The Small Cash Market 

Understanding Participants & Providers to Avoid Unintended Consequences

by Moebs $ervices, Inc.

Page 1 of 6

CFPB Overdraft Comments by Moebs $ervices

Overdrafts are a significant segment of the Small 

Cash Market (SCM), but by no means the sole 

segment. In fact, although overdrafts through 

financial institutions account for the largest dollar 

amount of revenues for providers, almost 3 times as 

many people use non-bank providers for small cash 

needs. Fifty to sixty million people use other 

segments of the Small Cash Market versus the 15 

Million frequent users of overdrafts through banks 

and credit unions. 

Viewing overdrafts within the context of the larger 

Small Cash Market has two benefits: 1) it 

underscores the alternatives frequent users of 

overdrafts will have to contend with if the 

traditional overdraft market is restricted and 2) it 

provides meaningful information on how the SCM 

values, measures and prices alternatives to 

overdrafts.

If the Consumer Financial Protection Bureau 

(CFPB) limits its review to traditional overdrafts, it 

is focusing on only a small part of a much greater 

market. The CFPB is in a position to consider the 

much broader scope of the market and overdrafts 

within that context. In that way, unintended 

consequences of a narrow perspective can be 

avoided.

Moebs $ervices comments are an attempt to begin 

defining this larger Small Cash Market so the 

ramifications of any changes to the overdraft sector 

on the participants and providers of the broader 

marketplace can be taken into consideration and 

addressed. The objective is to ensure that the CFPB 

does not inadvertently and unintentionally damage 

a significant portion of the market, while not 

providing the support and guidance the CFPB 

intends.

Participants deserve protection and providers 

deserve compensation and, without value 

judgments, the entire Small Cash Market needs, at a 

minimum, to be acknowledged and defined.

At some point in their lives almost everyone 

participates in the Small Cash Market.

Whether it is cashing a paycheck at a grocery store, 

borrowing money from friends, hocking jewelry to get 

quick cash...or overdrawing a checking account, 

almost everyone participates once or occasionally or 

frequently in the Small Cash Market.

Seventy-five Million people participate in the Small 

Cash Market through over 100,000 providers 

including the 12,000+ banks and credit unions that 

offer overdraft services. If the Small Cash Market 

were consolidated into one bank, it would be the 

largest bank in the world in terms of people served.

Small Cash Market – Participants

Seventy-five Million people participate in the Small 

Cash Market. There is no specific demographic profile. 

Young. Old. Single. Married or Partnered. Doctors, 

students, soldiers, tailors, janitors, supervisors...

Everyone. What the participants all have in common –

is the need for cash and money services, and their 

credit scores.

Participants can be “Banked”, “UnderBanked” or 

“UnBanked”.

The “Banked” have checking and/or savings accounts 

and use checks, debit cards, ATMs, etc. to pay bills and 

make financial transactions. Their participation in 

the Small Cash Market is primarily due to frequent use 

of overdrafts. 

The “UnderBanked” have checking or savings 

accounts, but have opted not to use a bank, thrift or 

credit union for some financial transactions, choosing 

instead to use other sources in the Small Cash Market , 

i.e., payday loans or money orders . 

The “UnBanked” do not have a checking account or 

savings account; they need check cashers and money 

order issuers, along with payday lenders and pawn 

shops to meet their short term funding needs.

Participants in the Small Cash Market want or need cash for the same reasons anyone wants or needs cash: 

to pay bills, purchase goods and services, survive or succeed. At some juncture needed or desired funds are 

not available. And financial support may not be available. One thing the Banked, the UnderBanked and the 

UnBanked who use the Small Cash Market extensively or exclusively have in common is they have no FICO 

scores or low FICO scores below 600. Ergo...participation in the Small Cash Market...either intentionally or 

unintentionally. Either occasionally or frequently.
The Small Cash Market 

Understanding Participants & Providers to Avoid Unintended Consequences

by Moebs $ervices, Inc.

Page 2 of 6

Small Cash Market - Providers

The Small Cash Market is represented by more than 100,000 providers!

Chartered financial institutions account for less than 20% of the providers. The supply side of the SCM is 

diverse and fragmented and providers can be described as providing Unsecured Services, Secured Services 

and/or Money Services.

Unsecured Service Providers

 Banks, Thrifts and Credit Unions: There are over 14,000 banks, thrifts and credit unions in the 

United States; approximately 12,000 provide retail checking accounts. There are 134 Million 

checking account users – 60 Million of whom overdraw, two-thirds unintentionally. 

