A new survey recently released by the FDIC shows that fewer U.S. households are unbanked than in previous years. Data suggests this is largely due to an improving economy, but other things could be in play. The bigger question is how lower numbers of unbanked households will ultimately affect the check-cashing industry.
Check-cashing companies have always relied on the unbanked population to provide the lion’s share of their consumer base. Not much has changed in that regard over the last two decades. Common sense would dictate that fewer people without bank accounts would mean less business for check-cashing companies. Is that the case? Let us look at the numbers.
The FDIC Report
The report in question is the 2017 FDIC National Survey of Unbanked and Underbanked Households. The survey is conducted biannually. According to the report, just 6.5% of U.S. households operated without a bank account in 2017. The number was 7% in 2015.
If you are interested in raw numbers, there were 8.4 million households without bank accounts last year. That accounts for some 14.1 million adults overall. So while 6.5% doesn’t seem like much, it still means millions of people without access to traditional banking.
The FDIC report also showed fewer households utilizing alternative financial services, like check cashing for example, falling to 22.1% in 2017. It was at 24% in 2015 and 24.9% in 2013. Note that alternative financial services are not limited to check cashing. They also include payday loans, prepaid debit cards, etc.
Few Demographic Differences
By all accounts, the use of alternative financial services seems to be falling commensurate with the number of unbanked households in the U.S. That makes sense. If you have a bank account into which your paycheck can be directly deposited, there is no need to take your paycheck to a check-cashing store.
It is interesting to note that the FDIC data shows falling numbers across just about every demographic. Regardless of age, ethnicity, sex, or socioeconomic standing, people are using alternative financial services less as a result of more households having bank accounts.
What It Means to Check Cashing
The check-cashing industry is undoubtedly paying close attention to the FDIC data. After all, the industry’s survival depends on offering services people want to use. The data shows that staying afloat is a matter of finding other services to make up for fewer people cashing their checks.
This explains why so many check-cashing companies are branching out. Rather than just cashing checks, a lot of them are offering payday and installment loans. Others are offering prepaid debit cards and secured credit cards. Money orders are another option.
Check-cashing companies are getting in on transaction services as well. For example, people can now use their local check-cashing stores to pay their bills. Let us say a consumer needs to pay a utility bill despite not having a checking account or credit card. He or she can take cash to their local check-cashing store and pay the bill there.
It is highly unlikely that falling unbanked household rates will put the check-cashing industry out of business. Everything evolves, including that industry. Check-cashing stores will continue to serve the unbanked with check cashing and prepaid debit cards, but rest assured that they will also add other services to make up for a loss in check cashing.
A big part of the industry’s future is likely to be short-term lending. They already dominate that space, and there is no reason to believe that fewer unbanked U.S. households will change that.