There's Nothing 'Fringe' About The Revenues Being Generated
They may be called "fringe" financial services, but credit unions were urged to be aware these providers are profitable and thriving for a reason.
In fact, it's all the more reason for CUs to get into the business themselves, according to Susan Brayman, a CU veteran who assisted in a Filene Research Institute study on fringe bank services and who spoke to CUNA's Symposeum.
The so-called "fringe banking" market should be very attractive to credit unions, Brayman suggested, noting it is composed almost entirely of employed people, as check-cashing outlets are in the business of cashing paychecks, not random third-party checks. What also makes this market particularly lucrative in the long-term is that it is mostly young people between the ages of 20 and 35-a key demographic for credit unions to woo as membership ages, she added.
To understand how to get into this market, credit unions first need to understand why consumers patronize fringe banking providers, even when they know how much more expensive it is to go that route.
Filene Institute researh as found the typical reasons someone turns to a check-casher include:
* To meet pressing consumer needs by quickly converting check to cash while also providing bill paying options (of particular importance to consumers who don't have checking accounts).
* To avoid high bank fees for bad checks as well as merchant fees and inconvenience of bad checks.
* To get immediate access to funds.
* To be treated with respect-check-cashers may charge big fees, but they provide top notch customer service.
* To get low-cost money orders, stamps and envelopes- the means by which consumers without a checking account can pay bills.
* To pay utility and government payments.
* To get wire transfers.
* To take out short-term, small "payday" loans.
Brayman said credit unions can't compete in that market if they're putting holds on all checks and if they're charging "traditional" fees for money orders and otherwise not making it easy for non-checking account customers to pay their bills.
That doesn't mean the check-cashers business model doesn't have negatives. By the very nature of their face-to-face service, they have high overhead and are providing some of the costliest of services. And the consumers pay for it, leaving themselves open to opportunistic business practices, she noted.
And while credit unions pride themselves on offering excellent member service, they could learn a thing or two from check-cashers, according to one conference attendee who said she sends her employees to mystery shop check-cashing outlets for just that reason.
Another attendee suggested that board members in the audience go ask their staff just how many money orders are being purchased each month right now. "You'll be surprised by the answer, and if that doesn't tell you you need to look into check cashing, nothing will," she said.