The Future of Check Cashing

March 10, 2017

In the US, there are over 13,000 financial service centers and check cashers in operation. These businesses conduct over 350 million transactions annually, including over $58 billion in check cashing transactions. Check cashers serve unbanked and underbanked households, individuals living in communities without access to traditional banking, and people who need immediate access to funds.
Since its inception in the 1930s, the check cashing industry has filled the banking void for millions of people. Now, over 85 years later, the check cashing industry continues to change and evolve to meet new demands.

A Brief History of Check Cashing

While the exact origin of the check cashing industry is debated, most agree that it started in the 1930s. Several phenomena encouraged the formation of check cashing businesses. First, the financial ramifications of the Great Depression created a banking crisis and left customers scrambling to find payment services. Second, as businesses transitioned from cash payrolls to payroll checks, check cashing services became essential.
The core concept of offering friendly check cashing for a fee was born during this time of economic uncertainty. The fee was levied on customers to cover the check casher’s cost of operations, including the business’s physical location, overhead, insurance, and staffing costs. As the needs of the underbanked changed, check cashers added complementary check cashing services like prepaid debit cards, currency exchange, bill pay, money wire, money transfer, and travelers checks. In some states, check cashers are also authorized to provide short term payday loans.
As check cashing continues to change, check cashers continue to pivot to stay ahead of the curve. Now, a new set of challenges and fresh crop of competition are entering the alternative financial services arena.

How Check Cashing Is Changing

Modern day check cashers offer services far beyond payroll check cashing. As the financial services industry as a whole has moved towards a paperless future, check cashers have added prepaid card services, quick online bill pay, and money transfer options. These services afford individuals and households without access to traditional banking the opportunity to conduct banking business.
Check cashing has expanded beyond stand-alone check cashing outlets into retail check cashing locations. Convenience store check cashing is one example of this evolution. By adding check cashing services to their existing retail business locations, store owners are reaping rewards. These benefits include the addition of fee-based revenue, increased foot traffic, improved visibility within their community, and strengthened customer loyalty.
In order to reap the rewards of check cashing, these retail check cashers use POS check cashing technology. This allows them to add these services to their existing product and service line-up. Retail check cashers include bodges, grocery stores, restaurants, beauty shops, liquor stores, gas stations, and convenience stores. The financial services are offered right where those who need them are already shopping and hanging out. As a result, these retail locations become hubs of community activity.

How Check Cashing Serves Communities

Check cashers are often located in neighborhoods without bank branches. As a result of redlining, many big banks left less wealthy neighborhoods, leaving a vacuum of financial services. In other cases, the high cost of traditional banking excludes those who can’t afford account maintenance fees, overdraft charges, and account minimums. Check cashers fill this gap in financial services to provide and promote financial inclusion.
Payroll check cashing services are one specific way that check cashers serve their communities. For individuals without a traditional checking account, cashing their paycheck is not as simple as uploading a picture of the check on their mobile phone. Instead, they need a check casher who will process and clear their check immediately, handing them the cash they need to pay their rent, bills, and purchase groceries.
In some situations, individuals with checking accounts turn to check cashing to gain immediate access to their funds. Most banks hold part or all of the check you deposit for 24 to 48 hours. If you get paid the same day that your rent is due, your traditional bank account might not clear the funds in time.

Issues Check Cashers Face

In the past several years, both existing check cashers and those looking to start a check cashing business are facing a new set of challenges. Since its start, the industry has battled a misguided negative reputation. The uncertainty around what check cashers do and the misinformed notion that the fees are unfair to customers cause some to believe that check cashing is a predatory industry.
Lisa Servon recently discussed this in her NPR interview. Working as a check cashing employee, she learned that individuals using her services were making well-informed and money-savvy decisions when they used a CCO to cash a check. In many cases, the check cashing fee was either smaller than the fees associated with maintaining a bank account or valued as an acceptable cost in order to receive funds immediately.
To provide these valuable services, check cashers need a check cashing bank. Unfortunately, many check cashing bank accounts are terminated due to indiscriminate derisking. Even compliant, long term relationships are ended in order to cut out risk and reduce compliance efforts. In addition to derisking, check cashers are also facing increased competition. Some banks and FinTech start-ups are looking to enter the check cashing industry.
In the face of derisking and competition, check cashers are looking for solutions that help them stay banked, increase efficiency, and improve profits.

Bringing Check Cashing Into the Future

This is where National Check and Currency enters the equation. NCC provides check cashing business bank accounts to both stand alone and retail check cashers. Each bank account is backed by a network of reliable financial partners to ensure banking continuity. The short story: your check cashing business has a secure bank account.
In addition, NCC provides supportive financial services for check cashers including POS systems, compliance programs, and deposit turnaround. These work together to help you stay ahead of the competition and focused on serving your community. Are you ready for a reliable check cashing bank account? Reach out to NCC today!

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