The Longtail of Banking


This article from the Economist on the unbanked doesn't use the term, but what they're talking about is th long tail of retail banking. I have a friend who, a while back, didn't have any bank accounts. His life wasn't pretty.

I've always had a jaundiced view of check cashing establishments--they seem to prey on the poor (and mathematically challenged). On the other hand, I have a friend who runs an emergency dental outfit and many of their customers are "unbanked." Teaming up with a check-cashing outfit allowed them to offer services to these folks--who usually don't have the cash on hand, don't have credit, and need their teeth fixed right now--while managing the risk.

I have a pretty conservative (Republican?) view of it, however. The market will chase the excessive profits these establishments seem to make and narrow that gap until the price reflects a reasonable profit after accounting for the risk. Evidence? The Economist article mentions El Banco de Nuestra Comunidad, which targets check-cashers by undercutting them. Imagine that!

By the way, the article also mentions Wal-Mart's banking plans, which apparently include Utah. Recent legislation in Colorado attempts to stop Wal-Mart and similar banks. I think that's a big mistake. Any time you've got an established industry trying to legislate an upstart (if you can call Wal-Mart an upstart) out of existence, it's probably an attempt to maintain the status quo at everyone else's expense.