How Walk-in Bill Pay, Prepaid Cards Could Win over Check Cashers

Contrary to some perceptions, there is no wall separating the customer bases of banks and check-cashing stores. Many consumers patronize both financial entities. And, according to a new report from Aite Group LLC, banks could win more business from consumers who heavily patronize check-cashing stores by adding walk-in bill-payment services and increasing their prepaid card offerings. Banks will cash checks for their own customers, of course, and many do for non-customers for a fee. But if a bank is serious about serving the so-called underbanked consumer markets, it needs to add the types of services check-cashing outlets offer, says report co-author Gwenn Bézard. “If a bank decides to be player … just offering check cashing is not enough,” he says. Aite based its findings on in-person surveys last November and December of 400 customers as they entered or left eight check-cashing stores in Virginia, a state that permits payday and other types of small, short-term loans not legal in many other states. The survey takers asked the consumers about their financial behavior. They found that customers on average cashed 28% of their checks over the preceding three months at banks, 53% at check-cashing outlets, and 19% at other locations such as retail stores. Some 53% of the respondents had a checking account at the time of the survey, 21% didn't but had one in the past, and only 26% never had a checking account. Those with checking accounts cashed 34% of their checks at banks. Aite used the data to segment the customers into four groups. The so-called “bystanders,” 22% of the survey group, didn't have bank accounts, didn't have many checks to cash and when they did, did so 96% of the time at check-cashing stores. “Active splitters,” 26% of the consumers, split their check-cashing among different types of outlets, had multiple income streams and, not surprisingly, had more checks to cash each month than the other segments?7.0 compared with 5.3 for the entire group. The two other segments represent the best prospects for banks to boost account and transaction volume, according to Aite. They include the 23% of consumers Aite calls “surprising check cashers,” who frequently patronized banks and used mainstream financial products. In fact, they cashed 61% of their checks at banks. They also had higher incomes than other check-cashing store users, had data plans for their cell phones and were the most financially optimistic of the four groups. But many had credit problems in the past, and they used alternative financial services, such as check-cashing stores and prepaid debit cards, when they perceived a personal advantage. The “convenience chasers,” meanwhile, represented 29% of the survey group. They cashed 62% of their checks at check-cashing stores and 27% at banks. Convenience chasers avoided banks most of the time because they didn't like bank hours, minimum balances, and fees. They also liked to pay bills when they cashed checks. Aite estimates banks could win 47% of the check-cashing transactions of check-cashing store users, up from the current 28%, by making strong appeals to the surprising and convenience-chaser groups. The latter has potential if banks offer bill payments and speed up their services, according to Aite. “There is a segment of the population that wants to make multitransactions at once,” says Bézard. “It's a natural extension for banks to offer that to check cashers.” Banks possibly could do so by bringing in a third-party bill-pay vendor, he adds. Banks could appeal to the surprising check-casher group by offering prepaid cards and services that help them repair their credit history, according to Aite. While general-purpose prepaid cards have received a lot of publicity in the past couple of years, few banks actually offer them, Aite says. Such cards could help surprising check cashers avoid the non-sufficient funds fees they fear.