Big-Box Banking: Why the Unbanked Are Cashing Checks at Walmart

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Walmart, Kmart, and Best Buy are among the big retailers offering customers what are known as “alternative financial services”—allowing consumers to cash checks, pay utility bills, and transfer money without a traditional bank account. And hey, while consumers are in the store cashing a check, it might be possible they’ll be tempted into buying something.

The Washington Post provides some stats as to who is likely to use such services, and why:

According to a recent government survey, nearly 30 million households either do not have a bank account or use one sparingly. Nearly 70 percent of families considered “unbanked” earn less than $30,000 a year and many say they will never do business at a bank.

Why won’t they do business at a bank? As I’ve blogged about before, there are plenty of people who don’t trust banks, probably because they’ve been burned in the past with tons of surprising fees. And what’s the alternative to traditional banking? Often, it’s relying mostly on cash and a piecemeal approach to personal finances involving payday loans, pawn shops, and check-cashing operations—which also have fees. For many consumers, these fees—charged upfront and on the spot—are preferable to banks’ ticking time bomb type of fees, which sneak up on them well after transactions take place.

Increasingly, the preferable alternative to these alternative services is utilizing the financial services located in Walmart stores and other retailers. They too come with fees, but they’re sometimes easier on the wallet. Whereas the average check-cashing service charges 2% or 4% of the total, Walmart’s flat fees are typically cheaper, per the Washington Post:

Yet as larger companies enter the field, they are bringing economies of scale to a market that has been dominated by mom-and-pop players. Wal-Mart, for example, lowered its fee to cash a check to $3, and slashed the cost of its prepaid card from nearly $9 to $3.

Walmart has an obvious incentive for cashing checks, and it’s not to increase revenues with the associated fees. If a person is heading to Walmart to transform a piece of paper into cash, there’s a good chance he or she will spend some of that cash in the store. All things considered, that’s probably better than cashing a check and then spending it on booze or lottery tickets—which are readily available at most street corner check-cashing operations—but it would of course be better to save the money, if possible.

The problem, then, is: Where are you going to save it? If you’re cashing a check at Walmart, you probably don’t have a bank account.

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