Kmart Is Getting Into the Check-Cashing Business

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Kmart (SHLD) announced today that it will be rolling out in-store check-cashing services at the vast majority of its U.S. locations.

The service will be available to members of the retailer's Shop Your Way rewards program. Fees for the service will range from free in some states to as much as $3 a check. That flat rate compares favorably to other check-cashing institutions, which often charge a percentage of the check's value, which can significantly cut into customers funds.

Customers will be able to cash government checks of up to $2,000 and payroll checks up to $1,500. Kmart will also take the somewhat unusual step of cashing personal checks, though those are capped at $400 to account for the heightened risk of the check bouncing.

The nationwide roll-out follows a test run that began last October. While the company had tested putting the money onto prepaid debit cards, customers preferred the convenience of just turning their checks into cash.

Kmart isn't the only retailer to have had the bright idea of letting customers cash their paychecks in stores -- Walmart does it, too. And it's clear why. As discount retailers, Kmart and Walmart (WMT) rely heavily on the low-income shoppers who are most likely to rank among the tens of millions of unbanked and underbanked Americans. Offering check-cashing services gets this customer base in stores, and then hands them a wad of cash to spend while they're there. And by limiting it to members of its loyalty program, the retailer increases the odds that the people using it are going to be loyal Kmart shoppers.

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"Our Shop Your Way members [account for] 65 [percent] to 70 percent of all purchases, and they spend more than non-members," says Jai Holtz, vice president of financial services for Sears Holdings. "We want to build on that engagement by giving that customer more utility at the Kmart store."

In other words, cashing customers' paychecks for them while they're standing in the store is going to get them to spend more money. Holtz wouldn't elaborate on whether Kmart expects to make money on the check-cashing program itself, but this makes good business sense either way.

And offering such services to low-income shoppers is going to become even more popular as discount retailers fend off competition from dollar stores. Earlier this year, Sears announced a lease-to-own program for customers who lacked the credit to finance big purchases. And both Kmart and Walmart will offer free layaway for holiday shoppers this Christmas season.

Matt Brownell is the consumer and retail reporter for DailyFinance. You can reach him at, and follow him on Twitter at @Brownellorama.

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