Once a month, Precious Tarpeh joins the long lunchtime queue at the Check Center on East 18th Street in Oakland to wire $100 to family in Liberia. Tarpeh hates forking over $9.99 for the service, but says she doesn't have much choice. "You just have to do it because people back there need your support to live," she says.

When Georgiana Gamble joins the line, she's looking to cash a check. She takes the cash, crosses the street to a Walgreen's, and puts the money into a pre-paid Visa card so she can buy stuff online. "But those are crap too!," she complains. "They charge you like six bucks a week or a month -- like monthly fees."
 
The two women are part of a big slice of the U.S. population called the "unbanked" or "under-banked" -- and could benefit from a new program launching Friday in Oakland. Like San Francisco and a handful of other cities, Oakland's offering municipal identification cards to residents. But unlike city IDs issued elsewhere, Oakland's will function as a debit card and give holders access to direct-deposits for checks, online bill payment, and money transfers. The Oakland initiative is considered such a promising idea that Los Angeles, Richmond and other cities plan to follow suit.

The FDIC estimates nearly 30 percent  of U.S. households must resort to non-bank businesses like check-cashing services, payday lenders and pawn shops to get cash, pay bills or wire money to relatives abroad. These alternative financial services do hundreds of billions of dollars of business every year, and generate big profits for the companies that provide them.

AN UNLIKELY CEO

Raul Hinojosa is part of an unusual alliance with the city of Oakland and a Minnesota bank trying to change the alternative financial service business by driving prices down.

Hinojosa is a professor of Chicano Studies at UCLA. For years he's wanted those who provide financial services in poor neighborhoods to create fair fees, "not the highest price the market would bear."

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Aarti Shahani/KQED

 

Check Center on East 18th Street in Oakland.

But in defense of those services, he points out that at least they're in the community. Banks and even credit unions focus on those with regular incomes, state IDs and Social Security numbers. "They've got a bottom line they have to worry about and that's what drives them," he says.

One day Hinojosa was on a private jet with the former chief of the Western Union conglomerate, First Data. He suggested the popular money wire service drop prices and get more clientele.

Hinojosa recalls that CEO's response: "He said, 'Look, we're an aircraft carrier, you're a jet ski. It costs us a billion dollars to change direction. You can hit the beach running a lot faster than we can. Go ahead. Do it Raul!'"

Hinojosa started his own company, SF Global, to develop affordable, secure and accessible financial services. The goal is not to maximize profits, he says, but to "maximize your impact, and still cover your costs. That's our vision." The company's first contracts were for mobile banking in Latin America.

Then, a unique opportunity appeared right here in California.

Oakland wanted to issue its own municipal ID for undocumented immigrants to show police. But the city needed a way to pay for the program.

Hinojosa told Oakland his company could offer an ID with debit card features at zero cost to the city. In exchange, he estimated, his company could get 40,000 new customers. Oakland agreed.

"In the world of pre-paid cards, this is considered a relatively large project," Hinojosa says.

University National Bank of St. Paul, Minnesota, joined in to provide ATM services for the card, including customer deposits. And the card will use the Mastercard network for store purchases.

SELLING THE ID

The Oakland Municipal ID costs $15. While SF Global is issuing the card, it's up to Oakland Mayor Jean Quan to sell the concept.

Standing in the old credit union office in Oakland City Hall as the the first card applicants sign up, Quan pitches the ID as a source of Oakland pride -- and a possible boon for commerce.

"A couple of our locally owned businesses were saying, 'I wonder if we could be a part of this, if we could be one of the places that load the funds onto the cards, and we could increase shopping in certain kinds of stores,'" Quan says.

She also wants to make the ID a library card, and also use it to pay summer interns via direct deposit to their municipal ID bank accounts. "Some [interns] were paying up to 20 percent of their summer internship check to get their checks cashed," she says.

To win over a large user base, the city and its partners probably need to show the card and attached account will integrate elegantly with mobile phones. And they'll also have to deal with privacy and security concerns.

The San Francisco Chronicle reports some privacy advocates have expressed concern that the card -- which will include users' names and birthdates and won't require a PIN to use -- are vulnerable to fraud.

City officials told the Chronicle that measures like text messages to cardholders' phones whenever a transaction occurs will provide a measure of security. And Hinojosa told the paper that fraud concerns aren't really different than they would be for any other debit card.