A recent article in
The Atlantic Cities highlights several reasons why the poor have generally been using alternative financial services over traditional commercial bank accounts. According to the article, the alternative financial services industry (such as check cashers and payday lenders) has been growing rapidly in low and moderate income communities. The article classifies this segment of the population as the unbanked or underbanked. As many as 17 million people nationwide are unbanked and millions more use alternative financial services even if they have a traditional bank account.
The article attributes this phenomenon to things such as the:
- depersonalization of traditional commercial banking,
- lack of discretionary income in low and moderate income households,
- absence of traditional banks in poor areas,
- relatively high transaction fees and penalties of commercial banks, and
- convenience and personalization of alternative financial service providers such as check cashers.
The article suggests that traditional banks could address this by (1) being more service oriented and (2) developing alternative service structures for lower income customers, such as limiting overdraft fees.
