The U.S. Check Cashing, Money Transfer, and Payday Loan Industry

This publication has been discontinued on July 19, 2011.

Introduction

This updated analysis by Marketdata examines a little-researched service sector ? the $6.56 billion loosely regulated check cashing, payday loan, and money transfer services (serving 35% of the US population). Many companies are happy to accept the business of consumers with spotty credit records who have been rejected by traditional banks, or the "unbanked" that choose not to maintain checking accounts. Explosive growth has taken place in the young payday advance business, which has come under heavy scrutiny. In addition, many workers in southern California, Texas and other areas wire an estimated $10-12 billion to relatives at home, contributing to a booming business growing 15-20% per year. There are 13,000 check cashing outlets, 14,000 pawn shops, 10,000 payday loan stores and 154,000+ money transfer agents competing for this business today. Many stores/services overlap?providing multiple services at the same site.

This unique new study by Marketdata examines the nature of the business, national receipts/growth from 1987 to 2005 forecast, average store revenues/expenses, customer demographics, key industry trends, industry regulation/fee caps, self-service ATM check cashing machines, profit margins, reasons for the industrys negative image, and more. Findings of 2000-2001 research studies by the Fannie Mae Foundation, PriceWaterhouseCoopers, Georgetown University and others are analyzed, as well as interviews with consultants/experts, and with FISCA and the CFSA, the industrys leading trade groups.

This 68 page study is believed to be one of the few in-depth publicly available business analyses that exists of this market. Company profiles are provided for: ACE Cash Express, Dollar Financial, First Data, Viad, Advance America, Check n Go, Moneytree, Check Into Cash, Innoventry, Wells Fargo, Banco Popular, First Cash Financial, and more.

Table of Contents

Introduction: Study Scope, Sources, Methodology

Market Summary and Definition

Definition of the components of the huge U.S. market serving consumers that are shut out or ignored by banks and credit card companies?the "sub-prime" market (about 35% of the population). Many companies are happy to accept their business, however--at steep fees/interest rates: check cashing stores, payday advance outlets, pawnshops, rent-to-own furniture and appliance dealers, "sub-prime lenders", car title loan companies. Brief definition of each segment, number of outlets in U.S., reasons for growth.

• Fannie Mae Foundation August 2001 report: Financial Services In Distressed Communities: Issues and Answers ? major findings.
• Federal Reserve: discussion of results of study of the U.S. payments systems ? why electronic payment is replacing check writing
• The role of new technology: why new types of ATM and card-based technology have the potential for "turning the unbanked to the self-banked".

Table: Marketdata estimates of 2001 $ value of total market and main segments, historical annual growth rate from early 1990s, 2005 forecast growth and $ values.

Table: Reason Why Unbanked Families Do Not Have Checking Accounts (Federal Reserve study findings, 2001)

Table: Payment instrument use, by type, by demographic group (by age, region, income, marital status, net worth, education, home ownership, etc.)

The Check Cashing Industry

Nature of the business

• Who covers the industry/lack of government data, information available from FISCA (no. of outlets, growth, major chains), reasons for growth/serving niche not served by banks, why many blue collar and minority consumers shun banks, effects of the economy/recession, no. of checks processed by the industry (and fees generated), seasonal effects of tax season/refunds/electronic filing

* Ancillary services offered by check cashers (money orders, copying, fax, utility

bill payments, phone cards, lottery, etc.).

How The Business Operates

• How the industry evolved since the 1930s, effect of Bank Deregulation Act of 1980, states regulating check cashing fees
• Definition of a deferred deposit
• Profile of typical check cashing customer - demographics
• List of services offered by outlets
• Findings of national survey of customers: satisfaction ratings.

Industry Trends & Major Issues

• New online payment system - PayPal.com

Industry Regulation

Table: State Fee Caps For Cashing A Check: caps for 19 states, phone # of state banking dept. or check cashing association.

• Address/phone list of State Banking Depts. for states with check cashing fee maximums
• Industry regulation and recent criticisms, response to charges by report by the Consumer Federation of America
• Treasury Dept. final regulation on electronic funds transfer/direct deposit - status of electronic payments for Social Security, pensions, military, others.

Industry Size & Growth, 5-Year Forecasts

• Sources of industry $ size estimates (media/articles, FISCA, competitors, government)
• Findings of telephone interviews with leading trade groups and industry competitors: reasons for rapid growth, factors affecting growth (additional fee income, consumer debt loads, etc.).

Table: Marketdata estimates of check cashing outlet revenues, face value of

checks processed: 1990-2005F.

