Even fully banked individuals turn to payroll cashing to meet their financial needs. This is contrary to the popular belief that only the unbanked rely on check cashing services. In reality, a wide variety of people enlist alternative financial services to move their money around, pay bills, submit their rent check on time, and handle household emergencies.
The Banking Gap
In 2016, 9 million households in the US did not have a checking or savings account (FDIC Annual Survey). A total of 24 million households were underbanked in this same year, showing that full-scale traditional banking is out of reach for a significant portion of the population. These households are unable to use direct deposit to access paychecks or rely on credit cards in emergencies. As a result, they hover one misstep away from a financial melt down at all times. In this situation, it is impossible to pay rent, manage bills, and run a home without check cashing services.
Two sectors of the population in particular are driving the growing number of unbanked US households: low income households and millennials. Both groups have one thing in common: they are choosing convenient access and upfront fees over bank branches and hidden charges. For millennials, mobile money apps offer an ease of use they just can’t find elsewhere.
For lower income households, the act of being unbanked is not a choice. Lower income households who do use traditional checking accounts end up taking “loans” against the account in the form of overdraft charges. Bank fees quickly pile up and can be insurmountable for someone with less disposable income. These households spend a far greater percentage of their income on necessities like housing and food. As a result, they can’t afford lags in deposit availability and inconveniently located bank branches.
Alternative financial services like payroll check cashing, prepaid debit cards, quick bill pay, and money transfer bridge the gaps between income, convenience, and the traditional banking industry. Educator and researcher, Lisa Servon, recently published a book, The Unbanking of America: How the New Middle Class Survives. In it, she explains why our beliefs about check cashers are flat wrong. During the time she spent undercover as a check cashing teller, Servon was surprised to serve regular customers, many of whom also had a real checking account at a big bank.
Why would someone with a bank account use a check cashing business? In many cases, the customers Servon served needed immediate access to their money in order to make rent, repair a car, or cover a similarly crucial cost. Her discovery led her to examine the check cashing industry in a new light and work to undo the demonization of alternative financial services.
Payroll Cashing & The Check Cashing Industry
The check cashing industry serves everyone who uses non traditional financial services, whether it’s their choice or a necessity. Payroll cashing is offered by stand alone check cashing outlets (traditional “We Cash Checks” locations) and retail check cashers (convenience stores and other businesses who offer check cashing in addition to their primary products and services).
Low income and minority neighborhoods are more likely to have a check casher than a bank within walking distance or easily accessible by public transportation. Thanks to redlighting, many banks opt to steer clear of neighborhoods that aren’t wealthy and caucasian. The result? Low income, minority neighborhoods are essentially excluded from the traditional banking system. In many cases, a bank branch is 2 bus transfers away and if it is within reach, it is closed by the time someone working 2 shifts can get there.
Retail check cashers deliver another layer of convenience by bundling financial services with necessary errands. Convenience store check cashing is the most well known retail check cashing option, but many other businesses offer payroll cashing: liquor stores, beauty shops, gas stations, restaurants, grocery stores, and bodegas. Like a mobile money app, retail check cashers enable their customers to multitask – and take care of their banking needs on the go.
The Future of Alternative Financial Services
The future is promising for alternative financial services. For both the banked and the unbanked, check cashing and other convenient options offer freedom that they can’t find (or achieve) through traditional banking. While FinTech is touted as the future of financial inclusion, many of these options are geared towards higher income millennials and do not address the issues faced by lower income families.
The ability to cash your payroll check and then turn around and use those funds to pay bills, load a prepaid debit card, and send money to family is essential. When it comes to performing this task, the expense of account maintenance fees and overdraft charges can exceed the 1% check fee assessed by a check casher.
As Lisa Servon notes, the choice to use a check casher is often a smart decision made by an individual who fully understands the options in front of them. In this case, the individual is making a financial decision that makes the most sense for their situation – and leverages their assets in a way that enables them to carry out daily tasks.
As consumers turn to payroll cashing, the financial services industry is slowly evolving. Some big banks now offer check cashing for non account holders and immediate access to funds for existing account holders, for a price. This helps current account holders circumvent long deposit hold times when they need money quickly.
Check Cashing Business Bank Accounts
Reliable business bank accounts are the backbone of the check cashing industry. A check casher needs a bank account in order to accept checks, clear them, and return cash to the customer. In yet another blow to the unbanked, check cashing business bank accounts are growing scarcer by the day.
Derisking is the main contributor to lack of check cashing banks. The phenomenon of derisking occurs when financial institutions close check cashing bank accounts in an effort to shed risk. While this risk can be successfully managed through strong compliance, many banks opt to avoid it all together. When banks make this choice, check cashers are left without a bank account.
This account closure forces check cashers into a mad frenzy to secure another bank account quickly to avoid operational gaps. In many cases, the check casher is forced to close either temporarily or permanently when they become debanked. This hardship is passed along to the check cashing customer who is left without a method to cash their payroll check.
NCC helps payroll check cashers bridge the banking gap by supporting them with solid business bank accounts. To do this, NCC uses a network of banking partners to provide redundant money service business banking for check cashers. What does redundant mean for your banking? Essentially, NCC helps you eliminate the threat of derisking through a collection of “back-up” banks. If one bank drops out, there is another bank to take your account with zero lapse in service.
This peace of mind is exclusive to NCC. In addition to real banking, NCC’s check cashing experts provide guidance on compliance, fraud prevention, safety, and efficiency so you can run the best check cashing business possible.