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What Is A Check Cashing Service And Everything Else You Need To Know About It

What is a check cashing service is a common question among those who are not entirely familiar with this business. Basically, a check cashing service is ideal for those who want easy fun access especially during emergency cases. It makes money become available almost immediately as compared to cash a check in the bank.

What is a check cashing service

Let’s face it, while a check is good, most of the time, we need cash — especially when unlikely things happen.

A check is one of the easiest ways to pay for products and services. You basically just write the payee and the amount, and you are good! It’s that easy!

However, while it is that convenient to the payers, payees often face problems with cashing the check particularly if the payee does not have bank accounts. That is when a check cashing service comes in, and becomes really helpful.

Check cashing businesses, or more popularly known as money services businesses, mainly provide customers with an easy manner to turn their paycheck, or other checks, into cash without having to rely on a bank account.

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Check cashing businesses is actually a popular way of turning checks into cash among American people particularly among young people. In fact, in data by Statista, in 2018, 27.76% of those who are using check cashing services are aged between 18 to 29 years old. Meanwhile, 19.39% were 30 to 49 years old, and 8.95% belong to the 50 to 64 age range.

Furthermore, according to IBIS World, check cashing services as well as payday loan services has $11.2bn in the United States Market size in 2020.

You see, these numbers only show that check cashing is a trusted and growing industry. Needless to say, it is particularly helpful for “unbanked” Americans, or those without a checking, savings, or money market account.

Now, so what is a check cashing service, really?

Well, don’t go elsewhere because we are going to share with you some of the most important details or information that you need to know about check to cash.

In particular, we are tackling the following:

  • What is a check cashing service?
  • Who is check cashing services ideal for?
  • What are the basics of check cashing services?
  • What are the pros and cons of check cashing services?
  • How do check cashing businesses make money?
  • What are the charges available?
  • What are the security risks of a check cashing service?
  • When should you use a check cashing service?
  • How to cash a check?

WHAT IS A CHECK CASHING SERVICE?

If it is the first time you have encountered a cash checking service, then, perhaps you have also uttered this question. Well, here’s the thing.

According to a 2017 survey by the Federal Deposit Insurance Corporation, “6.5 percent of households in the United States were unbanked in 2017. This proportion represents approximately 8.4 million households. An additional 18.7 percent of U.S. households (24.2 million) were underbanked, meaning that the household had a checking or savings account but also obtained financial products and services outside of the banking system.”

As you can see, theirs are actually a lot of American people who are not into banks or have opted for financial products and services apart from banks.

This group of people is actually the very reason why check cashing businesses exist.

Now, as mentioned earlier, check cashing businesses or know by other people as money services businesses refer to the industry that provides customers with a convenient way of cashing checks without having to rely on or to have a bank account.

Generally speaking, check cashing businesses are open 24 hours a day, which makes it accessible to anyone who needs to cash their checks when they need it.

Furthermore, according to the website of Money Services Business, entities engaged in the business of check cashing do the following:

  • Determine which checks to cash for customers;
  • Clear checks through their own bank accounts;
  • Bear the risk of loss if checks do not clear;
  • Pay for the cash that is provided to customers;
  • Maintain a customer service relationship with customers wishing to cash checks; and,
  • Charge a fee

Check cashing businesses are legit. In fact, most states in the U.S. have their respective registration and licensing requirements for check cashing.

On one hand, MSB defines check cashing businesses as “a business that cash one or more checks totaling an amount over $1,000 per person, per day.” This basically is based on the MSB definition of the check casher, which is found at 31 CFR 103.11 (uu)(2).

On another hand, “check cashers are required to register with FinCEN pursuant to 31 CFR 103.41, and to comply with applicable BSA reporting and recordkeeping requirements, and the requirement to implement an anti-money laundering program.”

To put things simply, cash checking services are legit businesses that turn your checks into cash without the need of a bank account.

By the way, apart from cashing your checks, check cashing businesses also offer other services such as bill payments, money transfers (domestic and international), currency exchange, notary services, and other key financial services.

