Ready for the Bank of Kmart?
More retailers join Wal-Mart in providing check cashing and other financial services for people without bank accounts.
Perhaps inspired by the success of Wal-Mart, more retailers are offering financial services such as check cashing to their customers, seeking to earn the business of the "unbanked."
About 8% of U.S. households don't have bank accounts and another 18% are considered "underbanked." All kinds of establishments are willing to cash their checks or sell them prepaid cards, usually with hefty fees.
Now traditional retailers are entering this niche. Kmart recently added check cashing, money transfers and prepaid cards at its stores in Illinois, California and Puerto Rico. The company plans to take the service nationwide this year. Best Buy, which sells cell phones among other things, installed kiosks in some of its stores last year to accept payments for phone service as well as for cable and utility bills. They are joining Wal-Mart, which has provided check cashing and other financial services for a number of years at its MoneyCenters.
As banks add new and higher fees, Wal-Mart, Kmart and Best Buy see even more opportunity in this niche, as more of their customers are pushed away from banks. Post continues after video.
Here is how Ylan Q. Mui of The Washington Post explains the issue:
The retailers are mainstreaming a $320 billion industry of alternative financial services that has long operated in the shadow of the formal banking system and under the radar of federal regulators. The new Consumer Financial Protection Bureau was established in part to plug the gaps in oversight, but it remains unclear how much authority it will have over stores. One thing, however, does seem certain: Demand for alternative services is only expected to grow as strict new rules force banks to charge higher fees for checking accounts, placing them out of reach of many financially strapped households.
The idea of not having a checking account seems foreign to those of us who have long done business with banks. The idea of paying $3 to cash a $100 check seems crazy.
Why? Mostly because you know upfront exactly how much you'll pay for the services of a check-cashing company, and there's no chance of being on the hook for fees after the transaction is done. A bank account is more complicated, requiring the customer to maintain a certain balance -- or at least something more than a negative balance -- and there's always a concern about hidden fees hitting you down the line.
Financial services from brands they trust are likely to appeal to customers.
"We're in a place where large banks are becoming more conservative," Kimberly Gartner of the Center for Financial Services Innovation told the Post. "Consumers are a little disgruntled with banks, so there's a real opportunity here to attract more customers."
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