Millions of paychecks are placed into eager hands every week. While many of those checks will be deposited in a bank account, a significant number will be cashed at a bank, c-store or check-cashing outlet (CCO).

The proliferation of CCOs points to the increasing number of workers who don't deal with a traditional bank. According to a financial services group that operates 133 CCOs in 17 states, 13,000 CCOs across the country cash a whopping $80 billion worth of checks every year.

Several kiosk companies, including Tranax Technologies and CashWorks, have been working hard on an automated, self-service offering for this market.

"The need for check cashing terminals grows as convenience for the service is demanded," said Scott Holt, product manager for self-service terminals with Tranax. He points to the growing availability of check-cashing services in places like grocery chains, liquor stores and virtually any high-volume retail location.

High-end tech

The technology behind check-cashing kiosks is on the cutting edge of the industry. Document acceptors have long been the bane of manufacturer and customer alike, and check acceptors face all the usual challenges - reading a check that has been folded three times and sat on in a worker's back pocket for an hour, for instance.

But once the check is accepted and scanned, bigger challenges lie ahead.

"More complex than the hardware technology that scans the check is the degree and level to which the software can analyze that check for payment to provide a positive customer experience," said Dave Grano, chief executive officer of Vero, an Oregon-based firm whose check-cashing kiosk also offers wire transfers, bill payment and money orders. "Traditional check-cashing utilizes the check MICR data (the numbers at the bottom of a check) primarily, if not exclusively, to analyze the check, resulting in 70 to 75 percent accuracy ... which is too low for a viable customer product."

Grano said that in addition to MICR data, Vero's software considers a large number of data points across the check.

Holt emphasized the strength of the software behind the scenes. "Substantial R&D went into the development of the current check-scanning module, which focused heavily in reading checks of different conditions and formats," he said.

Not just for the unbanked

Conventional wisdom seems to suggest that the primary market for check-cashing kiosks is people with no banking relationship. But while the so-called "unbanked" population might represent the biggest potential market for check-cashing kiosks, it is certainly not the only one.

"Check-cashing services report that more than 45 percent of customers using their service have banking relationships, but choose to use the service because of convenience," Holt said.

It's easy to speculate that the same dynamic might hold true for the kiosk.

"CashWorks has already noticed a significant proportion of its customers, approximately two-thirds, do have some form of bank account and choose to use CashWorks to provide their check-cashing services," said CashWork's general manager Will Sowell. "Often it has to do with issues of convenience, such as a work schedule that makes it difficult to conduct banking during normal hours."

This article appeared in the C-store Self-Service Executive Summary, Winter 2005.