What is a check cashing service?
More than 30 million Americans do not have traditional bank accounts. Instead they use check cashers as alternative financial outlets to perform basic financial services. A simple transaction of converting a check into cash carries a high price tag. The average cost to cash a payroll check is 4.11% of the face value. That means a worker would pay an average of $19.66 every week to cash a $478.41 payroll check at a check casher. That amounts to an annual cost of $1,022.45 to cash net earnings of $24,877.
Who uses check cashers?
Check cashers are apt to be used by consumers who:
- Are female (66%)
- Are employed (76%)
- Have children under the age of 18 (41%)
- Had a checking account with a financial institution at one time (60%)
- Have an average income of $31,000
- Are younger (average age is 37)
Why should credit unions care?
Many users of check cashers are un-banked or under-banked, meaning they either have no or a limited relationship with a financial institution, and rely on the alternative financial services sector to cash payroll or government checks. They are potential candidates for new members, yet are willing to pay for the services they receive. Thus, they provide not only a source of new business, but a potential source of income to the credit union, as well.
What can credit unions do?
Credit unions can be part of the solution to high cost check cashers by offering reasonable fee-based check cashing services to members and potential members that represent a good value for the consumer, but a sustainable service for the credit union. For most consumers using check cashers, the credit union fees would be less onerous, putting more money back into consumers’ wallets. For credit unions, offering a first-step transaction service like check cashing, moves the member along the path to financial wealth and builds loyalty and healthy financial habits.
Check Cashing – Guadalupe Credit Union » View details
Guadalupe CU has found that offering check cashing services to potential members is a good way to grow new and loyal members. The CU’s new Spanish-language branch has experienced 124% growth in membership during 2009.
Check Cashing – Credit Union Center » View detailsThe Credit Union Center is a shared-branch CUSO for three credit unions in the Wichita area. It began offering check cashing services to non-members in 2005 as an alternative for people who were paying very large check cashing fees. In almost five years it has experienced only one loss for $800.
- “A Case Study of Checking Account Inquiries and Closures in Chicago,” November 2006 by The Center for Financial Services Innovation.
- “From Poverty, Opportunity: Putting the Market to Work for Lower Income Families,” 2006 by the Brookings Institute.
- “Cashed Out: Consumers Pay Steep Premium to ‘Bank’ at Check Cashing Outlets,” 2006 by Consumer Federation of America.
- “Underbanked Consumer Overview & Market Segments: Fact Sheet,” June 2008 by The Center for Financial Services Innovation.
- “Preferences and Usage of Financial Service Providers,” October 2008 by The Center for Financial Services Innovation.