If you want to know more about check cashers (and payday loans — they usually go hand-in-hand), here’s a very informative video by PBS NewsHour:

WHO IS CHECK CASHING SERVICES IDEAL FOR?

Now that you already know what is a check cashing service, the next thing you need to know is who is it for.

A check cashing service is ideal for people who want to turn their checks into cash immediately. More so, it is ideal for people who do not have bank accounts either by choice or because they could not open one due to bad credit.

Check cashing businesses makes cashing checks easy, and accessible. Since most of them, if not all, operate 24 hours a day, it makes cash available anytime for those in need of it.

WHAT ARE THE BASICS OF CHECK CASHING SERVICES?

Check cashing services are legal businesses that provide a convenient and quicker way of turning checks into cash without having to rely on banks.

Unlike banks, check cashing businesses are very accessible. In fact, these businesses are usually open 24 hours a day.

However, what makes it different from banks is that it has fewer services. They normally would only provide services such as check cashing, money orders, electronic bill payments, ATM access services, and payday loans. Check cashing businesses also charge fees for their services, which is normally free of charge in banks and credit unions.

Financial Service Centers of America (FiSCA), a national trade association, represents check cashing businesses. According to the data presented by FiSCA, currently, there are an estimated 13,000 financial service centers in the United States (also known as non-bank financial institutions or NBFIs). These service centers conduct more than 350 million transactions a year in a wide variety of products amounting to $106 billion.

Check cashing businesses belong to the increasing number of non-bank financial institution sector in the financial world.

WHAT ARE THE PROS AND CONS OF CHECK CASHING?

Apart from knowing what a checking service business is, it is also important to look into the pros and cons of this part of the non-bank financial institution sector. This way, you get to know not just the advantages, but the disadvantages of availing services in this business as well.

Having said that, here are some of the pros and cons we found on check cashing services:

PROS

  • They provide financial services to those who do not have bank access.
  • They make money become available immediately as compared to cash a check at a bank.
  • Money becomes easily accessible (they’re open 24 hours a day) especially during emergency cases/situations.
  • They provide other services like bill payments, money transfers (domestic and international), currency exchange, notary services, and other key financial services.

CONS

  • Check cashing services usually charge high fees.
  • It does not help build users’ credit history.
  • There is a tendency it could leave consumers stuck in a cycle of using non-traditional financial services.
  • They have limited products and services as compared to banks.

As you can see, just any form or services out there, while check cashing businesses do have its advantages, it also has its fair share of disadvantages.

Based on the information we have provided, how do you find check cashing services so far?

HOW DO CHECK CASHING BUSINESSES MAKE MONEY?

Generally, check cashing services generate revenue to operate the business through the fees they charge for the services they provide. Fees are calculated depending on the amount of the check, as well as the likelihood of it being real or genuine, and the overall risk of the transaction made.

In most cases, check cashing businesses would not honor personal checks. Furthermore, checks that come with small amounts are usually hit with fees that are almost equal to the check’s face value.

To give you an idea, for a check made out for $1,000, check cashing service provider may charge it for a flat fee of $5, on top of that is a 1% fee on the total amount, which totals to $15. Normally, fees range anywhere between 0.5% to 5% depending on the state and local laws plus the type of check and the amount.

WHAT ARE THE CHARGES AVAILABLE?

As mentioned above, check cashing businesses earn from fees they charge on the services they provide.

Also, based on the example we provided a while ago, on check cashing alone, they charge a fee depending on the value of the check, as well as the type of check, the chance of it being real or genuine, and the overall risk of the transaction.

Having said that, make sure to check, read the fine print first before you sign anything. It would also be best to ask the check cashing service providers how much they will charge you for your check before you settle for one.

WHAT ARE THE SECURITY RISKS OF A CHECK CASHING SERVICE?

Money laundering is a common risk with these types of businesses. That is why the Financial Crimes Enforcement Network (FinCEN) has imposed specific requirements that every check cashing service provider must comply with as part of their day-to-day operations.

