America’s Changing Appetite for Alternative Financial Services
The alternative financial services (AFS) industry has undergone quite a transformation over the last couple of decades. What began as an industry offering primarily check-cashing services has grown into one that can completely meet the banking needs of a typical consumer without requiring customers to open bank accounts. Seeing what the AFS industry can do in 2018 is truly impressive.
Has the industry significantly impacted how American consumers manage their money? Absolutely. But America’s changing appetite for AFS is also having an effect on the industry. People are not using AFS today the way they were even a few years ago.
To get a better idea of how Americans are managing their finances, we turn to the biannual FDIC National Survey of Unbanked and Underbanked Households. The 2018 survey looks at data from 2017. It covers everything from how people are paid to how they pay their bills.
Consumer Bill-Paying Habits
It used to be that consumers paid all their bills either by sending a check or taking cash directly to the recipient. Today, there are so many more options. By far the most popular method is via electronic payment from a bank. FDIC data shows that 68.4% of all U.S. households pay at least some of their bills that way.
Personal checks are also still widely used, with 61.3% of households choosing that method for some of their bills. Debit, credit, and prepaid cards are utilized by 47.3%, 24.8%, and 2.3% of U.S. households, respectively.
It is interesting that only 78.2% of consumers choose bank-only methods for paying their bills. The remainder of the bill-paying public is open to AFS methods. For example, a consumer might take his or her utility bills down to the check-cashing store for payment.
Consumer Income Receiving Habits
The way consumers receive their income has also changed quite a bit. Direct deposit clearly dominates, accounting for more than 86% of U.S. households. Still, 27.6% of consumers receive at least some of their pay by way of paper check or money order on a monthly basis.
The FDIC offers no explanation as to how the total of these two numbers can exceed 100%, so it is assumed that some of the people surveyed receive monthly pay using both methods. This could suggest direct deposit for regular pay and a paper check for bonus pay or cash advances.
Another interesting statistic from this category shows that some 3.4% of those surveyed receive their pay via direct deposit to a prepaid card.
A prepaid debit card allows for the electronic transfer of worker pay with the same efficiency as direct deposit to a bank account.
Check-Cashing Industry Changes
America’s appetite for AFS is changing. It is not necessarily fading, but it is evolving along with how people get paid and how they choose to pay their bills. What the FDIC report does not show is how people are using AFS. But rest assured that the AFS industry continues to perform well.
The reality is that there are plenty of consumers who really have no interest in dealing with the traditional banking sector. They utilize AFS whenever it is practical and/or cheaper. That’s just fine with AFS companies. They will gladly step in where the traditional banking industry falls short.