Bank Shot

One way to get people out of check-cashing stores and into savings accounts: 2-for-1 matching contributions

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Illustration by Peter Hoey for TIME

It's hard to imagine any business outnumbering Starbucks or McDonald's, but there are now more check-cashing locations in San Francisco than both megafranchises have combined. Until recently, 10% of the city's residents didn't use a bank. Some were wary of financial institutions; others were unable to meet minimum-balance requirements. So they ended up paying exorbitant fees in order to store their money at home. As a restaurant dishwasher, Karla Mejia spent about $850 a year cashing her checks. "I didn't think I needed a bank," says the native Honduran.

One problem with the outlets: they're popular sites for muggings. This helps explain why San Francisco has been nudging the unbanked into the financial mainstream, in innovative ways. Mejia, for example, heard through a friend about EARN, a local nonprofit offering eligible low-income workers special savings accounts called individual development accounts (IDAs). For every dollar she put in, up to $2,000, EARN would match it with a $2 contribution. With the prospect of being given $4,000 just for saving her money, Mejia in late 2008 completed some basic financial training and made her first deposit of $20. Two years later, after taking several free workshops at EARN, she has a business plan, $5,000 in her IDA, a housekeeping/handyman business and a city contract.

Since the program was launched in 2002, EARN—short for Earned Assets Resource Network—has opened 3,000 IDAs, which are funded through a mix of federal and state money and private donations. To qualify for matching contributions, savings must be earmarked for homeownership, higher education or business expansion.

Bank On San Francisco, another program reeling in those who don't have a bank account, was started in 2006 by the city's treasurer, José Cisneros, in part as a public-safety drive. To cut down on muggings and to make banks more user-friendly for those outside the system, Cisneros and a team of consultants persuaded local banks and credit unions to adjust things like balance and credit-score requirements so low-income families could open standard savings and checking accounts. "Most of the banks, while initially hesitant, realized that this was new business in an increasingly competitive market," says Cisneros. "They were making less money from low-income savers, but they were still making money."

Within four years, formerly unbanked San Franciscans had opened 50,000 accounts. Cisneros has since helped officials in 30 cities set up similar programs. In September the U.S. Treasury Department announced plans for a nationwide model, Bank On USA, set to launch in April—tax season.

Meanwhile, two bills have been introduced in Congress in recent months to promote IDAs. EARN didn't invent the concept, but it has become the nation's largest provider of these asset-building accounts. And when the nonprofit looked at its alumni, those who completed their matched-savings program, it found that 83% kept saving money, even without the 2-for-1 incentive. The Bank On program has seen similar results: Cisneros says that after one year, 80% of its customers still had an open bank account, with an average balance of $900.

"Doors have been opened," says Tyrone Hopper, a grocery-store deli clerk who was able to get an ATM and credit card—and an informal financial adviser—through Bank On. "I'm being exposed to IRAs and the different services that can help me instead of just cashing my checks." He estimates that he is a year and a half away from raising his credit rating enough to apply for a home loan. When he does, he knows whom to consult to make sure he gets the best rate.