Basically, the business has to design as well as implement an efficient program to avoid money laundering. The program has to ensure that the business is protected from participating in any type of money laundering activities, or any financial scheme that supports terrorist activities.

Based on FinCEN’s regulation, any transaction made by one person amounting to $10,000 or more in just one day, the check cashing service provider must file an electronic transaction report with FinCEN.

Also, if for any reason, the check cashing service provider finds an activity suspicious on a particular transaction or series of transactions, the business must file electronically an activity report with FinCEN. This rule applies to transactions amounting to $2,000 or more.

WHEN SHOULD YOU USE A CHECK CASHING SERVICE?

Using check cashing services make sense for people who are unable to open a checking account because of previous financial problems, but, are currently in the process of rebuilding their credit.

Check cashing services are also ideal for those who need to turn their checks into cash, but it’s outside their regular bank’s business hours already.

Essentially, a check cashing service must be a temporary measure only. This should not be a regular means of accessing cash.

If you are one of those who are unable to open a bank account or whatever financial products there is because of your credit history, then, take it as a cue to start building or rebuilding your credit. Again, do not make check cashing service a regular thing. It should not become a normal process of turning your checks into cash.

Again, a check cashing service provider should only act as an alternative particularly in emergency cases, and should not be a regular manner of cashing your checks.

If you are facing bad credits, work on turning it around. Banks do not charge you for cashing checks, which means you get the whole amount stated on the check. It’s definitely better than paying a third-party financial institution to cash your check, right?

So, while check cashing service is good, in reality, it’s not going to be great in the long run. You definitely will save a lot if you cash your checks in the bank.

HOW TO CASH A CHECK?

So, you already know what is a check cashing service, the fees related to it, the security risks, and more.

Now, how do you actually cash a check?

Unlike banks, check cashing businesses are not that strict when it comes to the process of cashing your check.

To cash your check, you basically just have to follow the following steps:

STEP 1: LOOK FOR A CHECK CASHING SERVICE PROVIDER NEAR YOU

Ideally, cashing your check must be done in the bank (and there are lots of them around you!). However, for unbanked individuals or those who need to turn their checks into cash after bank hours, a check cash service would be the best alternative.

STEP 2: ENDORSE THE CHECK

Before cashing the check, make sure you sign your name on the line with the X at the back of the check. Please, avoid making mistakes. As much as possible, avoid erasures.

STEP 3: MAKE SURE TO READY YOUR ID AND DEBIT CARD

The debit card is applicable to those cashing their money in the bank. Normally, banks allow you to deposit the check into your account through an ATM or at a branch using your debit card. When depositing through a bank branch, tellers might ask for a state-issued identification like your driver’s license or other government-issued IDs.

Now, if you are using a check cashing service instead, they basically would just need your ID to proceed with the transaction. Cash will be handed over to you once the process is done.

You see the process is pretty much simple, and almost the same. With banks though, the availability of cash may take a while until process is over ensuring that funds are indeed available from the

FINAL THOUGHTS ON WHAT IS A CHECK CASHING SERVICE

To be honest, we are entirely good at the whole check cashing service business idea. It is helpful not just for those who are unbanked (especially those people who have had bad credits in the past), but also to those who own one but for emergency reasons, need cash beyond banking hours.

Although let’s face it, which usually turns off people from check cashing services are the fees. As compared to banks (that does not charge you anything for cashing checks), check cashing businesses charge fees for turning your checks into cash, as well as in other services they offer.

Charging fees is what keeps their businesses going. It’s where they profit, where they gain revenue.

So, with all that’s been said, are you buying in with the idea of cashing your checks through a check cashing service provider?

Just keep in mind though that check cashing service is only ideal for those who do not have bank accounts or those who badly need cash in an ungodly hour. Otherwise, cashing through banks is still the best option.

To end, hopefully, our answers on the, “What is a check cashing service?” are enough to enlighten you about the whole idea of money services businesses.