Nix Nix? Not So Fast

Microfinance is a fascinating concept. You take someone who has a little extra money, and you arrange for them to loan it to someone who just needs a little extra, charge them a fairly low interest rate (possibly higher than an established bank would, to compensate for the risk, but possibly not, because people don't get into microfinance to make money), and both sides are happy (assuming that the loan's paid back).

Nix is microfinance, too, but not that kind. Nix, which was featured in an article in the New York Times Magazine, runs a chain of payday paycheck cashing stores. They charge a lot of money for their services - sometimes usurious rates, in fact. But - and like someone who eats fast food all the time, this is a big but -- they're clean, honest, upfront about exactly what they're going to charge you, and friendly. They'll cash checks for you that others might not, and they accept post-dated checks. Their customers tend to be low-income people, but they're not stupid. They know that they're paying a lot. Perhaps they've not done the math, but when you talk to them about it, they display a realization of the difference between doing their banking at Nix rather than a conventional bank. This realization does not lead them to the conventional bank, though. They like Nix, and they trust them. That 'upfront' about the charges and fees, that willingness to accept nontraditional checks -- it counts for a lot.

When I was growing up, one of the neighborhoods where we lived was populated by low-income people (including us). Not poor, as a rule, but paycheck to paycheck types. Over time, I saw the neighborhood gradually deteriorate. It was when I saw some 'Cash Checks' storefronts arrive, though, that I thought 'this area is going downhill'. Those places aren't good news. The truth is, neither is Nix. They really are taking advantage of the people who use their services. Yet those people, most of them, do so willingly, and continue to do it even when alternatives exist. They know what to expect from Nix, and they can live with it.

It's not a pretty financial case study, but you know what? It works. Its the real world, not an HBR case study, and it works.