Millions of low-income Americans who don't have bank accounts are finding an alternative to check-cashing stores at an unusual place: their local big-box retailer.
Kmart has begun testing check cashing, money transfers and prepaid cards in stores in Illinois, California and Puerto Rico, with plans to roll out the services nationally later this year. Best Buy has installed kiosks in its stores for shoppers to pay utility, cable and phone bills. Wal-Mart has opened roughly 1,500 MoneyCenters that process as many as 5 million transactions each week.
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.
"We're in a place where large banks are becoming more conservative," said Kimberly Gartner, vice president of market services for the Center for Financial Services Innovation, a think tank. Meanwhile, "consumers are a little disgruntled with banks, so there's a real opportunity here to attract more customers."
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.
These households have traditionally relied on a patchwork of services to manage their money, and retailers have begun to realize that those same consumers are shopping in their stores. Wal-Mart, for example, has said that one in five of its customers does not have a checking account.
Many consumers think that they don't make enough money to warrant a bank account, the government survey found. But others simply don't trust banks or come from cash-based cultures. That is part of the impetus for the bill-payment service Best Buy launched last year in a handful of markets. The kiosks, operated by Tio Networks, cater to Hispanic shoppers who are often wary of banks. But many are willing to sign up for complicated cellphone plans at Best Buy, and executives say it was a short step to paying the bills in the store as well.
Read more at The Washington Post.
