by Sara Hinds –
Have you noticed fewer tenants wanting to pay rent in ways other than good old checks or direct withdrawal? You’re not alone, and it’s not just a trend in your area. The fact is, adults in more than 24 million U.S. households — one in five — are “un-banked,” with no bank account, or “under-banked,” with adults conducting some or all of their financial transactions outside of the mainstream banking system. The U.S. government’s FDIC (Federal Deposit Insurance Corporation) discovered these surprising numbers in its 2011 Economic Inclusion survey. They reported 8.2 percent of adults in U.S. households being unbanked reflects a significant increase from the FDIC’s previous 2009 study. Since that time, banks have become less essential and, the study reports, simply less desirable.
Understand who and where unbanked and underbanked adults tend to live, and you’ll have some valuable insight for planning your payment choices and marketing.
The 2011 FDIC report rolls up a few key trends:
- Location: In the South a full 10 percent of the population is unbanked or underbanked. The West is second highest, where one in five (21.0 percent) are unbanked or underbanked.
- Ethnicity: The study reports 55.3 percent of black households, 48.7 percent of Hispanics, and 41.3 percent of American Indians are unbanked or underbanked.
- Income: Lower earners may simply not save enough to make an account worthwhile, given minimum balance fees. About 28 percent of households with annual income below $15,000 are less likely to have bank accounts.
- Age: Younger consumers are more likely to handle their money outside of the traditional banking system than older people, perhaps as using banks is the norm or they have amassed more savings. In fact, about 34 percent of people 34 or younger are unbanked or underbanked.
How to Cash In On the Underbanked and Unbanked Trends
Just as consumers can tap into a new world of cash management options, so can property managers. Here are the pros and cons of a few non-bank payment options you might offer:
- Money orders or cashier’s checks through services like MoneyGram and Western Union are especially useful for property management companies without a local office. On the downside, property managers have to contend with getting the checks deposited.
- Offering a cash payment option at a convenience store through a service like PayNearMe gives the tenant peace of mind with a receipt showing the amount they have paid. Modern web-based property management software solutions (like AppFolio) integrate with PayNearMe making this type of cash transaction very simple for the property management company and the tenant – the property manager receives instant notification of the payment, and the money direct deposits into the property’s bank account.
- Online rental payments via electronic bank charge (ACH) or credit card are another option. However, the under-banked population typically doesn’t have access to either of these payment methods.
Thinking, “Hey, where’s cash on the list?” It didn’t make the cut! Ironically cash is just too expensive. Consider that a property manager needs to be on hand to accept the cash payments, then safely store the money, manually record it an accounting system, and securely make bank deposits. On top of all this, banks may charge for you to deposit the cash. Being on hand to accept cash rent means longer leasing office hours, more time spent accepting payments and less time spent being able to rent open units and maintain the property.
Serving the Unbanked Serves Your Bottom Line
Here’s a short checklist to simplify evaluating new payment options:
- Schedule flexibility: Understand how much time you can dedicate to processing the new payment methods. Simulate a run-through of your process for accepting the rent with each method to find any time sinks.
- Ease of payment: The fewer barriers and steps for tenants to get you the rent, the fewer times you’ll hear late-payment excuses.
- Evidence of payment: Cash should be delivered in person and only when someone is on hand to receive the money. Be sure to give the tenant a receipt.
- Secure way to manage and deposit the receipts: Your goal should be to minimize opportunities for theft or fraud and cut down the time to deposit the rents.
- Overall cost effectiveness: Sum up both the “hard” costs and time to handle and process the payments as part of your evaluation.
As you can see, cash as a payment option fails most of these points!
The bottom line is if you do hear more requests for paying rent in cash, keep your ultimate goal in mind: more and easier net revenue from your properties. Offering a menu of payment options is step number one toward this goal.
If you need more details to back up your plans, data hounds will love the detailed charts and breakdowns on the FDIC survey website.