Approximately15 Million of those who overdraw frequently overdraw their accounts 10 or more 

times a year. Those who frequently overdraw are a definite segment of the Small Cash Market.

 Payday Lenders: Approximately 4,000 payday lenders operate in 37 states which allow payday 

lending. Traditionally brick and mortar shops provided more than payday loans (title loans, check 

cashing and money order issuing). In the past ten years the internet has spawned both domestic 

and international providers of payday loans. Now residents of the 13 states which disallow payday 

lending can still get payday loans. The market for Payday Lenders is approximately 19 Million 

people.

 Family: Difficult to quantify, this undocumented segment of providers of cash nonetheless may 

involve upwards of 7 Million people. About 8% to 9% of all U.S. households are “Family providers”. 

The Family providers generally expect only repayment of funds. 

 Friends: The “Friends” market is less than 20% of the “Family” market. The “Friends” market has as 

part of its definition the expectation of pay back of funds plus something else – either fee or 

bartering of services, i.e. a small advance is paid back with car repair. 

Secured Service Providers 

 Pawn Shops: This form of secured lending has been around for centuries. There are over 2,500

Pawn Shops in the United States. The major things pawned are jewelry or firearms. This is a fluid 

segment that includes approximately 30 Million participants. Most Pawn Shops are regulated 

under Truth-In-Lending, state usury laws and other lending regulations. While pawn shops charge 

interest, the charge is not sufficient to cover the pawnbroker’s expenses and cost to carry the 

pawned item. The average pawn is about $80 or 50% of street value. The Pawn Shop makes money

when its customers do not pay to get the pawned item returned (about 20%) and the pawnbroker

sells it at street value or the customer sells an item directly to the pawnbroker. 

 Title Lenders: Title Lenders are secured with a used vehicle or equipment. Often offered in 

connection with payday loans because these funds are secured for higher risk consumers.

 Bail Bondsmen: Approximately 1.2 Million people, or 40% of the 3 Million people who need bail 

every year in the United States, obtain their bail. Bail is usually 10% of the total bail amount 

determined by the court. This bail amount represents the bail bondsman’s fee. The actual bail is 

secured by titles on vehicles and real estate. This is specialized enough that there are less than 

2,000 bail bondmen in the United States.

 Tax Refund Providers: While small in relation to the other providers in the Small Cash Market, 

providers of advances on tax refunds do provide, on a seasonal basis, a significant portion of money 

movement on a secured basis. The security comes from the government refunding overpayment of 

taxes. 
The Small Cash Market 

Understanding Participants & Providers to Avoid Unintended Consequences

by Moebs $ervices, Inc.

Page 3 of 6

 Loan Shark: A very high level estimate places approximately 1 Million people in this market. A 

black market or underworld market, these services are rendered outside the normal parameters of 

the law. 

Money Service Providers

 Convenience stores: There are over 17,000 convenience store providers in the U.S. This is usually a 

24/7 business. The convenience store dominates the money service business. Almost half of the 

money moved in the Small Cash Market is thru convenience stores. The major money service 

provided by 90% of the convenience stores is check cashing. Money orders are popular with 67% 

doing this. Domestic and international transmission of money is done by 15% of convenience 

stores. The fees for these money services are significant for the convenience store.

 Grocery Stores: Over 6,000 grocery stores provide check cashing and money order services. The 

grocery store does this to empty its cash registers of excess currency and coin and thus reduce the 

number of armor car visits taking money to depositories.

 Currency Exchanges: There are approximately 8,000 currency exchanges. Currency Exchanges 

provide many other money transactions from driving, fishing and hunting licenses to secured and 

unsecured advances. 

These 12 providers in the Small Cash Market provide Millions of Americans access to financial services. 

While not an organized formal market, these providers offer multiple services in a fractionalized but 

significant marketplace throughout the United States. They work with people who otherwise would not 

have access to the payment and funds providing systems in the United States.

Small Cash Market - Characteristics

Identifying the participants and providers of the Small Cash Market leads to the identification of several 

characteristics that fuse the Small Cash Market together. Collectively they define and identify a market 

unknown in a mapping sense, but recognized by tens of Millions of consumers.

Characteristics of Small Cash Market participants range from the inexperienced to the careless, from the 

unaware to those who are focused. From those in transition to those in place. Some are making deliberate 

choices to manage their financial wants and needs through the SCM while others are making uninformed 

choices. 

What all participants in the Small Cash Market have in common are:

 Low or no FICO scores: SCM participants have FICO scores less than 600 or they have no FICO 

score. This is the basic common feature of all participants in the Small Cash Market. 

