Check Cashing Industry
The Unbanked and Underbanked; A Process of Growth for Banks, Credit Unions and CUSO’s.
By B2
Jun 27, 2003, 8:24pm

The Unbanked and Underbanked;
A Process of Growth for Banks, Credit Unions and CUSO’s.

For decades we have seen the awesome growth of non-bank financial institutions. Areas such as Check Cashing, Payday Lending, Wire Transfers, Money Orders and more have moved from the typical banking relationship to the neighborhood financial services arena. This was due to many factors which included but was not limited to fees being too high at traditional banks, banks moving towards limiting their relationships to higher tiered credit consumers, banks holding funds from deposited checks for much longer than is actually needed to gain the float, check cashing stores creating a customer friendly image and facility, banks and other lending institutions not providing typical style loans under the $1,000.00 level, increased demands for profitability causing some banks to lower service levels and charge fees for customer interaction, and more. All of these things substantiating the need for the neighborhood financial services businesses.

Money orders, once a thing that your mom would send you to the post office to buy so she could send off for that new summer dress in the Sears catalog, now are as common place as your nearest Circle-K convenience store. And the saving grace of online bill paying from your banks website that was the talk of the town no more than two years back is now a staple in 7-Eleven convenience stores. With each new advent that banking offers a sub market is created through natural channels. Wire transfers which were the fastest means to which money could be sent across town or across the country is now met with electronic means such as the ACH and EFT processes. The loans that made companies such as Household Finance a staple of under $1,000.00 are limited in availability to cash advances on credit cards or payday advances from check cashers or your local Wells Fargo ATM. And with the recent induction of non-bank customer check cashing fees by banks it is only natural for the check cashing industry to reap the benefits due to the cost of cashing a check at a bank as a non-bank customer is higher than that charged at a check cashing store.

Traditional banks and credit unions are now being asked to be more open to the unbanked with programs such as the First Account program of the U.S. Treasury. The focus of this program is to create access for the unbanked to traditional and electronic checking accounts. As well, to create an education process that not only assist the unbanked in opening an account but also to teach them to maintain it and to expand their relationships within the insured depository institutions realm. Thus affording access to a lower fee schedule on loan products associated with normal life such as home loans, auto loans and small business loans. The U.S. Treasury has funded grants out to 15 entities for a total of over eight million dollars to afford access to an additional 35,445 unbanked people. This is being done at a cost of roughly $235.00 per person that gains access.

Obviously this is just a tip of the iceberg as the current estimate is over ten million households are unbanked. And the expectation is that after proving the model corporate, community and traditional banking funds would take up the needed gap to assist the other 19.9 million unbanked individual’s to gain access. This of course would be a monumental task even in the best of economic times and would burden the banking system technology, labor, mechanical and facility models to the brink. Unless there was a way to compound the capitalization and reap profits from it.

Traditional banks such as Wells Fargo and the ATM payday advance, Banco Popular and the Popular Express Check Cashing Chain, Union Bank and its stake hold in Nix Check Cashing, all see beyond the ABC credit rating and are tapping into the unbanked and underbanked. And this was done without federal grants, programs, training or education of the consumer. It was done because of the real need that exists to address the needs of real consumers.

On the neighborhood financial services side, relationships with banks and other large financial institutions are an everyday occurrence and traditional banking profits from these relationships. ACE Cash Express has an ongoing relationship with a group of banks headed up by Wells Fargo Bank which provides for them an operating capital line of credit, a capital expenditure line of credit, a seasonal line of credit and a letter of credit all in all exceeding two hundred million dollars. And this same style of banking relationships exists throughout the neighborhood financial services industry as a whole.

So without banks the check cashing industry would not have been created and now without banks the industry could not survive. The business of cashing a consumers check moved out the front door of the bank and came back in the door as a large corporate depositor and customer for the banks in the way of check cashers.

But now with the focus of federal agencies on servicing the unbanked, the best positioned financial institution is by far the credit union. Credit unions have kept their image as a service to the consumer much less tainted than that of banks. They understand their members on a more personal level and understand the outreach that can and does bring them new membership on a daily basis.

The next level of this outreach is to incorporate the use of CUSO’s to assist them in reaching the unbanked as well as servicing the underbanked. This is done by creating a state based CUSO that follows that states rules and regulations associated with the neighborhood financial services industry. And in turn allows the extension of services that have made Credit Union’s famous since day one. Adding check cashing, payday lending, money orders, wire transfers, bus passes, bill payment, and many other services to the ranks of an insured depository institution will not only bring in new members but also create a fair advantage for the credit union and its CUSO within its home state.

While Credit Unions are famous for member services and the real and perceived perception of the values associated, they have to learn the ways of the neighborhood financial services business to understand the true relationship that exists between the consumer and the check casher. The creation of a CUSO focused on the neighborhood financial services business will gain them access to not only the 10 million estimated unbanked households but also the nearly 60% of check cashing store consumers that do have traditional banking relationships. Thus expanding the membership of the Credit Union and reaping the benefits associated with the neighborhood financial services industry. And most importantly giving the unbanked access to become banked and the underbanked to become the perfectly banked!

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