Stashing the Cash: Recent Developments in Savings Accounts for Check-cashing Customers

Two recent pilots point to the potential to integrate innovative “frictionless” savings accounts and impulse savings features into the delivery of check cashing services, in order to help individuals who often live paycheck to paycheck to accumulate savings.  Check cashing is a $54 billion industry that provides services used by 38% of unbanked and 22% of underbanked households. There is a major opportunity to integrate savings tools into these established, storefront-based transactional services used by millions of individuals to cash checks, pay bills and transfer money.

The pilot programs are a result of Innovations for Poverty Action (IPA)’s US Household Finance Initiative‘s Financial Products Innovation Fund (FPIF), launched in 2011 with the mission to design financial products informed by behavioral economics research.  With FPIF support, RiteCheck, a mid-sized check cashing and financial services company in New York City, and Self Help / Community Trust Prospera, a hybrid check-casher/credit union in east San Jose, CA, developed frictionless savings accounts that offer easy, no-fee transfers (and hence, no friction) and feature automated deposits for their regular check-cashing customers. The pilot encourages customers – who typically cash out their entire paycheck and who may lack a convenient savings account – to engage in a regular or impulsive savings act when they are most likely to have available funds.

Both the RiteCheck and CT Prospera pilot products showed that automatic savings transfers and behavioral nudges to deposit funds into a no-cost, credit union-held savings account have potential to help customers accumulate savings.

At RiteCheck, tellers offer a frictionless savings feature, dubbed the “Cash & Stash” account, based on focus group feedback that customers needed a place to stash their funds.  When a Cash & Stash customer cashes a check, the teller asks if he or she wants to make a savings deposit.  The savings are held in a no-fee savings account, with no balance or transfer minimums, at RiteCheck’s partner Bethex Federal Credit Union.  During the pilot period, 80% of check-cashing customers who opened the Cash & Stash account became active users.  A segment of customers were regular, habitual savers, some of whom accumulated over $1,000 in only four months.  Other Cash & Stash customers conducted regular deposit and withdrawal transactions with balances cycling between $0 and $200.  These customers appear to use the account as a liquid savings fund to manage short-term finances.  RiteCheck, like many check-cashing companies today, offers walk-in bill pay services which may be a key companion service for those using their Cash & Stash account to accumulate savings.

Based on the results, RiteCheck’s Joe Coleman has no doubt that, once operational hurdles are cleared, the Cash & Stash program will take off with customers at RiteCheck’s branches in Harlem and the Bronx.  Offering what is essentially a no-fee, low-balance savings account is not a money maker, but the program may just pay off for RiteCheck by fostering greater customer loyalty.  Moreover, the program also provides their credit union partner a new distribution channel to reach members and offers customers a low-cost saving tool many lack.

Similarly, Community Trust Prospera’s “5 for Me” product proactively offers check cashing customers the opportunity to open a savings account at a partner credit union.  Prospera, a division of Self-Help Federal Credit Union, offers a full suite of credit union products alongside check-cashing services. The “5 for Me” product is intended to “convert” check cashing-only customers into credit union members who actively build savings.  Customers “pre-commit” to save $5 via automatic transfer every time they cash a check. They are also prompted to make an “impulse save” at the teller window.  As an added incentive, dividends are paid out to account holders with a balance over $100.  Over 80% of the “5 for Me” accounts offered were opened and customers accumulated an average balance of $66. All accounts were active with a positive balance. The results demonstrate that the pre-commitment and impulse features can help check-cashing customers save funds for short-term needs, and perhaps beyond.

The promise of the pilots is that check-cashing, a mature transaction service for un- and underbanked consumers, could—with the right integration of saving features, tools, and partnerships—actually help thousands of households better manage their financial lives.  While additional analysis of program results is needed, the initial findings point to future product innovations via the check-cashing teller window.  CFSI will continue to track emerging practices in savings for the underserved consumer and eagerly awaits the next round of the FPIF.

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