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.