Check cashing and other alternative financial providers, like auto title lenders and pawn shops, deal in small transactions. However, these industries have survived tough economic times and continue to experience demand. It’s estimated that the industry brings in $100 billion each year, and these numbers continue to increase.
Although industry critics assert that check cashing and other community financial services undermine traditional banks and do a disservice to their customers’ financial futures, many customers couldn't disagree more. Most check cashing customers fully understand the process and still prefer check cashing locations over banks.
This fact is at odds with the stereotype that check cashing establishments only serve to prey on those with limited options, or those who have a limited understanding of personal finance. Here, I'll explain why customers continue to patronize check cashing establishments and why there has even been a surge in this sector.
Making Customers Feel Comfortable
One college professor took a job at one of California's biggest check casing chains in order to see why customers preferred to patronize check cashing stores. Familiarity and a positive customer experience are two of the top reasons customers of check cashing stores continue to return.
According to the professor’s firsthand account, customers stated they frequented the stores because they value being treated like a human being. Customers also noted that they perceived banks as cold and impersonal entities that only value customers with large account balances.
Alternatively, check cashing establishments cater to customers from all walks of life and professions. Additionally, many check cashing stores have more convenient hours than banks. This is especially beneficial for people who work unpredictable or non-traditional hours. In addition, the employees at check cashing stores often develop a rapport with customers, which also serves to make them feel more comfortable.
Another reason people may prefer check cashing stores to banks is accessibility. With the advent of new technologies such as direct deposit and mobile deposit, many banks have closed bank branches, particularly in lower-income areas. Check cashing stores fill this void, giving customers the ability to handle common financial transactions in their own neighborhoods.
Banks Aren't Always Better
Banks have realized that check cashing stores are not just for consumers who do not have other options. Instead, they are patronized by many who are fed up with banks’ lack of services and excessive fine print. For years, banks have failed to prioritize customers who do not have large amounts of money on deposit. Only recently have banks begun to show interest in other segments of the population.
Some feel this is merely an effort on the part of banks to charge additional fees for check cashing services. Check cashing is a billion-dollar industry, and banks have sought to assert themselves in the financial services market. These established entities may feel like check cashing stores infringes upon their business model.
Critics of check cashing cite high transaction fees as a reason to avoid check cashing establishments. However, customers often find that banks are less than upfront with fee structures. Additionally, many individuals have had negative experiences with banks.
Overdraft fees are one of customers’ biggest sources of contention. Overdrawing accounts by even small amounts can result in huge fees. Additionally, customers may be assessed continuous fees for each day their account is overdrawn. Despite what banks convey to the public, overdraft fees are a form of short term loan that are not much different than a payday loan. The “interest" on a 7-day overdraft would be the equivalent of more than 5000 percent APR.
Not only that, but when deciding whether to cash a check immediately for a small percentage or to wait for that check to clear the bank, a check cashing store can be the more appealing option. Another opportunity cost for banks is in the amount they charge for cashier’s checks, which function similarly to money orders. Check cashing customers not only rely on check cashing services, but also use these businesses for other services such as wiring money, paying bills, and obtaining money orders at a fraction of the cost of what banks charge.
The Future of Check Cashing Services
In recent years, check cashing stores have been increasingly regulated by local and state governments and have been the subject of criticism from consumer advocates. Yet customers have made it clear that they value the services offered by check cashing stores.
Governments continue to try to encourage banks to cater to consumers who are interested in check cashing services. However, so far, these efforts have not been as successful as they would prefer. Although banks realize there is money to be made by offering check cashing services, many of them are still reluctant to go into the business of offering services to non-customers.
Despite their critics, check cashing establishments continue to be a viable business model. These stores recognize that they are serving the needs of their communities. Customers know what they are getting. Thus, people from all walks of life continue to do business with check cashing establishments, even when they have the option to patronize a traditional bank.
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