How The Money Flows: Payments for Cash Advance

Posted by Checkbook on May 26, 2023

There’s probably been a time in your life when you had an unexpected emergency arise and didn’t have the money to address it until your next paycheck. If you don’t have friends or family to help, there aren’t many reputable solutions that can get you money quickly. That’s where cash advance comes in: it’s a short-term lending tool designed to bridge the financial gap between paychecks. 

Here’s a look at the cash advance industry as a whole and how changing market conditions have made faster payments a necessity.

A tale of unexpected costs

One thing that unites us across ages is the constant need for cash. Our parents used to postdate checks, and their parents were known to use pawnbrokers in a pinch. Today, cash advance firms bridge the gap. And there’s no shortage of need: measured by revenue (not loans provided), the check cashing and payday loan industry industry was valued at $20.5bn in 2022, and it’s been steadily growing since. Even if you haven’t used a cash advance, you’ve likely heard of some of the names involved: Lendio, Fundbox, CAN Capital, Inc., National Business Capital & Securities Inc., Kabbage Inc., Paypal, Finova Capital, Social Finance, Stripe, Square Inc, and Company10 are all in the cash advance business.

To receive a cash advance, users have a few choices: they can either receive a loan through their credit card or they can request money through an app such as Albert, EarnIn, Chime, Dave, or Empower. These apps charge a flat fee or a subscription fee, and some apps also don’t run a credit check before issuing the cash advance. When using a credit card for a cash advance through an ATM, users will be charged APR and occasionally additional fees.

Who needs it?

The typical user is a low-income earner who needs short-term cash to cover unforeseen expenses. These users weigh the risks of missing bills that incur a penalty versus taking on the cost associated with a cash advance. For instance, if your $465 car payment will be automatically deducted from your account on January 15th but you don’t get paid until January 20th, it’s cheaper to utilize a cash advance solution to borrow $475 and pay a $10 fee instead of incurring a $50 overage fee from your bank. 

This isn’t a niche use case: 56% of all Americans don’t have enough savings to cover a $1,000 emergency. Cash advance allows people to get instant or same-day cash without requiring employer data, a co-signer, or often a credit check.

The payment problem

A user requests a cash advance through an app or, if requesting one through their credit card, uses their credit card at an ATM. When using an app, the user then selects from a few options for payout. They usually select “instant pay,” then agree to the fee and other terms of service before receiving the money. 

The issue with this is that the firms that run these apps need to make thousands of disbursements each month. This requires tech enablement and automation. Since a significant majority of cash advance users opt for instant disbursement methods, these firms are challenged with finding a way to provide cash on demand while keeping costs low. Their platforms are primarily monetized via the fee associated with the disbursement method chosen by the user, so costs associated with these methods is key to actually making a profit.

Then there’s the security issue. Keeping customer data and company data private throughout the entire process is the responsibility of the cash provider. That’s no small feat, and a mistake could mean a tremendous loss in both customer trust and the bottom line. That’s not all: servicing un- or underbanked users is a unique problem for cash advance providers. After all, if a user doesn’t have a bank account, how can they receive money?

How Checkbook can help

Checkbook is uniquely poised to help with unbanked users: these customers can simply select a virtual card and receive an instant payout that can be used any place a debit card is accepted. For banked customers, Checkbook offers a push-to-debit option that sends money directly to a debit card, a real-time payment option, or an emailed check that allows users to print a check on their own printer and deposit it through their banking app. Each option is low-cost to cash advance providers and gives users the flexibility to select the option that makes the most sense for their circumstances. 

As for speed, Checkbook is built for mass disbursements, and partners can leverage our API to automate all disbursements. No need to spend money inventing a mass disbursement system from scratch: utilize a proven API that’s already utilized by dozens of cash providers. And Checkbook’s pricing models and fixed rate transaction fees keep costs down, either through a monthly minimum or a subscription fee.

As for security, with certifications such as PCI DSS, SOC 1, SOC 2, and HIPAA, Checkbook’s solution is a surefire way to harden your security infrastructure without the costs of custom designing an entire secure cash payout system. With Checkbook, cash advance is easy. The user selects the best option for them, funds are received by the user on a fast timeline, and your business can make more money due to reduced costs and even a virtual card revenue share.

Cash advance is a necessary solution for those who find themselves in a financial bind. Checkbook enables cash advance providers to generate more money while providing a higher level of service that adapts to the needs of all users.