Cheques and balances: The use of cheque cashing services in the UK

1. Context
2. The study
3. Key findings
4. Points to consider

Context

Cheque usage in the UK has been in decline for more than 20 years but is still the preferred payment method for significant numbers of people. The UK banking industry is committed to ensuring that cheques remain available. The Cheque and Credit Clearing Company (C&CCC) intends to make the use of cheques cost effective and practical, most likely through cheque imaging, which processes cheques using electronic images. Some low income and vulnerable people use non-bank cheque clearing services which may be threatened if cheque imaging becomes the norm.

The study

This project aims to explore the impact of the new cheque imaging clearing process on low income, excluded and/or vulnerable consumers and sole traders. This has been done by: analysing existing literature looking at cheque usage in the UK; interviews with representatives of the third party cheque cashing industry, as well as their respective trade associations, and a survey of their customers; and 25 in-depth interviews.

These interviews were undertaken to gain a deeper understanding of the consumer’s financial needs, the reasons they use non-bank cheque cashing services, and the potential impact if there were to be any significant changes to the financial services they use. The main aim of the research was to identify the impact, both positive and negative, on vulnerable and excluded consumers and sole traders that might arise as a result of the switch to cheque image processing.

Key findings

Survey findings

120 customers were surveyed from a range of third party cheque cashing services to find out who uses cheque cashing, why, and what would the impact be for them of receiving the balance on a cheque more quickly (an outcome of cheque imaging).

Key findings were:

• 29% were on benefits or a pension, 15% earned £13,000 or less, 25% earned £13,000 to £20,000 and 27% earned between £20,000 and £30,000.
• The majority were regular customers. Access to money straightaway was the most common reason for using cheque cashing shops (78%) followed by not having a bank account (24%) and being close to home (10%).
• Users were mostly white British or British (67%) or Eastern European (11%).
• 60% would continue to use a cheque cashing service if the price rose (including 50% of regular users); 28% would use a bank and 12% would find another service.
• 58% liked the idea of being able to get the money from a cheque the next weekday in a bank account, and 47% liked the idea of using a smart phone to pay in a cheque.
• 61% of respondents would use another service or a bank if they couldn’t access the cash straightaway in store, demonstrating the importance of quick access to cash for customers using cheque cashing.
• 54% of respondents would open or use a bank account if cheque cashing were no longer available but 29% would use another service instead.

Interview findings

Interviews all indicated the need to have access to the value of a cheque, in cash, quickly. Respondents felt that it took too long to clear a cheque through a bank. The necessity of quick access to cash outweighs the cost of the service, though users are aware of the costs involved. If the costs of cheque imaging were passed on to customers, reducing bank clearing time, some users would open a bank account.

One advantage of cheque cashing shops is the ability to cash cheques and, for migrants, to send money home from the same shop. This outweighs concerns over the cost of the service for some.

Once cheque imaging services are introduced some current users of cheque cashing services will shift to using bank accounts (which suggests that for some customers not having a bank account is a choice). For others the need for cheque cashing services and what they can provide (instant access and a central point for all non- traditional financial needs) will remain.

Even if prices of using cheque cashing services were to rise some customers would still use them. The views of the representatives of third party cheque cashers were largely in line with results from the customer survey.

Points to consider

Methodological limitations:

• Limited geographical spread; all interviews were conducted on a single day in one Cash Shop in one town, leaving no space for geographical variation or variation based on type or location of third party cheque processing provider.
• Surveys were carried out in 11 towns and cities across England. All were in the Midlands and North. Wales, Scotland and Northern Ireland were not represented.

Relevance:

• The report is highly relevant and has value due to its review of existing work, its survey and interviews, and its analysis. It is however not comprehensive due to the limitations listed above.

 Generalisability/ transferability:

• While it seems likely that the experiences and views of third party cheque cashing providers can be generalised across the UK this is not certain, therefore caution should be exercised if transferring the findings of this report to regions of the UK other than those surveyed.

Applicability:

• This report is of use to public policy makers and to the financial services industry, including third party cheque cashing providers.

Full report

Cheques and Balances - full report