Ready Credit can save money for people who don't use banks

More than 40 million households are in the so-called "unbanked" category -- people with no bank accounts who pay a steep price in fees and inconvenience for their cash-only financial practices.

They often are low-income folks, according to the nonprofit Center for Financial Services Innovation, and they typically pay 2 to 5 percent of face value to cash a paycheck or government stipend. Then they might fork over another buck or more for money orders with which to pay their bills -- and stand in lengthy lines on paydays to do so.

An Eden Prairie company, Ready Credit Corp., offers a more convenient and generally less expensive alternative: In the past two years it has installed more than 70 self-service kiosks in eight states where users can insert cash and, with a few touches on the screen, pay their bills and/or obtain a prepaid MasterCard.

The company, started by a venture capital firm headed by former Republican State Chairman Ron Eibensteiner, grossed $260,000 in 2007 and by the end of July was on track to top $1 million in 2008.

To Ready Credit CEO Tim Walsh, 46, the company answers a serious question: "Why are the poorest people, who are living paycheck-to-paycheck, paying the most for financial services?"

Mind you, Ready Credit is not a nonprofit charity. It costs $4.95 to buy a card and a $4.95 a month service fee to hold it. Beyond that there's a $1 charge to reload the card with another cash deposit and 25 cents for each card transaction.

But -- and this is a good-sized but -- the cards are free if they're ordered by phone or online. And reloading a card with cash is free if users choose to have their paychecks direct-deposited to Palm Desert National, a California bank that issues the MasterCards for Ready Credit.

Minnesota limits fees

In Minnesota, where the Department of Commerce limits fees to 2.5 percent of face value for government-issued checks and 3 percent for payroll checks, the weekly cost would range from $6.70 to $8.05.

On the bill-paying side, it costs $2.50 per Ready Credit payment if it's to be made the next day and $1.50 for a three-day wait. But Walsh noted that this cost would be offset to a significant degree by the savings of not having to buy and mail money orders to creditors.

The bill-paying service is handled by CheckFreePay, a Milwaukee bill-paying company with connections to thousands of billing organizations ranging from utilities and mortgage lenders to insurance companies and auto lenders, with lists offered by Ready Credit machines tailored to geographic locations.

Ready Credit grew out of a shell company acquired by Eibensteiner's Minneapolis-based Wyncrest Capital. He enlisted Walsh to help flesh out an idea he had for a prepaid card for Internet usage.

"Good ideas are a dime a dozen," he said. "What counts is people like Tim who execute, who make them work."

The search for alternatives ended in Atlanta, where Walsh was talking one day with an Atlanta retailer who was cashing paychecks for the "unbanked" thereabouts. It was payday, and there were lengthy lines waiting to fork over 3.5 percent of their pay for the service.

His reaction: "Why are they going through all this hassle when prepaid cards have been available for years?"

Walsh got a hint when he went to a chain drugstore to check out the process of obtaining a prepaid card: "It was a terrible experience," he said. "No one seemed able to answer my questions, and I would have had to wait seven days to get a card by mail."

Walsh started the business with $250,000 of seed capital and $.1.5 million raised from 27 investors. He engaged NCR to help develop a ReadyStation kiosk that "makes it as easy to buy a card out of a machine as it is to buy a soft drink," including simple instructions in English and Spanish and a touch-screen operation with a minimum of steps, Walsh said.

Key locations outside Minnesota include Radio Shack stores in Texas and Dollar Tree locations in Texas, Georgia, Virginia and Illinois. The most important relationship, however, involves test locations at eight Macy's stores in Texas and Georgia.

If successful, that relationship would give ReadyCredit a shot at more than 850 Macy's outlets in 45 states.