Check Cashing Services: Behind The Scenes

March 24, 2017

Behind every convenient check cashing service, there stands a check cashing business. The industry continues to grow with over 13,000 check cashing outlets in the United States in 2015. Financial Service Centers of America, Inc. (FiSCA) counts a dollar volume of over $56 billion for check cashing services alone. If you add in money orders, payday advances, wire transfers, and prepaid debit cards, the total dollar volume for the check cashing industry hits $105 billion (based on 2007 data).
In 2012, at least 1 in 4 American households relied on alternative financial services. Demand for check cashing services is holding steady as underbanked and unbanked Americans look for solutions to their financial exclusion. While increased competition and derisking threaten the industry, compliant check cashers continue to offer vital financial services in their communities.

How Check Cashing Works

Why do people rely on check cashing? It’s simple: they have checks to cash and check cashing outlets are their best option for receiving funds. Individuals turn to check cashers for to turn their payroll checks into cash for a variety of reasons. In many cases, the individual does not have a bank account. Traditional checking accounts often carry account minimums, maintenance fees, and overdraft charges that make them inaccessible for many Americans.
In this case, an individual brings their paycheck to a check casher. The check casher identifies the customer, checks their identity against a database, accepts the check, clears the funds, and hands the customer cash. This transaction carries a fee, which covers the business overhead and check cashing service.
Other individuals have check accounts, but rely on check cashers when they need their funds immediately. Even if you have a traditional checking account, your bank may hold part of all of your funds for 24 to 72 hours before releasing the full amount into your account. When you need money fast (ex: you receive your paycheck on the same day that your rent and utility bills are due), a check casher helps bridge the gap.

Inside a Check Cashing Business

Lisa Servon worked for various alternative financial service providers for 4 years while conducting research for her book, The Unbanking of America: How the New Middle Class Survives. As an academic, she did not expect to learn anything new about the check cashing industry. Her experience behind the counter at a check cashing outlet, however, taught her that individuals relying on check cashing services are making smart financial decisions based on their budgets.
Servon found that the misguided preconceived notion that the underbanked need counseling on making financial decision is flat wrong. In fact, she found that poorer households were more conscious of their household budgets than wealthier ones. Therefore, the decision to use a check cashing outlet was calculated and made sense for the services needed. While this is a revelation for some, check cashers have known this all along.
Check cashing businesses forge longtime personal client relationships, fostering customer loyalty. Many check cashing relationships span years or even decades. For individuals in need of financial services, the personal service of a check casher is a welcome change to the sometimes impersonal treatment they receive from big banks. So how do check cashing business operate?
There are several different types of check cashing businesses: stand alone check cashers, retail check cashers, and commercial check cashers. These businesses can be independently operated or franchised. All check cashers cashing over $1,000 per customer a day are required to be fully licensed. These licensed check cashers are subject to federal and state regulation. Check cashers cashing under $1,000 per customer a day are unlicensed, but they still have incentive to prevent fraud and operate compliantly.

Retail Check Cashing Services

Retail check cashing services are a unique part of the industry. Retail check cashing is when a business adds alternative financial services to their existing retail location. Retail check cashers include convenience stores, bodegas, grocery stores, gas stations, restaurants, liquor stores, and beauty shops. The check cashing services are another layer of what they offer to the community: convenience and friendly personal service.
Convenience stores and gas stations offering retail check cashing services are beacons of financial inclusion for their community. They are also employers, bringing jobs into their local economy. Two large chain convenience stores, QuikTrip and Sheets just made the list of the top 15 best retail workplaces published by Fortune Magazine.
Retail check cashers have an advantage; they can cross promote the two different arms of their business. For these check cashers, the financial services add fee-based revenue to their business model. Financial services also bring in additional foot traffic, encourage customer loyalty, and broaden their reach in the community. For individuals, retail check cashing services offer an opportunity to access financial services conveniently, right where they are already shopping.
Many retail check cashers operate as unlicensed money service businesses. While they are not subject to the same regulations as licensed MSBs, smart business owners still take every precaution to protect against fraud. To do this, they employ POS technology to collect customer identification and adhere to a check cashing process that helps them spot red flags before they become fraud.

Support For Check Cashing Services

Check cashers of all kinds rely on support to operate efficiently and compliantly. Staying compliant is more important than ever due to the current derisking trend. The top priority for check cashing businesses is to secure a reliable check cashing bank account. Many larger banks are terminating their check cashing divisions to avoid perceived risk. Check cashers with longstanding banking relationships are finding their accounts terminated with little notice. What are check cashers supposed to do?

The check cashing experts at NCC set out to solve this problem over a decade ago. NCC now provides a network of trustworthy banks for their check cashing clients. Once a new client goes through the process to open an account, their bank account is secure through a network of reliable financial partners. What does that mean? NCC works with multiple banks to keep you covered, even in the event that one bank decides to shed risk.
In addition to real bank accounts, NCC provides 24/7 customer service and guidance for running a compliant, efficient, and profitable check cashing business. NCC clients have a strong business partner to rely on as they grow and expand their operations. Since NCC employs check cashing industry veterans and experienced ex-regulator, they have an insider knowledge of check cashing services.

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