Posted by Wayne Brown on 27 Apr 2016
There is a segment of consumers in the United States who prefer to use cash to remit payments for bills and other services. Although statistics vary, reports show at least 30-70 million households prefer to make payments using this method. Many of these consumers do not have checking accounts, whether it’s because they don’t have the documents required to open a bank account or have a preconceived notion that banks are not their advocate. Whatever the reason, there are a number of ways businesses can provide these consumers with opportunities to make bill payments.
Convenience and flexibility are strong drivers for consumers who pay in cash. For example, businesses can create convenience by offering a solution that enables a consumer to make walk-in payments at a location that offers extended hours of operation. Some vendors in this space offer a wide network of agents and retailers nationwide. Furthermore, retailers such as Walmart allow customers who prefer cash to purchase money orders to pay their bills.
There has been a push in recent years to create products to integrate the unbanked customer into the banking system. Prepaid cards, for example, create this bridge. A consumer can load money on a card and use it to make purchases at a retailer, online, or wherever a credit or debit card is accepted. Prepaid cards provide consumers a host of features and benefits including a guarantee of funds and credit card protection in the case of fraud.
On Wednesday, February 3rd, 2016, the CFPB released a statement urging the 25 largest retail banks to help the unbanked population (US consumers that do not have a banking relationship.) According to the CFPB, approximately 10 million US consumers do not have any kind of bank account. CFPB’s focus is to help consumers get access to mainstream banking products and avoid overdraft fees. According to CFPB Director Richard Cordray, “living outside the banking system can be costly and time-consuming, especially for those who are the most financially vulnerable. They often come to rely on expensive nonbank money services that can take a big bite out of their earnings.”
The unbanked consumer often deals with high fees, whether it is check cashing fees, prepaid card monthly fees, or additional fee-based services. There remains a cost to paying in cash, sometimes ranging from $2 - $3.50 per payment. This costs more than a postage stamp, but some customers feel it’s worth it since they get a receipt as proof that the payment was sent.
Many utilities provide the option for customers to pay in person using cash, check or a money order. For many consumers, making walk-in payments is part of a daily routine even if they have bank accounts. Whether it’s while going shopping or visiting the cleaners, they prefer to pay their bills in-person.
A number of banks continue to develop products and services that could convert this sector, despite the volumes eventually declining after a successful take off. Behavior is hard to change and consumers who are part of this sector are comfortable making payments in person despite the cost. Ultimately, however, remitting payments in cash involves fees which are passed along to the consumers; therefore, technology will continue to be utilized in an attempt to create new opportunities in this sector.
Despite the benefits of digital payment methods, there is an important and sizeable demographic that still prefers to make cash payments in-person. Although digital innovation tends to be a focus these days, there are plenty of ways to create opportunities for those who prefer something more tangible. Rather than ignoring these customers, businesses and banks should work to offer comprehensive solutions that offer convenience and efficiency to all customers, no matter which payment channel they prefer.