Many individuals who do not have a checking account with a traditional bank—the unbanked—complete their financial transactions at check cashing stores, where they can take advantage of services such as prepaid debit cards and check cashing.
Despite ever-evolving payment technology, cash is one of the chief forms of payment. In addition, checks are surprisingly still used rather frequently, both by business owners and consumers alike. The leading payment method is electronic payments, which account for 27 percent of consumer transactions, followed by checks at 19 percent, and cash at 14 percent. While the use of personal checks has declined over the years in favor of more convenient debit cards, check cashing as a service is still alive and well. Following is a look at some of the main reasons why consumers and businesses are drawn to check cashing.
1. Greater Convenience
Among the primary reasons why check cashing establishments are so popular among consumers is the high level of convenience that they offer. For individuals who work non-traditional hours, check cashing stores are often the only place where they can cash their checks after they leave work at the end of the day. Since banks are typically only open from 9 to 5 on weekdays, customers who need financial services after those hours or on the weekends may be out of luck.
Another testament to the convenience of check cashing is the fact that check cashing stores often offer a wide range of financial products and services all in one place. From money orders to wire transfers, check cashing stores not only provide consumers with the ability to cash checks, but they handle all of their other financial business, as well.
Another benefit of check cashing stores is the quick turnaround time. Often, when a consumer wants to cash a check at a bank, they are subject to hold times with various time frames. This is particularly problematic if a consumer needs money right away. By visiting a check cashing store, customers can obtain funds immediately.
2. Less Hassle Than a Bank
In recent years, consumers have begun to voice their displeasure with banks and their practices in the wake of the global recession that began in 2008. Following the financial collapse, banks started to eliminate services such as free checking accounts and began to charge fees for nearly all of their services. Even for longtime account holders, banks became more of an expense, which caused customers to seek alternative financial services. Moreover, banks have developed a reputation for primarily catering to high-net-worth clients, while providing subpar customer service and making things more difficult for those from areas with low incomes.
Millennials have been particularly vocal about their preference for alternative financial services, such as prepaid debit cards, check cashing establishments, and money transfers. Many have said that banks tend to change terms and fees without their customers’ knowledge, which in many cases causes them to overdraw their accounts. This unpredictability is one of the main reasons why many customers prefer to use check cashing stores instead. Most check cashing stores conspicuously post their fees in their stores and on their websites, and they do not impose arbitrary rules.
According to Lisa Servon, a researcher who has studied check cashing in depth, bank overdraft fees often cost consumers more than payday loan and check cashing fees. She found that overdraft fees with a repayment period of seven days have a nearly 5,000 percent APR. This refutes the claims of critics, who claim that payday loans and check cashing are less cost-effective alternatives to banks.
3. Ease of Keeping Track of Payments
For small business owners, paper checks are still a popular way to pay their employees. While technology has significantly influenced how individuals pay each other, many business owners do not use this type of technology and instead opt to pay employees by check. Although paying employees in this way may seem somewhat antiquated, it’s actually quite beneficial.
One of the main reasons why employers prefer to pay employees with paper checks is that doing so provides a great way to keep track of how much money has been paid out. Business owners also are able to see exactly when a check has cleared their account, which can be helpful in the event of a payment dispute or in balancing the books. Most check writing services also offer images of checks, so any issues can be resolved with minimal hassle.
In spite of all of the exciting changes occurring in the payment processing sphere, checks aren’t going anywhere anytime soon. In 2012 alone, 18.3 billion paper checks were paid, as reported by the Federal Reserve. Many customers still use paper checks as a way to pay for items or to receive payments. With this financial instrument still so commonly used, it’s safe to say that check cashing will continue to flourish.
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