You might have come across stores that read Western Union or Check Cashing stores and wondered what purpose are they for. If that is the case, you have come to the right place where you will be able to gather quite a chunk of information on what exactly Check Cashing stores are and what they do.
The Check Cashing Organizations also popularly known as the Check Cashing stores are business organizations that help you convert your check into cash in no time. In simpler terms, they are basically outlets that cash your checks quickly and easily and charge some amount of fee as service charge for the same.
These stores are a convenient space for people to cash different types of checks. These include checks from the government, personal checks, payroll checks, refunds from the income-tax department, money orders, insurance check, etc.
Apart from cashing checks, a few Check Cashing Organizations also offer a varied range of secondary services like the short term loans that are given on payday basis, money transfers as well as bill payments under which customers can easily pay their bills through the Check Cashing Stores.
Additionally, there also exist CCO’s that also sell tickets and travel passes, lottery tickets, prepaid sim cards, money orders, postage stamps etc. on the side.
When we particularly talk about the United States, here the number of clients choosing the Check Cashing service is quite high however the majority of its clientele are the comparatively low income, working on less-wage individuals who usually do not have access to bank accounts of their own.
According to a study/survey conducted by the Federal Reserve Board of the United States, it was estimated that there are nearly 13% of families in the US who do not have a checking account. A lot of analysis was also done on the following findings to understand why the given percent of people did not go for the traditional banking institutions and practices.
And on the basis of the analysis done on the findings, it was understood that some of the possible reasons behind this could be the lack of trust towards banking institutions, unaffordable bank fees, inability of the banks to provide banking services that take into consideration the needs of the low-income people and the people not wanting to go through the arduous banking procedure or wanting to invest time for the same.
It was observed that the Check Cashing business has undergone a huge growth since the 1980s and there were approximately 13,000 Check Cashing stores located in the country which cashed over $80 billion checks in an year (according to a report of 2006 in the United States).
The Check Cashing Organizations are not limited to merely small financial stores that cash your checks; there are several independently owned large regional or even national businesses that exist in the financial market. Some of the most famous Organizations in the United States include Cash America International, Western Union, ACE Cash Express, EZCorp, etc.
While we talk about the Check Cashing Stores, the fact that these organizations have constantly been the subject of public and government discussions cannot be neglected. While a lot of people think that these stores have been of great help to a lot of people belonging to different sectors and backgrounds, a few also claim that these businesses may exploit the low-income, vulnerable population of the country by charging heavy amounts of fees instead of actually helping them resort their financial problems.
However, when we consider the same in the current market of the CCOs, the amount of fee charged for the process depends on the credibility of the bank, risk involved in the transaction and the amount to be cashed. Thus, these arguments have been a part of quite a long debate but their answers have been clear to the people who have tried the services of CCOs.
When Did It Begin
The earliest beginnings of Commercial Check Cashing in the United States were in the early 1930s in the form of a small business that helped process payrolls and government-aid (public-assistance) checks. The idea behind this began in the 1920s and 1930s when a lot of people had undergone problems and scams due to bank failures and thus, a large chunk of the American public started having trust issues with the banks and was reluctant to deposit their checks in the banks.
As a result, they started preferring getting their checks converted into cash at neighborhood stores and bars where a small amount of fee was charged by the owners for the process. However, the Federal Deposit Insurance Corporation (FDIC) was established in the 1930s in the US which started giving the public an assurance of getting their money despite the bank failures.
Thus, the lost confidence of the public towards the banks was largely regained due to which the growth of the Check Cashing Industry did not increase, rather remained modest for a long period.
A major boost in the Check Cashing industry was observed in the 1980s when bank deregulation began. The government lifted certain restrictions on how the banks and member-owned financial institutions (Credit Unions) could operate and thus, the deregulation resulted in increased competition between the different traditional financial institutions.
With the potential profit earning opportunities that these banks started seeing, they decided to shut down their branches in poor urban neighborhoods which were less profitable and thus introduced certain amounts of fees for cashing people’s checks and penalties for the accounts that had lesser amount than the pre-decided rate. However, these changes and the service that was now provided did not cater to the needs of low-income families.
Resultantly, the deregulation process created negligence towards a large population who did not have proper access to the basic banking services that are needed by all. It was the Check Cashing stores, pawnshops and payday loan centers that took over for good and filled the void by offering their easy and affordable services.
Into More Detailed Information
The best thing about CCOs is their easy cashing process and the convenience they offer to their clients. They are beneficial and advantageous in a lot of ways. Firstly, while the traditional banks operate during the regular working hours and days which are usually shorter and do not include weekends, majority of the Check Cashing Organizations are open for more hours and in some cases even 24 hours that too on weekdays as well as weekends.
Secondly, the traditional banks usually take a few days to process a transaction and thus, they place the check on hold during which the individual does not have access to the funds for a few days until it is cleared. Whereas in the case of CCOs, the check amount is converted into cash and given to the customer in no time (the client gets his/her cash instantly and easily).
A lot of people fall short of cash before they get their paycheck of the next month and in such cases, the Check Cashing process turns out to be of great help for them as they are able to get instant cash for their check and they no more have to worry about running out of money.
Due to this, the fact that a certain amount of fee is charged for the service and cut from their final amount seems to be brushed aside as their major problem is resolved.
You might wonder about how much fee is charged in the Check cashing Process and the answer to this is not a fixed amount. The fee varies depending on the amount of check and its source but the stores usually calculate and charge a fee between 1-3% for a check from a credible bank or from the government.
To give an example for the same, if you plan to cash an amount of $1000 at a Check cashing store that charges a 2% service fee, the total amount of fee that will be charged in the process will be around $20.
However, the fees charged on personal checks or the ones that are more risk-prone are much higher than the regular rate and can even scale up to a 10-15 percentage of the cashed amount.
The only reason behind the increased fee rate is the risk involved in the transaction and the fear that the check might not clear or take too long to proceed. It might seem that such a fee is not worth spending on, but when looked at it from close- you have nothing to loose if your check belongs to a trusted, reliable source and under the same, you also get your cash in quite an easy way.
Yet another significant secondary service offered by Check Cashing Organizations is payday loans. During the initial beginning of CCOs, the payday loans became one of the major reasons behind the boon in these institutions. The payday loans are basically short-term loans given to individuals that are paid back within a few days.
These loans are usually taken to cover money-shortage that is expected to last for a very small duration, for unexpected expenses and emergencies that might come up and to avoid bounced checks and overdraft charges (Bounced checks refer to the checks which cannot be cashed by the receiver due to insufficient balance in the account holder’s account).
In the mid-1990s, electronic banking underwent a rapid growth due to which the Check Cashing Organisation faced a major setback and thus, it became necessary for the industry to offer a wide range of services under one roof.
Electronic Banking majorly consisted of Direct Deposit which is a system that allows the sender/employer/recipient to immediately make a payment by sending the amount directly into the receiver’s account.
The setback of banks taking days to process and approve a check no more existed as Direct Deposit made the process immediate and without any additional fee.
Later, the advent of paperless transactions also threatened the business of CCOs as their only job until now was to process checks that were on paper. All of these hurdles led the CCOs to extend their services by selling sim-cards, postage stamps, lottery tickets, bus and train passes, and a lot more.
To conclude, it can be understood that Check Cashing stores are way different than traditional financial institutions and while their offerings might somewhat match, the process of it is much easier, quicker and convenient in the case of CCOs.
While each of the institutions has its own list of advantages and setbacks, it depends on you about which service you want to select and go further with. When looked at the business in today’s scenario, it has flourished quite a bit and you can easily locate Check Cashing stores on the streets nearby any of your locations.