Although many Americans use traditional checking and savings accounts to conduct their financial transactions, millions of consumers prefer to use check cashing establishments instead. One of the reasons for this is the fact that banks have systematically shut down branches in lower income areas, giving residents no real alternative for financial services. Check cashing stores have filled this void by offering a wide range services that not only include check cashing, but also prepaid debit cards, money orders, person-to-person payments, and more.
Many of those who patronize check cashing stores are among America’s unbanked - those who do not have a checking and/or savings account at a traditional bank. It’s estimated that roughly 7 percent of American households are unbanked. Additionally, about 20 percent of US households are underbanked, which means people still maintain a bank account but supplement it with alternative financial services like check cashing.
Critics of check cashing establishments assert that those who use these services are naive about money, but research has proved this isn’t the case. In fact, many consumers who frequent check cashing stores do so because they actually prefer them over banks.
In recent years, technological advancements have led to banks not being as crowded, and consumers are relying on traditional banks less and less. Banks are opening fewer branches overall - according to the Federal Deposit Insurance Corporation (FDIC), fewer than 92,000 bank branches were opened in the past year, despite a rise in the number of total deposits.
Not only are banks opening fewer branches, they are also closing existing branches at a rapid pace. With fewer locations, particularly in economically depressed areas, check cashing is a great alternative to banks. Here we’ll explore the many reasons people may prefer check cashing.
The Same Services as Banks, but Better
Traditional banks are viewed as the standard when it comes to handling money and associated financial transactions. However, traditional banks have increasingly relied on fees to stay afloat, and handling financial transactions can become very expensive over time. Check cashing offers a more cost-effective alternative to banks, though critics would say otherwise.
One way in which check cashing stores are a better alternative to banks is because of the wide array of services they offer. While banks offer services like certified checks and wire transfers, check cashing stores not only offer the same services, they specialize in short-term loans and bill payment services as well. In addition to offering more variety in their services, check cashing establishments often charge much less for money orders and money transfers, both nationally and internationally.
One of the major benefits of check cashing stores is that they prominently display their fees for all customers to see, rather than burying them in complicated fee schedules and disclosures that vary depending on the type of account a customer has. When it comes to cashing checks, banks will often charge large fees to non-customers regardless of the check amount. On the other hand, check cashing establishments typically charge a standard percentage of the face value of the check for all customers.
Better for the Budget-conscious
Skeptics of check cashing and alternative financial services in general often remark that these services prey on those who are less financially savvy. Critics have said that check cashing customers make poor financial choices, leading them to be shunned by banks and have few alternatives. Research conducted by Lisa Servon indicated that the opposite is true.
In fact, Servon found that those who use alternative financial services are very much aware of their financial situations and therefore pay close attention to every dollar. They prefer check cashing stores because they know exactly how much transactions will cost them and they can eliminate the element of surprise. These consumers are often very budget-conscious and will comparison shop for products and services, including financial services.
In addition to the fact that consumers generally find that check cashing prices are more affordable than banks, they also know what to expect when visiting a check cashing store. Unlike banks, which frequently change rules, and which are particularly unfriendly to non-customers or those without high bank balances, check cashing stores are fully transparent when it comes to cost and all customers are treated fairly, regardless of status.
Check Cashing Offers a Better Customer Experience
In terms of how customers are treated, Lisa Servon’s research found that check cashing stores beat out banks in this area as well. Because check cashing establishments are centered on providing services rather than storing money, customers are brought in and retained based on customer service and convenience.
Since check cashing stores are most often located in neighborhoods, it’s easy for the employees to become familiar with customers who frequently use their services. This rapport draws customers and enables them to feel more comfortable with those who are handling their important financial information.
Check cashing stores continue to be a viable alternative to banks, particularly in underserved areas where having a wide range of services available is beneficial to everyone. Banks have demonstrated that their bottom line is their top priority. As a result, for customers who value transparency and better customer service, check cashing may be a better choice overall.
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