The Recession & the Rise of Check Cashers
In the past 5 years, check cashers are playing an even more integral role in their communities by granting access to otherwise out of reach financial services. U.S. financial institutions reacted swiftly to the 2009 Great Recession by regulating their industry in an attempt to mitigate their risk. As the industry quickly shed risk, access to traditional financial institutions was restricted and the lending market shrunk. The result? Unbanked and underbanked Americans received a one-two punch to their wallets.
To meet the demands of the unbanked, check cashers and CCOs (check cashing outlets) expanded in low-income neighborhoods. Critics of the industry called the expansion exploitive, but check cashers offered (and continue to offer) a financial service that their customers are not able to receive otherwise, due to the high cost of entry into formal financial institutions, as well as a lack of access to traditional banks, as they continue to close branches in these neighborhoods. The check cashing and payday lending industry is made up of brick and mortar businesses that offer essential financial services for a fee to those who need them. Someone who cannot afford a traditional checking account can cash their paychecks through a CCO. The industry generates an estimated $11 Billion annual revenue, employs close to 90,000 workers, and includes more than 14,500 locations nationwide (IBIS Word Report).
Many check cashers also offer the convenience of an attached store- convenience, bodega, and liquor stores are the most prevalent CCO add-ons. This means that customers can cash their checks and then shop for everyday essentials in the same place. These outlets often offer incentives such as free check-cashing with an in store purchase– making them all the more attractive to their target market. Another practice that sets the industry apart is that check-cashing fees and loan rates are posted clearly for the customer– while banks often use fine print for the fees associated with checking accounts.
Is Financial Inclusion Becoming Mainstream?
Thanks to the FinTech industry, great strides are being made towards financial inclusion across the board (Time). Strides in financial technology, coupled with gradual economic recovery, are encouraging traditional and alternative financial institutions to innovate and expand. Check cashers are evolving to offer attractive services that will hold value for their target market, even as other financial options move within reach. These services include loyalty programs and mobile apps that are complementary to the in store options. “The intent is to draw in repeat business from customers who transact in their stores but could also very well have bank accounts” (American Banker). As a check casher, your objective is to create a community atmosphere and a valuable resource for your clients so that they choose your services over and over again.
At the same time, traditional financial institutions are innovating to break down the hurdles put up by regulation and risk-management strategies– and reach the estimated 68 million unbanked Americans (American Banker). JP Morgan Chase is working to revise its policies to offer inclusive and accessible financial services. In a press release, NY Attorney General Scheiderman says “These new actions on the part of Chase Bank will help expand access to low-cost financial services for consumers across the state. I look forward to working with additional banks to help consumers avoid financial services laden with fees and other penalties (Westfair Communications Online).”
What’s next for Check Cashers?
Innovation within the traditional financial industry is not a bad thing for check cashers. CCOs have a rare advantage in the modern world– they get to look their customers in the eye, thanks to over the counter transactions. Success will hinge on how well check cashers leverage this human connection and continue to provide essential services and attractive add-ons for their target market.
At National Check and Currency, we are committed to cutting edge technology and a forward-looking approach. Our redundant msb banking solutions keep you in business and focused on nurturing your customer-base and innovating for the future.