In 2015, check cashing was estimated to be an $11 billion industry with 1.8% annual growth. The roughly 14,500 check cashing businesses in the United States employ close to 90,000 individuals (IBIS World). Alternative financial services performed well during the recession, as many Americans were squeezed out of the traditional financial system.
Now, 7 years after the 2009 financial downturn, the check cashing industry is still thriving. As a result of relatively low barriers to entry, people are still opening check cashing outlets. Stand alone check cashers, retail check cashers, and commercial check cashers are three groups providing nontraditional financial services to their communities. These nonbank service providers cropped up in the mid 20th century as an alternative for those who could not or preferred not to deal with traditional banks.
Current Issues for Check Cashers
For the past 50 years or so, check cashers and money service businesses have operated with little direct competition from banks. Recently, however, banks are deciding to enter the alternative financial services marketplace with their own nontraditional “bank branches.” Their entry into the market is spurred partially by the recognized opportunity. The federal government estimates that between 10 and 11 million American households are unbanked.
As a result, there is money to be made providing check cashing services to this consumer group. And banks are turning to a demographic they long ignored in a bid to drive business in a time of moderate growth for the banking industry. It’s not just big banks who are hoping to cut themselves a slice of the pie – financial startups also have their eye on the underbanked.
One such competitor, Vinay Patel of Bee Card, is hoping to fill the gap between bank branches with his pop-up retail model. Patel has directly expressed an interest in directly competing with MSBs and retail check cashing services. Bee Card pop-ups target low income neighborhoods and offer immediate accounts and prepaid debit cards to their customers. The pop-ups are actually slickly branded kiosks grouped together on New York City blocks.
One Financial, the parent company for Bee Card, is dodging the typical real estate investment that a bank branch necessitates. While the company boasts that there are no “per transaction” fees, their customers are hit with a monthly account fee, a 1% fee for immediate access to funds, and a 5 day waiting period for deposited checks.
Beyond new competition, fraud continues to be an issue for check cashers. The FBI recently busted a large scale check cashing fraud ring in Atlanta, GA. The scheme involved the theft of treasury checks intended for tax refunds, military families, and beneficiaries of Social Security. While this type of fraud is a threat to check cashers, a robust MSB compliance strategy can help thwart criminals and reduce risk.
Regulators continue to develop rules and check cashing regulation aimed at combating financial crimes, such as money laundering, check fraud, terrorist financing, and other illegal activities. These regulations help guide the development of compliance strategies. At times, the regulations have brought unintended consequences to check cashers, like the perpetuation of perceived risk.
Current Opportunities for Check Cashers
In the face of increased competition and risk, the check cashing industry continues to experience growth. Current check cashing outlet owners are diversifying their services and improving loyalty programs to expand their reach within their communities. Both stand alone check cashers and retail check cashers can continue to thrive if they are willing to evolve to meet the needs of their customers.
Prepaid debit cards and bill pay are two of the specific areas for growth moving forward. Prepaid debit cards have evolved from their beginning as gift cards into a full-fledged alternative financial service. Customers enjoy the flexibility afforded to them by a prepaid card. They are able to use and spend these cards much like a traditional debit card that is attached to a real checking account.
For customers who do not have access to a checking account, this is a huge step forward in their financial security. This multi-billion dollar industry offers a multitude of end uses, from gift-giving to an alternative to checks. As the financial world continues to evolve towards an entirely paperless system, a prepaid debit card is a welcome addition to the wallets of the unbanked. Many convenience store check cashers and other retailers now offer prepaid debit card services.
Bill pay offers a way for the unbanked to pay their utility and other bills. In the absence of a checking account, these consumers do not have a way to quickly and easily pay their bills online. Bill pay bridges this gap. Many stand alone and retail check cashers include bill pay in their check cashing service line-up to better serve their community.
The Future of Check Cashing
While the future of check cashing is not firmly etched in stone, the opportunities abound. For check cashing outlets and retail check cashers willing to diversify and evolve, the unbanked population is waiting to be served. One way to help secure your future as a check casher is to secure a reliable check cashing bank account. As big banks enter the alternative financial services arena, they have more inventive than ever before to terminate their MSB bank accounts.
Many of National Check and Currency’s clients found the company after losing their long time check cashing bank accounts. Facing business closure, loss of revenue, and uncertainty, they were able to secure a reliable MSB friendly bank account through NCC’s network of redundant banking partners. They now enjoy the peace of mind that only comes from a secure check cashing business bank account.
NCC clients also enjoy access to a team of compliance and financial security experts. Support is available 24/7. The NCC team is committed to serving and benefiting the check cashing industry through advanced POS technology, rapid deposit turnaround, compliance expertise, and innovative problem solving. With NCC on your team, the sky’s the limit.
Contact us today to apply for an MSB bank account for your retail check cashing location or stand alone check cashing outlet. A check cashing expert will walk you through the process and formulate a plan to support your business.