Market Segments and Niches

• SSMs - The emergence of automated self-service check cashing machines.
• The major hardware/software mfrs. - NCR Corp., Diebold, Tidel Engineering, Wincor-Nixdorf, Greenland Corp.
• Discussion of number of machines now operating, collapse of Innoventry and withdrawal from the market.

Industry Structure & Profit Margins

• The Major Check Cashing Chains (no. of stores, revenues): ACE Cash Express, Dollar Financial, Check Into Cash, National Cash Advance, Check Into Cash, Multi-States Financial Corp. (variety of names), Pay-O-Matic Corp. (variety of names).
• Analysis of industry profit margins, factors affecting them, sources of profit data

Table: ACE Cash Express Income Statement (1999, 2000)

Table: Composite Income Statement of NY State check cashing outlets (1996-2000)

Table: Composite Balance Sheet for NY State Check Cashing Companies (1996-2000)

Table: Selected Ratios of NY State Check Cashing Companies (1996-2000).

Franchising

• List of the major check cashing franchises (no. of outlets, royalty rates, start-up capital required)

Major Competitor Profiles

(For each company below, a description of the company and its services, company history/evolution, number of stores operated, divisions, recent mergers, acquisitions, new services, franchising, 3-4 year financial summary to 2001--sales & net income, headquarters address, phone and key contacts.)

• ACE Americas Cash Express
• Dollar Financial Group
• New Competitors ? "Mainstream" Banks Welcome Check Cashers (Union Bank of California, Wells Fargo & Co., etc.).

The Payday Advance Industry

Nature of The Business

• Discussion of how/why the business developed, how old, service provided, role of CFSA and FISCA trade groups, lack of good data about the industrys size
• PricewaterhouseCoopers two surveys of payday advance providers (June 2000): major findings of the study
• Georgetown University study (April 2001): "Payday Advance Credit in America" ? major findings.
  • - End-User Demographics - Who is the payday advance customer?
  • - Number and Size of Payday Advances Taken By An Average Customer
  • - Advance terms, length of loans, rollovers.

Industry Size, Growth, Forecasts

• "Financial Services in Distressed Communities: Issues and Answers" ? findings of Fannie Mae Foundation report, industry estimated size.
• Discussion of PriceWaterhouseCoopers estimates, Marketdata estimates of industry size, avg. gross annual receipts per store/service.

The Major Competitors

Public Companies

• First Cash Financial
• ACE Cash Express (primarily a check cashing company)
• Cash America (primarily a pawn shop chain).

Private Companies

• Advance America
• Check Into Cash
• Check n Go
• First American Holding, LLC
• Buckeye Check Cashing
• First Cash Financial, Inc.
• Moneytree

Regulation of the Industry

• Discussion of state efforts to regulate the business, no. of states
• Policies limiting consecutive rollovers

Table: State limits on payday advance fees, list of states, limits.

Income and Expenses of Outlets

• Findings of PriceWaterhouseCoopers Oct. 2001 study

Major Competitor Profiles

Marketdata analysts have attempted to estimate payday loan revenues for the leading competitors, based either on actual sales (if the company is publicly owned), or based on the number of outlets operated multiplied by the average per outlet of $177,000 per year.

Table: Estimated Revenues of The Leading Payday Loan Competitors

Profiles for... (hdqtrs. address, services, estd. or actual revenues, recent activities)

• First Cash Financial
• Moneytree
• Check Into Cash
• Advance America
• Check n Go

The Money Transfer Services Industry 56-65

• How the business operates ? discussion of estimated 10,000 businesses that classify their primary line of business as money transfer services.
• Trends: Wells Fargo goes after Hispanic unbanked market: via the Intercuenta account, the bank seeks to market other products like savings accounts and credit cards to new customers.

Industry Size and Growth

• Findings of April 2000 report: "Survey of Non-Bank Financial Institutions", performed for the U.S. Treasury Department (Dove Consulting).
• Summary: 1980-2000 value of money orders issued by US Postal service - the

public sector

• Why the big banks target immigrants, many illegal (Banco Popular, Citigroup, others) ? discussion of the estimated $10 billion market in $ wired south of the border each year.

Major Competitor Profiles

(For each company below, a description of the company and its services, company history/evolution, number of stores operated, divisions, recent mergers, acquisitions, new services, franchising, financial summary to 2001--sales & net income, headquarters address, phone and key contacts.)

• First Data Corp. (Western Union)
• MoneyGram Payment Systems (Viad Corp., Travelers Express)

Reference Directory of Trade Associations & Sources

• Directory of check cashing and payday loan trade groups, consultants,

published research papers (address, phone, website)

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