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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.
Posted by windley on January 18, 2007 4:42 PM
Comment from vulnerectomy at January 18, 2007 5:27 PM
"If [retailers] are allowed to open their own banks, and can offer discounts to people opening accounts there, it's going to hurt the independent bankers and all the branch banks," Tochtrop said. "In the long run, it also hurts the consumer, because people lose the one-on-one, face-to-face relationship that they have with an independent banker."
One-on-one, face-to-face relationship? Yeah right. This is the pot calling the kettle black. Last time I saw someone face-to-face at my "independent" bank they had to call someone at their central office in another state on the phone and hand the phone to me in order to complete the process. The thing that hurts consumers in the banking industry, in the government, and yes even at Wal-Mart is having to pay a portion of every transaction for the maintenance of unecessary information flow that has gone out of control in ways the average consumer cannot even comprehend.
Comment from Tom at January 18, 2007 8:51 PM
In my mind, most of the check-cashing places are predatory lenders. The use deceptive advertising (in the same way R.C. Willey and other loan places do with credit offers), and according to a DesNews survey in 2005, the median annualized interest rate (of the 307 places they checked) was 521% (unsecured; 300% on title loans). (That's not a typo). The min was 312%, and the max was 912%
http://deseretnews.com/dn/view/0,1249,635158738,00.html
Comment from Phil Windey at January 18, 2007 9:24 PM
I don't disagree that they're predatory, but I also haven't been convinced that the market, seeing those underserved profits, won't step in and correct the problem. If that's not happening, then we have to ask what's proping the rates up.
Comment from Gunnar at January 19, 2007 7:21 AM
There are supposedly around 4 billion people in the world who are unbanked or underbanked, I think the MBAs would call that an underserved market.
This company, Net1, actually has a smart card solution for this purpose
http://www.aplitec.co.za/
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