Check cashing businesses like this one at the corner of Belmont and Main streets in Brockton are becoming more common.

The check cashing industry has been steadily growing over the past few years, despite efforts by the state Division of Banks and others in the banking industry to call attention to cheaper alternatives in Massachusetts.

Currently there is one application pending before the division, and two scheduled for hearings, to open check cashing businesses. If approved, it would bring the total of licensed businesses in the state up to 86.

Nationally, there are about 11,000 such businesses, according to Rick Lyke, spokesman for the Financial Service Centers of America. A January 2000 Federal Reserve survey found that about 10 percent of families do not have a transaction account with a bank or credit union.

While check cashing outlets have traditionally been believed to be more expensive, in 1998 the Division of Banks set out to prove it. It began a yearly analysis of the costs of basic banking as compared to check cashing outlets. The most recent study from 1999 is posted on the division’s Web site.

“What we’ve tried to do with that study in the past is try to point out to consumers the availability of the basic checking program through the basic banking program, and demonstrate that this is a lower cost alternative to using a check casher in nearly all circumstances,” said Steven L. Antonakes, senior deputy commissioner of administration and policy at the division. The 150 basic-banking-program participants limit the amount they charge for basic services in order to make them a viable alternative for low- and moderate-income consumers who make up the bulk of customers for the check cashing industry.

But the check cashing industry continues to grow despite the plethora of banks advertising free checking products.

“Typically, those free checking accounts come with pretty substantial deposit amounts or other relationships with the bank of some sort. For a lot of people, that’s not a viable option,” said Lyke.

“What most people don’t realize is that the majority of our customers do have a checking or savings account with a traditional bank or credit union,” he said. According to a survey by FiSCA, 58 percent of customers had one or both types of accounts and still choose to do business with check cashing outlets. Lyke said much of the decision has to do with convenience and service. Many outlets offer utility paying services; sell stamps, envelopes and money orders; and are flexible enough to add any services customers need, he said.

“So when you put convenience and service together and you overlay that with the fact that a lot of Americans these days are living incredibly busy lives, might not have time to get to their local bank, may just find it easier to get to one of our locations, that’s a big factor,” he said.

Convenience is one of the factors cited by John P. Caskey, professor of economics at Swathmore College in Pennsylvania as to why consumers use check cashing outlets.

Another cited by both Caskey and Lyke is tight budgeting.

“Most people that use check cashing outlets live paycheck to paycheck,” said Caskey. “They don’t have substantial savings. So imagine you walk into a bank and tried to replicate those same services. They’ll say, ‘No, we’re not going to cash your check, you have to open a checking account.’ And they could direct you to one of these low-cost checking accounts. But if you bounce a check [they’re] going to charge you with a $20 fee, and the merchant you wrote the check to may charge you an additional $10, so bouncing a check may cost you $30.” If a person runs the bank account down to nearly zero every month, then it becomes easier to bounce that check, even if only once or twice a year. So for that segment of the market, the check cashing outlet makes sense, said Caskey.

“I think that check cashing stores have a certain niche in the market, and we are aware of that. But notwithstanding, I think the banking industry continues to look at ways it can expand its products and services that serve low- and moderate-income neighborhoods, minority borrowers, people of various cultural differences, that’s an ongoing effort,” said Kevin F. Kiley, executive vice president and chief operating officer of the Massachusetts Bankers Association.

Check cashing outlets have been accused by critics of only locating in primarily urban areas. While Lyke admits that those areas are traditionally where check chasing outlets have been located, that is changing.

“[In New York], check cashing outlets have opened in commercial and upscale locations adjacent to traditional banks. In many parts of the country, financial service centers are opening in suburban communities to serve customers in those areas. It is not uncommon to find them in shopping mall locations near fast food, dry cleaning and other convenience businesses, such as Mail Boxes Etc. stores,” he said. An April 2000 study commissioned by the U.S. Department of the Treasury analyzing non-bank financial institutions found that they are evenly distributed throughout zip codes but more are located in areas where the highest population percentage is minority. The study also revealed that there is a higher concentration of financial institutions and ATMs in the highest-percentage minority population areas.

Although it’s somewhat perplexing to many as to why someone would choose to pay more for a service if they have no past credit problems (in a national survey, only 2.7 percent listed credit problems as a reason to conduct business at the outlets instead of a bank) or don’t have other reasons to not open a bank account, Lyke said the answer might lie in examining a similar phenomenon in another industry.

“You could go to a supermarket and buy a package of buns, a pound of hamburger and some lettuce and tomato if you want to have a Big Mac. Or you could go to McDonald’s. What McDonald’s charges for that Big Mac, if you weigh the meat in it, with the bread, someone might say, ‘Wow, that’s a really expensive hamburger.’ On the other hand, when you add in the convenience and the quality of the product and service you get, a lot of people make that choice every day,” he said.

Good Business
A number of banks, including Citizens Bank of Massachusetts, recently have made concerted efforts to win low- and moderate-income consumers over to bank account products. “We have the expertise to teach financial literacy. It’s the right thing to do in that it is good business,” said Jodie Silverman, senior vice president of public affairs.

Teaching people how to save money and establish good relationships with banks will help them obtain good credit, necessary to make major purchases.

The MBA also has tried to reach out to new customers through foreign-language educational brochures on the banking system.

The Treasury study found that the majority of people using check cashing outlets in the Boston market were described as “working class minorities” and immigrants.

Nationally, 28 percent of people responded that they use the check cashing service instead of a checking account at a bank because they do not write enough checks to make an account worthwhile.

In another study commissioned by FiSCA, over 80 percent of respondents listed convenience as the prime reason to use check cashing outlets. In response, banks have made overtures to bridge the gap by associating themselves with some check cashing outlets.

“I guess in America, we feel that everyone needs a bank account,” Lyke said. “That’s not always so. If you look at the upper end of the ladder, there are a lot of people that have gone to brokerage accounts and other types of non-traditional banking, stocks and bonds. We don’t seem to have so much of a problem with that. They’ve made an economic choice, and a choice about service and conveniences. But we get to the other end of the economic spectrum and they’re making choices that are very similar. [Critics say] ‘well, they’re making the wrong choice, they should have a bank account.’ I’m not sure that’s true for everyone.”