Check Cashing Can Reap Profits, Ex-Payday Exec. Tells NACUSO

LAS VEGAS – There’s money to be made in check cashing, and credit unions considering a plunge into the field can expect profit margins ranging from 12-30% with a breakeven level coming within six weeks. That is the assessment of a former check/payday loan executive who spoke on check cashing at the annual conference of the National Association of Credit Union Service Organizations here. “I’d say you can break even when you reach a total of 100 customers, and that can come anywhere from 8 to 35 days,” declared Brian Boston, a founder of Payday Loan Corp of Anaheim, Calif. and now head of Industry Pages Inc., an Internet portal firm based in Huntington Beach, Calif. Discussing the rising popularity of the storefront facilities and newfound sophistication of the business, Boston emphasized the wider use of check cashers by both blue and white collar workers for a variety of reasons including convenience, longer hours and “friendly” attitudes of employees. He said both check and dollar volume have grown 15-20% over the last year with 60% of users already holding an existing checking account. There are an estimated 210 million checks cashed annually at check cash cashing stores with the face value at $65 billion. Eighty percent of users are employed full time, he said, and they are slightly younger than the general population but primarily in the lower to middle income class. “As you might expect,” he said, the basic nature of the business is “conservative,” and thus the major chains stick to a tight loss operation with ratios in the 1% range. The 12-30% profit margins held by the chains are after losses, he noted, arguing the large operations work hard at “protecting themselves” from fraud, forgery and other risks. The standard fees are 1-3% of payroll checks and 1-10% for personal checks. Responding to more than a dozen questions from the NACUSO audience, Boston said the cost of a start-up facility, depending on the location, can range from $45,000 to $100,000 and many of the most successful units are staffed with locals fluent in language of minorities in the area. Some check cashers, he said, have managed to reach new sectors of desired local markets by having a teller familiar with a specific minority group that may be ignored at other financial institutions in the area. “I know of one check casher that did well by hiring a Vietnamese manager,” even though another minority dominated the area, he said. Though there are plenty of “rough and seedy” check cashing units “with a guy running it with a scruffy beard,” those he described as the “old school” are really the exception. The newer units run by chains with names like Check N’ Go and Ace run clean operations with outgoing “friendly” tellers who recognize and call customers by their first name and offer services ranging from tax refunds and shipping to pre-paid phones and mail box rental. Boston, who runs a firm which handles portal services for industry professionals and formerly managed some 27 check cashing facilities in the San Diego area for four years, said a number of the check cashers do payday loans as well, but he stressed they remain two distinct businesses and slightly different regulators. In some states, the attorney general’s office or the Department of Justice regulates the facilities and in others it falls under the Banking and Financial Institutions Department, but “it can be very confusing” he admitted. He cited both Union Bank of California through its Nix stores and Banco Popular of Puerto Rico with East Coast urban branches as two large banks that “do very well” in check cashing. Boston said the wave of the future for credit unions could be in the check cashing kiosks which also have sprouted at convenience stores and financial institutions across the country. Regardless, the conception among users of check cashers is they can receive faster service with less hassle “and no long lines,” he said. The check cashers, said Boston, require fewer IDs and, quoting a customer, “If I go to the bank and deposit a check, the funds are tied up for a couple of days before I can even get to use any of it. I need access to my money right now” so the customer cashes the check “and then deposits the cash for immediate availability.” The California executive recommended CUs looking at the check cashing market should study demographics and determine at which branches there is a loss of business as members patronize check cashing facilities. In those areas, it may be the right strategy to set up a CU-run facility close by the branch. -