-2003 was small compared to the unbanked population, the growth rate in the number of cards in use is reportedly high. Whether this rapid growth continues will depend largely on the fees associated with using the card and on people’s willingness to change their payment habits. It should be emphasized that individuals who use payroll cards do not have actual bank accounts in which they can make deposits, not can they have face-toface interactions with bank tellers. Nevertheless, payroll cards have the potential to lower the costs of payment services to unbanked households. In addition, over time they could be enriched to permit electronic bill payment and to offer an easy transition to non-checkable deposit accounts.

Finally, just as consumer banking is becoming increasingly automated, there are signs that the same may be true of check-cashing and bill-paying for the unbanked. Several companies have developed and deployed automated check-cashing machines. The large chain of retail convenience stores, 7-Eleven Incorporated, first installed automated check-cashing kiosks in several of its stores in 1998. Since that time, it has worked to refine the technology. Its current automated kiosks, known as “Vcom” kiosks, can cash paychecks, handle money order purchases and money transfers, pay bills through Western Union’s “Quick Collect” payment service and other services, and originate orders for many products sold over the internet. As of December 2003, 7- Eleven had placed Vcom kiosks in nearly 1,000 of its approximately 5,800 stores located across the U.S. (7-Eleven news release, December 11, 2003). If this technology succeeds, it could lower the cost of delivering payment services to the unbanked and lower the fees that they pay.

# <u>Summarizing the effectiveness of these initiatives</u>

As implied in the discussion above, we cannot know the aggregate impact that the outreach initiatives outlined above have had on the percentage of U.S. households without deposit accounts. It is quite likely, however, that the aggregate effect has been quite small. This is true for three reasons. First, almost all of the initiatives have been small scale, pilot initiatives that would have small aggregate impacts even if they were effective. Second, we argued that the major reason that people do not have bank accounts is because they do not have any month-tomonth savings. Assuming that successful methods can be found to help lower-income households build financial savings, the savings are likely to accumulate slowly. Finally, available data do not indicate any major changes in the percentages of unbanked households over the past 25 years. In 1977, the Federal Reserve’s Survey of Consumer Finances found that 9.5 percent of all households did not have deposit accounts (Caskey and Peterson, 1994). As noted in the introduction to this paper, the same survey in 2001 found that the percentage was 9.1 percent.

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