How one bank is bringing its services back to inner-city Detroit

For Detroit's inner-city residents, a new concept in banking could fill the financial services niche largely abandoned by banks and other traditional financial service providers. Like many other cities, Detroit has suffered from severe ``white flight'' in the decades since World War II. In fact, over the past 40 years, its population has been cut nearly in half, with close to a million residents moving out to the suburbs.

This has not only drained the tax rolls, but has led to an exodus of many of the businesses that long provided basic services, such as banking, to the city's many neighborhoods. Since just 1983, for example, approximately 25 percent of the city's neighborhood bank branches have closed.

For many inner-city residents, the only way to cash a check is to turn either to the local ``party'' store (the Detroit term for the small, neighborhood grocery) or to check-cashing services. These stores usually charge exorbitant fees, sometimes as much as 20 percent of the face value of the check.

Now, a minority-owned bank is stepping in to fill the void. In January on the city's northwest side, First Independence National Bank of Detroit opened its first ``Money Store'' (not to be confused with The Money Store Inc. of Union, N.J., a mortgage lender with branches in 19 states plus the District of Columbia).

By the end of the year, First Independence plans to open as many as eight more of the facilities, which will handle such services as check cashing, bank-guaranteed money orders, forwarding of utility payments, Western Union services, and private mailboxes.

``We think, as a minority-held financial institution located in an urban area, our strategy should be moving closer to the community we serve,'' says Charles Allen, president and chief executive officer of First Independence.

These storefront operations charge either one or two percent to cash a check, depending on its face value, while the fee for a money order is 50 cents.

``We intend to make it real tough for people to gouge our community,'' Mr. Allen says. ``Our intent is to provide financial services that are non-deposit, non-loan based, that provide a service to the community without charging exorbitant prices.''

Unlike a traditional branch bank, First Independence's Money Stores are not licensed to take deposits or loan money. That, Allen says, would have required a far greater investment - ranging from the cost of a vault to the added capital funding needs - than the small minority-owned bank would have been able to afford.

Besides, he says, it is largely because of the lack of depositors' funds that many other banks have been abandoning inner-city neighborhoods.

First Independence plans to install automatic teller machines in the near future. For now, photo identification cards with magnetic strips contain information about the customer and his or her account. If a customer is found to have previously bounced a check, the card is held by the teller until the customer makes good.

``Our guess is that we have to have 8,000 transactions a month, averaging $250 each in order to break even,'' Allen says.

During its opening month, the first store attracted about 200 customers, with the average transaction ``substantially larger'' than Allen and his associates had projected, while money-order business also exceeded anticipated volume: ``We're not making money yet, but we're paying the light bill.''

By the end of the year, with eight stores in operation, First Independence is forecasting net revenues of about a million dollars, with an after-tax margin of 10 percent. That may seem a minimal profit, but Allen terms it ``a handsome return'' on investment compared with what it would take the parent bank to yield just a one-percent return.

By the end of 1988, there should be at least 18 branches open, and at that point, Allen is hoping to achieve a much more substantial revenue base. These stores, he says, are bidding for the right to handle certain government disbursements, such as food stamps, and if they win the rights, ``In 1989, we're looking at $8 million in revenues.''

Allen says he has received a number of calls from bankers and others in Missouri, the District of Columbia, New York, and Chicago, who are interested in seeing if the concept can be adapted to their communities. Though he is not enthusiastic about having First Independence enter into the franchise business, Allen says the basic Money Store approach could be put to work in other inner-cities with large minority populations.