 Limited or no checking: SCM participants have limited or no use of traditional checking outside of 

those Banked participants who are frequent users of traditional overdrafts. They hold savings 

accounts more than checking. Checking often is simply a vehicle to handle their paycheck or to 

obtain a payday loan. SCM participants are primarily the UnderBanked and UnBanked segments. 

Characteristics of Small Cash Market transactions reflect the characteristics of the participants.

 Small dollar amount: The dollar amount of any transaction is small ranging from a few dollars to no 

more than $5,000.

 High volume: The volume of transactions is well into multiple Billions. 

 High Losses: Losses are a function of the participants’ low FICO scores. 

 Paper based: Almost all transactions and notices are paper based. Little electronic transactions. 
The Small Cash Market 

Understanding Participants & Providers to Avoid Unintended Consequences

by Moebs $ervices, Inc.

Page 4 of 6

 Labor intensive: Because the market is paper based, it is labor intensive. Inefficient providers are 

forced out of business or must reduce the volume of transactions they can do because of higher cost 

and thus price.

 High Cost: Low technology, high manual processing, small ticket sizes and high transaction volume 

all add to cost structure. These costs are a friction to the market forcing the fee price higher to 

reflect these high costs. Since labor is a large element in the SCM transaction, additional volume 

does not markedly reduce the cost of the transaction. 

 Fee Based: Fees are the universal and preferred way the Small Cash Market measures value for 

services rendered. SCM transactions are labor intense due to paper based and the higher risk from 

lower FICO scores. Having a high cost for a low value item makes the price be a fee basis since the 

mathematics of a rate or yield (Annual Percentage Rate or APR) renders abnormally high APRs. 

Fees are the common method of comparison by participants and providers in the SCM. 

Impacts of the Small Cash Market on Overdraft Considerations

Understanding the Small Cash Market provides an important context from which to review overdrafts for 

two reasons:

1. Fifteen Million consumers, those who use overdrafts 10 or more times a year, could be forced into 

alternative providers in the Small Cash Market if their access to overdrafts is restricted, and

2. The Small Cash Market’s approach to valuing, measuring, comparing and charging for its services 

provides important information relative to the pricing of traditional overdrafts.

Understanding Overdrafts

Overdrafts are the key reason the 15 Million Banked and UnderBanked frequent users of overdrafts are in 

the Small Cash Market. 

The average checking accountholder’s propensity to overdraw has increased in the past decade due to the 

decline in ”float”, the enormous increase in debit card usage, massive technological advances and a 

slumping economy.

In 2003, the elimination of cash in transit or “float” from the financial system began in earnest with the 

enactment of the Check Clearing for the 21st Century Act (Check 21 Act). At the same time Visa and 

MasterCard debit card initiatives, started in 1979, were experiencing exponential growth. Legislation and 

technology came together. Float dropped from $10 Billion a day on 70 Billion transactions in 2003 to $400 

Million a day on 110 Billion transactions in 2011. Paper check usage in 2003 was 46.3%. In 2011 debit 

card usage was 43%.

The lack of float and increased debit card usage has made the time between initiating payment and 

reduction of account balance almost non-existent now. These two changes in the payment system are the 

primary structural reasons for increased overdrafts and the focus of consumer advocates, regulators and 

legislators on overdrawn checking accounts.

With 87% of checking account users not reconciling their checking accounts the probability the average 

consumer will overdraw is immeasurably increased. Prior to the Check 21 Act, the average checking 

accountholder could manage gaps in the deposit/payment cycle, relying on float as necessary with an 

occasional overdraft that was probably handled manually by their financial institution. Post Check 21, that 

balancing act is like treading water.

The decline in free checking adds another consideration. Checking accounts have never been a profitable 

business for financial institutions. Checking is the most costly of all financial services. The daily 

reconciliation and settlement process is labor intense and the cost of depository labor has risen sharply in 

the past 20 years. Yet the checking account is the primary service a household or small business uses. Free 
The Small Cash Market 

Understanding Participants & Providers to Avoid Unintended Consequences

by Moebs $ervices, Inc.

Page 5 of 6

From 2011 Call Reports of 

Banks, Thrifts & Credit Unions

Net Interest Margin 2.52%

Fee Revenue 1.63%

Expenses & Taxes 3.34%

Net Income 0.84%

Sources: Call Reports & Moebs $ervices

checking was introduced in the 1970s as a way to gain the primary household and small business service. 

The cost of free checking was subsidized by overdraft fee growth fueled by the structural changes of less 

float and more debit card usage.

