Magazine article American Banker

VIEWPOINT: Check-Cashing Twist: B2B

Magazine article American Banker

VIEWPOINT: Check-Cashing Twist: B2B

Article excerpt

Byline: Michael Casalini

The American banking system needs to get back to its roots as the hub of small-business growth.

Lending is down, penalty fees are up, and, as the economy falters, banks continue to find ways to reap profits - but those profits are not sustainable.

After a decade of massive consolidation, aggressive expansion into alternative markets and a government bailout of historic proportions, we were left with two grim statistics at the end of 2009. First, U.S. banks posted their sharpest decline in lending since 1942. Second, banks generated an estimated $20 billion from overdraft fees on debit transactions and another $12 billion in overdraft fees on checks.

I've gained a surprising amount of insight into the limitations of the current banking model over the last four years as I've tried to develop an "alternative" financial institution. Far from Wall Street or the halls of academia, my partners and I focused our attention on a decidedly in-the-trenches corner of the banking industry: commercial check cashing.

In 2006, I founded a firm called Bridge Capital Solutions, the first licensed commercial check-cashing business in New York State. For a 3% fee, we cash checks made payable to a business. No five-day processing period, no overdraft allowances, no securitization.

Just community business banking in its simplest form. Our revenues have grown 15% each year.

This experience has given us invaluable perspective on what's broken in the current banking system.

Foremost among these: In many cases, it has become more profitable for businesses to pay us a 3% fee for immediate access to their funds than to deposit checks in a bank and wait five to 10 business days for them to clear.

As payment cycles have gotten longer, small businesses are getting paid an average of 60 to 90 days after services are rendered. …

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