In a perfect world there would be a community focused bank in every neighborhood and all payroll payments would be electronically deposited into a DDA account. Many payments experts subscribe to this opinion and focus their guidance towards that end. And that is understandable given that it represents their financial reality and personal experience. Few have spent time behind the glass at an alternative financial services (AFS) center or chatted with the customers in-line on a busy Friday. They believe that check cashers charge high fees for their services and if customers had the same choices as they do, they would choose traditional banking and financial services. However, according to a CFSI study, over 74% of check cashing customers have a bank account.
So why do they go to a check casher?!
In my experience, there a few needs that alternative financial service centers meet that mainstream banks do not.
On the surface, paying a $5 fee to cash a $100 check is a high cost to a “sophisticated” consumer that has free checking. However, free checking is not always free. These accounts are being eliminated at some banks and the requirements to qualify are increasing. When you add overdraft fees and monthly fees for low balances, it can be difficult to predict the actual cost of these “free” checking accounts. Not so with a check casher. The customer knows the exact cost to get access to their money and therefore can plan for the expense.
And competition tends to drive fees lower. At Walmart, you can cash $1000 check for $3. For pre-printed payroll or government checks, many of the large check cashing chains only charge 1-2%. Regardless of the fee, the consumer knows it going in and receives no surprises.
So if there was a traditional bank in the neighborhood, then financial services would be more convenient, right? Not necessarily. Putting the jokes about “banker’s hours” aside, AFS providers tend to offer longer hours, with many being 24-7. The underbanked/unbanked is just as busy as the rest of us and they want a one-stop shop. So, whether it is paying bills / sending a money transfer at a check casher or loading their prepaid card / topping up their mobile phone at the grocery store, their needs are better served than going to a bank.
Check cashers offer quick, courteous and personalized service to customers in their preferred language. And they do it after their customers get off work and over the weekend. The underbanked/unbanked see the value of this convenience and tend to become loyal customers as a result.
Immediate Access to Funds
Regardless of the socioeconomic group, many Americans live paycheck to paycheck and do not have the means to leave a significant amount of their income in a bank account. AFS centers allow customers to access 100% of presented funds instantly, without having to wait for the funds to clear. This allows them to pay bills, send money home or add minutes to their cell phone. And while mobile remote deposit capture (mRDC) is great technology and payroll cards make sense for many businesses, the underbanked customer still wants cash. They may not need all the proceeds in cash, but mRDC and payroll cards still require a visit to an ATM where a check casher does not.
Customer Choice is Key
The underbanked/unbanked customer’s needs vary throughout the year. At the beginning of the month they may need all proceeds in cash to send money home and pay their rent. A week later they could load the check from a second job at midnight by mRDC to fund their prepaid card. And the next week they may cash their tax refund at a retailer to buy a big-ticket item and deposit the remainder into a card linked savings account.
To successfully serve the underbanked/underbanked customer, we cannot rely on just one solution. Kiosks provide convenience on busy shopping days at the grocery store. mRDC is available 24/7 and may be fee-free if the funds are not needed immediately. And bi-lingual clerks at the local check cashers create a comfortable environment. Each provides benefits and will be used when it best fits the current needs of these customers.
Check cashing consumers have a variety of needs and their choices reflect the solutions that best serve them. Undoubtedly, direct deposit and P2P will continue to expand while check issuance will decline. But for the foreseeable future, check cashers will provide an important service. mRDC and Kiosks may surpass the stand alone AFS storefront, but the customer’s needs will still be met outside of the traditional banking infrastructure. The key is not focusing on where or how these services are delivered. We all need to strive to provide high-quality financial products that provide real value.
If you are interested in serving the underbanked/unbanked and want to brainstorm some ideas, set up time for FREE consultation. https://www.paymentexecutive.com/book-online