Free checking peaked in 2009 with 81.5% of all depositories who offer consumer checking offering free 

checking. In 2011, free checking is offered by 74.1% of all financial institutions. The providers of free 

checking differ. Only 34% of mega banks, those with $50 Billion or more in assets, currently offer free 

checking, a decline from 100% in 2009. Other banks offering free checking have declined to 70.8%. About 

the same number of credit unions (78.6%) offer free checking as in 2009.

Free checking was subsidized financially by overdrafts especially by those who frequently overdraw. 

The current usage of overdrafts especially by frequent users of overdrafts has fallen but not significantly. 

Float reduction, debit card growth, declining free checking offerings, and the FDIC OD Guidelines are all

factors in the changing overdraft environment.

What portion of frequent overdraft users has changed behavior and what portion has moved to other 

sources of funds in the Small Cash Market is the question.

How to reflect overdraft pricing is another question and it is beneficial to turn to other providers in the 

Small Cash Market to review their pricing approaches.

Understanding How Banks Make Money

The 2008 GAO Report on overdrafts indicates $40 as the median overdraft balance at the end of the day 

settlement of accounts. Using $40 as a benchmark the following are the prices of funding the overdraft: 

Mega Bank charge $35, Community Banks charge $25, Credit Unions charge $25, and Payday Lenders 

charge $17.50. So the best deal is to get a free checking account and fund overdrafts with a Payday Loan. 

This is why 26% more people take a payday loan then use overdrafts frequently at banks or credit unions.

It is a secret that should not be kept any longer: Depositories especially Main Street financial institutions

rely on fee income to stay in the black. 

The margin depositories make on interest today is not sufficient to 

pay expenses. The interest generated by loans, investments and 

deposits is not sufficient to pay for salaries and expenses, so banks 

and credit unions, especially Main Street institutions, have come to 

rely heavily on fee income to have net income. Net income is 

necessary to generate capital at community banks and credit unions 

since these institutions, as opposed to mega banks, have no access to 

capital markets since they are small in assets. 

Main Street relies on overdraft and other fees to keep it in the black.

Once this is recognized and accepted then the conversation can shift from caps and other restrictions to 

how to appropriately reflect value of services when they are small ticket, high volume and labor intensive. 

A situation where volume does not necessarily reduce per item cost and “Annual Percentage Rate” renders 

any value statement meaningless and provides no meaningful basis for comparison of other options – like 

those in the Small Cash Market.

Turning to the SCM, it is evident that this larger marketplace uses “fees” as its value denomination. “Fees” 

provide a way to value a service, measure it and compare it among multiple providers – APR does not.

Risks and Unintended Consequences

By putting restrictions and caps on what responsible financial institutions, particularly Main Street’s 

community banks and credit unions, can offer their accountholders, by disrupting the free market 
The Small Cash Market 

Understanding Participants & Providers to Avoid Unintended Consequences

by Moebs $ervices, Inc.

Page 6 of 6

competition, by distorting check and debit processing, by interfering with pricing policies, by complicating 

the information process, regulation and legislation can create a situation that disrupts a functioning 

environment and leave the participants without a financial safety net and providers without an incentive to 

provide needed support.

 Consumers who use overdrafts to manage their finances will not change their behavior. 15 Million 

users could leave the traditional financial system and look to Small Cash Market providers outside 

of the traditional banking system. 

 Over 700 Main Street institutions could be forced to close with the loss of over 50,000 jobs if caps 

and limits on overdrafts are implemented, according to Moebs modeling of the ramifications of 

proposed legislation and recommendations.

First and Most Important Steps

While gathering more data and information on the Small Cash Market and the role of frequent overdrafts 

within that market, key steps can be identified to support participants and providers alike in the financial 

institution sector.

Full and immediate notice and disclosure via all means available. Transparency. Opt-In requirements, 

options for payment including rates, fees and balances. All of these are important steps for Main Street and 

Mega Bank institutions to take. Most of Main Street is already moving in this direction.

Checking account holders want the security of a safety net and their providers are there to provide it. 

Requiring more and better disclosures, clearer and more expeditious notification, options for payment and 

service and allowing market forces to set the overdraft fee will avoid the unforeseen consequences of 

forcing frequent overdraft users into other areas of the Small Cash Market or adversely affecting financial 

institutions and their employees

In addition, more information can be gathered from the ways other areas in the Small Cash Market value 

their services – fees – and how this value denomination will provide a clear measure that can be compared 

across all providers.

Moebs $ervices, Inc. ©2012

June 29, 2012