A recent article - The Real Reason the Poor Go Without Bank Accounts - explores the growing alternative financial services industry including check cashers, payday loans and others.
Author Lisa Sevron writes about research in which she worked as a teller at a payday loan to better understand why consumers use them and offered this perspective.
Many factors—cost, transparency, convenience—go into the choice consumers make between a bank and a check casher. Atmosphere and the attitudes of the staff are only one component, but this piece of the puzzle may be more important than we thought. Like the famous TV song goes, "You want to go where everyone knows your name." If policy efforts to move the unbanked to banks are to be successful in the long run, banks need to remember they are a service industry involved in one of society’s most important and basic relationships.
She cites Industry studies estimate that there were more than $58.3 billion in check-cashing transactions in 2010, up from $45 billion in 1990. Payday lending has grown from $10 billion in 2001 to nearly $30 billion in 2010.
As more banking is done online or through ATM machines, she says the personal relationship between the customer and the financial institution has declined - unlike payday loans were personal interaction is frequent.
Sevron offers these policy recommendations:
The banking industry needs to develop different fee and service structures designed to accommodate lower income depositors in much the same way banks currently provide VIP treatment to high-net-worth individuals. A good start would be to limit overdraft fees, and to rethink the use of private databases like ChexSystems that currently keep more than a million low income Americans from being able to open accounts. Tellers need to remember that every customer is more than the number of digits in his account balance and deserves service and respect.The article was published in The Atlantic Cities: Place Matters.