Fighting Financial Exclusion: How To Serve 88 Million Americans Who Have No Bank
Monday, June 9, 2014
“Anyone who has ever struggled with poverty knows how extremely expensive it is to be poor,” the great American author James Baldwin wrote in 1960.More than half a century later, his words ring true to the 46 million Americans who live below the poverty line and to the millions more who are struggling to stay above it.
The high cost of being poor is most evident in financial services. Anyone who’s ever had to fork over $5 to cash a $25 check at a gas-station minimart knows how extremely expensive it is to be unbanked.
Bringing basic financial services to underserved consumers is a huge market opportunity, and a philanthropic one, too.
28 percent of the U.S. population, or about 88 million people, are either unbanked (they have no checking or savings account) or underbanked (they have some relationship with an insured financial institution but still rely on minimally regulated alternative financial service providers such as check-cashing storefronts or payday lenders). “Those places are open during convenient hours. They are friendly and accessible. They are also deathly expensive and often result in a spiral of debt for their users,” says Gregory B. Fairchild, associate professor of business administration at the University of Virginia Darden School of Business, who’s been studying issues related to financial inclusion for around a decade.
Payday lenders and other alternative financial service providers fill a void in disadvantaged neighborhoods. In 2013 the number of federally insured financial institutions fell to 6,891—the lowest number of retail banks in the U.S. since 1934. Rural areas are especially affected. 85 percent of the poorest counties in the U.S. are rural—they are also notorious for being “bank deserts.” “Rural America is facing increasing challenges in light of the accelerating banking exodus,” says Dominik Mjartan, Senior Vice President at Southern Bancorp, based in Arkadelphia, Arkansas.