Americans pay billions of dollars in overdraft fees to banks each year. In fact, individuals paid $38 billion in 2011, a phenomenon that is fueling the demand for alternative financial services. While the check cashing industry catches flack for its fee-based financial services, consumers prefer the upfront fees to hidden and unexpected costs that hit them when they’re already down. As consumer behavior reacts to banking trends, the retail check cashing industry is facing a unique set of opportunities and challenges in the year ahead.
Retail check cashing services encompass alternative financial services provided by small businesses. These include, but are not limited to: paycheck cashing, prepaid debit card services, money transfer, quick bill pay, money wires, traveler’s checks, currency exchange, and automated teller machines.
The purpose of these services is to provide convenience, up front pricing, and financial inclusion. Small business owners starting a check cashing business benefit from their endeavor in three key ways:
The members of the community that neighbors the check cashing business also benefit. Minority neighborhoods, in particular, gain financial inclusion in the face of redlining by financial institutions. Redlining occurs when banks decide against putting bank branches in minority or low income neighborhoods. It has a real impact on financial inclusion and promotes discrimination. Check cashers bridge the gap where bank branches are scarce, giving individuals a way to cash their paycheck and pay bills.
The 9 million unbanked (and 24.5 million underbanked) households in the United States only represent part of the market for retail check cashing services. In addition to the unbanked, a growing number of Americans are using check cashers to supplement their current financial services options. Consumer financial services expert Lisa Servon recently spoke with NPR’s Dave Davies on the “Fresh Air” podcast about the unbanking of America.
Lisa notes that there are a few different types of people using alternative financial services: “some people are augmenting their use of banking services by going to check cashers and payday lenders and pawnshops. Some people have been pushed out of the banking system entirely, and a lot of the people that I worked with told me they simply can’t afford it.” Lisa worked as a teller at several check cashing business to learn firsthand how these services are being used.
It turns out that individuals earning $50,000 – $75,000 turn to friendly check cashing when they are in a financial pinch. Her research showed her that the days of having a personal relationship with your banker are long gone. Without these relationships, Americans are just another line item for a bank branch and personalized service is hard to find. When they need cash immediately, individuals can’t turn to their bank. Instead, Americans are increasingly choosing alternative financial services.
Convenience store check cashing and other retail check cashing services are in demand as the unbanking of America continues.
While opportunity abounds for retail check cashers, they are also facing a major challenge. It is increasingly difficult to find, secure, and retain a check cashing business bank account. This challenge is the result of ever-changing financial regulation handed down to the check cashing industry by federal and state regulators. FinCEN crafts regulation to keep money service businesses in compliance with the Bank Secrecy Act and other federal guidelines. Additionally, banks work to stay compliant with regulations pertaining to financial institutions. In many cases, banks are opting to “derisk” rather than implement compliance programs.
Check cashers find themselves struggling to stay out front of these policies. If found to be in violation of the BSA or other laws, check cashers face immediate business closure and steep fines. In order to comply, check cashing business owners must implement their own robust compliance program. For regulated MSBs, this requires expertise and technology. While unregulated MSBs, those cashing less than $1,000 per day per customer, do not have to legally comply with these regulations, it is in their best interest to stay compliant and mitigate their fraud risk.
In addition to obstacles to check cashing bank access, retail check cashing is facing increased competition from a new entrant into the industry. Banks are now hoping to cut a slice of the check cashing market for themselves as they grow wise to consumer preferences. Banks are hoping to cater to consumers who are averse to traditional bank fund waiting periods with immediate check cashing services. This new trend is making it more important than ever before for retail check cashers to stay compliant, implement systems, and differentiate themselves from competitors.
In the face of derisking, regulation, and increased competition, check cashers have a solution: National Check and Currency. NCC has a strong network of check cashing banks, which provides clients with a real and reliable bank account. These redundant partners keep check cashers up and running, even if one bank decides to shed risk. This allows check cashers to focus on growing and diversifying their business – and not on handling emergency termination letters.
Beyond a real bank account, NCC supports check cashers through robust check cashing software and POS check cashing systems. These two services work together to keep check cashers compliant and catch fraud before it happens. NCC’s team of MSB compliance and check cashing experts are on hand 24/7 to help clients handle issues in real time. Many clients note that they feel secure knowing that NCC will work tirelessly to find a solution to any problem they encounter. Are you ready for peace of mind through a real check cashing bank account and expert customer service?