Check Cashing 101: Why are check cashing stores necessary?

http://www.flickr.com/photos/daquellamanera/ / CC BY 2.0

Over the years, we’ve seen a fairly healthy disdain for “check cashers” both in terms of being a rip-off service as well as a magnet for undesirable activity:

• Officials aim to rein in check-cashing businesses -  Gazette.net
• Twitter search – “Check Cashing”

Rather than just eliminate the businesses that cash checks (Bear Shaving, as Seth Godin would say), let’s take a look at why people desire and demand these services.

First off, there are the folks who don’t have a bank account at all.  The question is often asked, “why don’t they just get a bank account?”  Here are a few of the common reasons why. . .

1. Bad banking or credit history means banks won’t accept their account
2. Don’t have social security number or other documentation required
3. Dislike of undisclosed bank fees – whereas check cashers prominently post fees so consumers know what they are paying in advance
4. Don’t trust banks
5. Not enough money to open / maintain a bank account
6. Fees for check cashing may work out to be cheaper than bank account when you factor in all the fees those accounts can trigger
7. One stop service – many of these establishments offer check cashing, bill pay, prepaid cards, money orders, etc.  So consumers can do all their financial services at one location.
8. Language barriers – non native English speakers often prefer to transact in their own language. While some banks are specifically targeting Hispanics or other demographics, it’s not always available.
9. Can’t get to a bank during banking hours.  Check cashing establishments and grocery stores are often open extended hours and on weekends
10. Immediate access to cash – no holds or other mysterious rules
11. Can’t overspend/overdraw cash in a wallet

While there is a wide disparity in the check cashing fees charged, these businesses are generally not out to steal these people’s money.  This is a competitive industry (About 15,000 financial service centers, according to FiSCA, plus grocery/c-stores that aren’t in that count).

7-11 charges more than Wal-Mart because they offer convenience that Wal-Mart doesn’t.  It’s much the same story with financial services.  That convenience costs the retailer money (in cash inventory, security/robbery, fraud, etc) .

Coming soon: What alternatives are there for cashing a check without using a bank?

Tagged as: Check Cashing, check cashing fees, check fraud