Money orders comprise a significant part of financial transactions - over 1 billion money orders are sold annually, and statistics show over 25 percent of the American population has purchased at least one money order in the last 12 months. The money order, a payment order for a pre-specified amount of money, is a safe and reliable alternative to checks and is universally accepted as a recognized method of payment.
“Non-bank financial institutions” such as convenience and grocery stores sell approximately 94 percent of all money orders. Core money order customers are the 40 million “un-banked” individuals in the U.S who do not maintain formal banking relationships. These convenience store customers/shoppers find it convenient to obtain multiple services under one roof – money orders in addition to gas and convenience store items. The Federal Government has estimated that the Dodd/Frank bill will force 10 million more people into unbanked and 14 million into underbanked.
Profit on money orders is primarily derived from fee income and from interest earnings on the float and escheat service charges on abandoned property. When a retail company outsources its money order operation to a third-party provider, the company sacrifices these last two cash flow and profit sources.
Faster Customer Service, Lower Costs
The old standard for issuing a money order involved a manual, labor-intensive process. Customer service was thus slow. By contrast, 3T’s PC-based software drives custom laser printers that print secure MICR (Magnetic Ink Character Recognition) documents. The software is easy for employees to learn and use, and the hardware has been downsized to fit conveniently in small spaces. With faster performance, the customer has a shorter wait and a better experience. Moreover, if a customer has a question about the status of a secure document or money order, the company can respond faster with more accurate information.
Furthermore, the use of blank, laser-printed security document stock eliminates the need for costly pre-printed, multi-ply stock. When a company eliminates pre-printed document forms, it saves at least half the cost per location each year.
Interest Income on Float
“Float” is the time between the date an item is issued and the date it is redeemed, cashed or abandoned. During this “float” period, the company issuing the item can invest the funds to generate interest income, which can add up surprisingly fast. However, if the company outsources its secure document processing, the third-party provider keeps all the interest, and the company loses out. Major vendors such as MoneyGram and Western Union do not share any float income with the retailer. In many cases the retailer is forced into a negative cash flow scenario. With 3T, you own your float interest income.
When a company controls its own float, it immediately improves its cash flow position. It can also invest the funds to generate significant interest income. Companies that have taken back control of their secure document operations earned between 5.5 percent and 8 percent on their funds.
Service Fee Income
Service fees, or the fee the customer pays to the retailer for the purchase of the money order, range from $.29 per money order in higher volume stores to $3.00 in some financial institutions. Generally, the retailer and the third-party provider share the issuing fee. Using 3T’s automated in-house technology, however, companies keep all per-item service fees.
Escheat Fee Income
Many money orders, gift certificates and other items go uncashed, and after a period of dormancy, the issuer can begin charging a monthly service fee against the face value of these items. These service charges produce a lucrative fee income stream. Service fees range between 25 cents and $3 per month, and on average, one percent of money orders are abandoned each month, and 15 percent of gift certificates go unredeemed.
Any financial instrument not redeemed by the purchaser must be remitted to the appropriate state’s abandoned property division after a period of time dictated by state law (escheat process). The period ranges from 2 to 5 years. In almost all states, the issuer is allowed to charge a monthly administrative fee, which averages $1.50 per month, starting six months after the item was issued.
In order to charge the fee, there must be a written contract between the purchaser and issuer. This is accomplished by placing contractual language on the secure item itself. This is a very profitable part of the business for both national and regional third-party providers. These providers do not share any escheat income with retailers. However, using the 3T Total Solution, retailers keep all escheat fee income.
Most state escheatment laws require that abandoned property be turned over to the state, and place limits on service charges in this context. You may wish to consult a lawyer in this regard.
Another profit source consists of “rub-off dollars.” Money orders attract new traffic into stores, and while customers are in the store, they buy other items. Studies have documented that rub-off revenues average $8 per money order sold.
Minimize theft and fraud with 3T’s blank safety paper usage, secure laser printers, and up to four levels of password protection. Moreover, daily electronic tracking and reconciliation uncover fraud attempts immediately rather than 30-45 days after the fact, as is typical with outsourced providers.
Many companies see a reduced Employee Dishonesty Insurance deductible.
Comparison: MoneyGram and Western Union use pre-printed money orders that are issued on dot-matrix printers. Pre-printed, multi-ply MICR-encoded document stock stored in remote locations is truly vulnerable to theft and fraud.