Banks are rolling out services that allow their customers to cash a check before it clears -- for a fee, of course. Traditional banks have avoided offering the service, which is usually aimed at people with low incomes or without bank accounts, but now they want to get in on a business that has come to be dominated by local check-cashing stores.
U.S. banks and the consultants that serve them believe the services can be marketed more broadly than they currently are and earn banks potentially millions in additional fee income. At least two large banks have offered or are in the process of offering such "instant funds availability" services.
Bank consultants are hopeful the "want it now" attitude among customers could result in tens of millions in new fee income for the banks.
Consumer advocates have expressed reservations. While having instant access to funds from a check deposit can be helpful, it would be yet another fee people would have to pay for everyday banking services, and would still most likely be used by low-income customers.
There are also concerns that banks may not disclose to customers who express interest in the service that the funds from their deposited checks will be available fairly soon anyhow if they just wait.
Under current federal law, the first $200 of a customer's deposit must be made available the next business day and another $200 the day after that. In the $500 deposit example above, a customer would have access to nearly all those funds within 48 hours.
"We like to see banks reaching out to low- and moderate-income customers, but this is basically the banks getting into check-cashing," said Lauren Saunders with the National Consumer Law Coalition.
Cincinnati, Ohio-based Fifth Third Bank (FITB) recently launched a new checking account called Express Banking, which allows customers to get immediate access to deposits for a fee. The fee varies depending on how active the customer is with Fifth Third, but can be as low as 1 percent of a check to as high as 4 percent.
For a $500 check, Fifth Third's 1 percent fee would be $5, which is more than the $3 fee Walmart (WMT) charges for check-cashing services in its stores. However Walmart doesn't offer check-cashing services for personal checks.
When Fifth Third began offering check-cashing services in 2011, the bank started noticing it was getting repeat customers who didn't have bank accounts, said Mark Erhardt, director of retail product management at Fifth Third. The bank decided to develop an account that would attract those customers, he said.
"It builds a relationship that places these consumers back into the banking system on their terms," he said.
Fifth Third says the average check cashed is between $200 and $400. The bank does tell customers when funds from deposited checks would be available without any intervention at the same time it offers the check-cashing service.
Fiserv (FISV), a financial technology and consulting company, has been selling a service called Immediate Funds to banks. The company says one top 10 bank, which it declined to identify, is in the process of starting to offer the service. At a conference in Las Vegas, a Fiserv representative said two other large banks have made commitments to use Fiserv to offer the service.
Customers could see banks offering check-cashing services routinely -- almost like an impulse buy. A customer making a check deposit using their banking app could be offered the option, or see it every time they make a deposit at the ATM, on top of selling the option inside of branches.
"People want what they want, when they want it," said Kevin Gregoire, group president of the financial institutions group at Fiserv, in a response to written questions about the product.
Fifth Third offers the check-cashing service via its mobile app, but not at ATMs, Erhardt said.
Certegy, the company Fifth Third Bank has hired to handle its check-cashing services, declined to comment. Certegy is owned by FIS, another financial services technology firm.
In a survey that Fiserv conducted, seven out of 10 respondents said they would use check-cashing services by a bank at least once a month.
While check usage has been on the decline for years, there's a lot of money to be made in check cashing. Banks processed 5.4 billion checks in 2015, according to the Federal Reserve, with an average dollar amount of each check of $1,487. And the cost to process those checks has come down significantly at banks since the advent of remote check deposit services on smartphone apps and at ATMs.
Financial Service Centers of America, the trade organization that represents check cashers as well as payday lenders, say the industry operates 13,000 stores nationwide providing $106 billion in products to roughly 30 million customers.
States heavily regulate check-cashing, often capping the fees they can charge. For example, New York allows a maximum of 2 percent to be charged for cashing a check.