The experts have been predicting the end of money orders for the last 20 years. Their obsolescence was so inevitable, that there has been no significant investment in industry since the FDX-400 was launched in the 90’s. With expedited walk in bill payment, online/mobile bill pay, prepaid cards and P2P transfers, money orders were expected to go the way of the buggy whip.
However, money orders are still a trusted payment option for over 20 million US households. And while the number of money orders sold have been on a steady decline since 2000, there are over a billion items sold in the US annually according to 3T Solutions, a leading MO provider. That represents a significant revenue stream for retailers and payment volume for the industry.
So how could a financial instrument from the 1800’s still be relevant today? It comes down to a few key characteristics that are important to the underbanked.
Many in the underbanked economy work long hours and have limited time. So whether it is the 24/7 availability of the local check casher, the speed of the c-store while filling up the car or the one-stop capability of the local grocery store, customers choose money orders for many payment needs. They’re visiting these locations anyway and the presence of money orders satisfies the need for a quick payment option. They often use money orders for the billers that are not enrolled with providers like WU, MoneyGram or CheckFree Pay.
While almost everyone has access to a smart phone and thus some online bill pay option, the underbanked still have a need to fund the bill payment with cash. They prefer the flexibility of cash and money orders are a logical extension. And many of their billers prefer cash as well. Landlords, auto shops and other retailers see money orders as a safe and reliable alternative to checks. And the money order provides a receipt a that provides the payer protection that cash does not allow.
When trying to send money by mail, money orders are a far safer alternative to cash. Cash can be easily stolen so if a customer doesn’t have a bank account – whether they don’t want one or can’t get one – money orders might be the best option for making payments. A customer can pay utility bills, insurance premiums, and mobile phone bills with money orders each month. And for smaller retailers that can’t take an electronic payment, but they will take a money order and prefer them to checks.
Electronic payments are rapidly becoming the preferred method for the majority of consumers. But for the underbanked, money orders still serve an important role. Money orders are clearly not the most efficient or comfortable payment method available, but they do offer considerable advantages in key areas such as transparency, security, and simplicity.
So while they are destined to become as obsolete as the pager, typewriter or floppy disk, money orders will continue to be an important part of the payments industry for years to come.