The $100 billion size of the high-cost non-bank basic financial services industry, including check cashers, payday lenders, and pawnshops, points to the high demand for basic financial services among low- and moderate-income customers. Alternative products sold by banks could meet those consumer needs, while also creating an opportunity for households to convert their current spending on high-cost services into savings and even wealth.
To explore that potential, this study conducts a comprehensive review of the location of all basic retail financial services firms to determine their accessibility to low- and moderate-income consumers. The study also generates new projections on the potential savings incurred by several scenarios of hypothetical unbanked workers if efforts were made to transfer their high-cost fees into savings or investment vehicles. The study finds:
To explore that potential, this study conducts a comprehensive review of the location of all basic retail financial services firms to determine their accessibility to low- and moderate-income consumers. The study also generates new projections on the potential savings incurred by several scenarios of hypothetical unbanked workers if efforts were made to transfer their high-cost fees into savings or investment vehicles. The study finds:
- Moderate- and lower-income households pay over $8 billion in fees to non-bank checkcashing and short-term loan providers to meet their basic financial services needs
- Over 90 percent of these non-bank basic financial service providers are located within one mile of a bank or credit union branch
- Despite popular perception, bank and credit union branches are more likely to be located in low-income and lower middle-income neighborhoods than non-bank financial services providers
- A full-time worker without a checking account could potentially save as much as $40,000 during his career by relying on a lower-cost checking account instead of check-cashing services.
Read the 2008 Brookings Institute Report. (Thanks, Nate)
