MSB Insider

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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MSB Bank Derisking & Its Nonprofit Impact

March 17, 2017

US nonprofits abroad are facing a financial inclusion dilemma. In the recent wave of derisking, banks are dropping money service businesses from their client lists. These MSBs are the vehicles for transferring funds from the US based nonprofits to their arms working abroad. MSB bank derisking is effectively cutting off funds for nonprofit work abroad. How did we get here?


MSB Bank Derisking

Derisking is a decision by banks to avoid, rather than manage, their risk. Derisking impacts the alternative financial services industry directly because these are the businesses losing their bank accounts. The phenomena of indiscriminate derisking is an unintended result of financial regulation put into action after 9/11. The US government responded to these terrorist attacks, which were illegally financed through a major US bank, with strong regulation.

The USA PATRIOT Act strengthened the BSA of 1970 and widened the scope of Anti-Money Laundering (AML) regulation. This regulation sought to help banks and law enforcement agencies detect, prevent, and prosecute financial crimes. These crimes include money laundering, terrorist financing, tax fraud, and other illicit activities aimed at defrauding the financial system.

Since AML and counter-terrorism regulations place responsibility with banks, many financial institutions are adopting a conservative approach to compliance. This means cutting “risky” money service business clients from their account ledger. Unfortunately, many highly compliant MSBs are receiving abrupt and impersonal letters notifying them of their impending account closure.

When MSBs reach out to their longtime banker, no explanation is given. This unsolicited termination leaves MSBs without banking, a necessity for cashing checks. As a result, check cashers are forced to shut down their businesses while they search for a new financial partner. In the interim, their clients are left without access to alternative financial services.

On the other hand, regulation slows down the transfer of international funds, which have to be thoroughly vetted. Paperwork and documentation bring the money transfer process to a halt, slowing down funds as they make their way to their final destination. An example of this the halt of funds transferred to US nonprofits working abroad.


How Derisking Impacts Nonprofits

Recent reports show that two thirds of US nonprofits working abroad are experiencing significant banking issues due to derisking. In some cases, the NGOs lose access to financial services when their trusted MSB shuts down after their bank account is terminated. In other cases, NGOs are impacted by sluggish regulatory practices including documentation and requests for additional information. Charity and Security Network reports that over one third of nonprofits are impacted by increasing costs associated with access to financial services.

International banks are, in some cases, hesitant to work with US NGOs through international money transfer. They are concerned with protecting their relationship with their US based correspondent banks, which they rely on for these transfers. One red flag could shut down their ability to work the American financial institution.

These factors combine for a drastic drop in access to MSB financial services, which can be directly tied to regulations aimed at preventing money laundering and terrorist financing. The delays in (or absence of) transmitted funds are causing serious delays and project cancellations for these NGOs, which carry serious ramifications. Delays in wire transfer, lasting for months at times, are currently affecting over one third of NGOs. According to Devex, one NGO working in Syria was unable to purchase fuel to power a hospital after lengthy wire transfer delays.

When NGOs can’t rely on money transfer and alternative financial services, they turn to cash. Carrying large amounts of cash puts the NGOs at risk for harm or robbery, while simultaneously reducing transparency. One potential solution to this problem is the adoption of a “safe harbor’ provision protecting banks working with US NGOs abroad. This would alleviate the compliance burden for the financial institution and allow funds to flow freely to the nonprofits counting on them to fund programs.


Reliable MSB Bank Accounts

As a result of derisking, banks that offer MSB accounts are hard to find. The first step to securing a reliable MSB bank account is to implement a robust compliance program. Licensed MSBs cashing over $1,000 per day per customer are required to adhere to a set of federal and state regulations. In addition to securing a license, these MSBs must implement, maintain, and document a compliance program.

For MSB owners, this is the most important part of their business operations. Creating a compliance program that is efficient and consistent requires expertise. Advanced POS technology can aid in the capture and vetting of KYC data. Check cashing technology like this helps the teller collect information from new customers, run this information against national databases, and follow compliance protocol to catch red flags before they become fraud.

A documented check cashing process streamlines operations and aids in the training of new employees. In accordance with the BSA, MSBs must also keep detailed records of specific financial transactions. The BSA also requires MSBs to file Suspicious Activity Reports (SARs) for all questionable financial activity. These measures require quick and transparent communication between money service businesses and their banks.

NCC helps MSBs manage their regulatory burden through compliance expertise and 24/7 customer support. By offering reliable MSB banking, NCC removes the threat of derisking. Money service business owners are able to focus on streamlining processes and reinforcing compliance, rather than chasing their next bank account.

With a dependable money service business bank account on your side, you don’t have to worry about receiving a termination letter from your trusted bank. Instead, you can focus on expanding your business, increasing foot traffic, and improving your customer loyalty program. What could you do with all of the time you spend worrying about banking?

In addition to a network of MSB banking partners, NCC provides supportive services to help your check cashing operations. These services include deposit turnaround, ACH services, money transfer capability, remote deposit capture, and more. All of these elements work together to support your check cashing business and avoid delays in transfer times. With NCC, you can avoid the negative fallout of derisking.


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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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Our first priority is to keep our customers banked and processing items. Our partnership with multiple MSB-friendly Financial Institutions allows us to meet that goal. If you have questions about establishing a new MSB bank account relationship, or would like help with your current account, please feel free to either e-mail or call us. 24 hours a day. 7 days a week

The MSB Insider

Check Cashing Services: Behind The Scenes

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) ...(read full article)

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