The working poor are moving away from traditional banks, according to a survey released by the Pew Health Group, a division of the Pew Charitable Trusts.
This report, “Slipping Behind: Low-Income Los Angeles Households Drift Further From the Financial Mainstream,” interviewed predominately Hispanic, low-income residents in the Greater Los Angeles area.
The numbers of unbanked families increased during the period 2009-2010. 32% or roughly one third of respondents reported closing their account as a result of hidden or unexpected fees; other reasons included lack of funds and employment, among others.
Alternative Financial Services
The Pew report also found (not so surprisingly) that banked customers continue to use Alternative Financial Services (AFS). Almost one-third of the banked respondents (crossover customers) continue to use check cashers and other non-bank financial services due to perceived transparency and liquidity concerns; despite having an active account. Reasons include…
Source: Pew Trust
- Remittance (49 %)
- Money orders or cashier’s checks (34%)
- Check cashing (10 %)
- Bill Payment (38%)
- 43% use AFS bill pay services because of posting times and cash liquidity
- 37% claim bill payment is faster at store front check casher than at a bank
Banks win on Location
One thing that did surprise me was that bank location had the advantage; with 59% of respondents preferring banks over check cashers, due to their proximity to work or home.
I’d always perceived that check cashers won out on location, hours of operations and service offerings (not necessarily customer service!). While location may no longer be a factor (at least in LA), providing multiple services is! 38% of crossover customers continue using check cashers because they can purchase several services at one time.
1. Alternative Financial Services are not going away. Traditional barriers to banking remain for the unbanked; including not enough money to open account, lack of proper ID, high fees, and difficulty understanding the banking system. As a result the unbanked continue to need a place to perform their financial services. Even some banked individuals use AFS providers for varied reasons as shown above.
2. Multiple service offerings are important. The ability to handle all financial transactions in one place is often more important than getting the best deal on just one service (and having to travel to different locations to do it).
3. Remittance is big! 96% of unbanked individuals wire money using a money transfer shop; and 40% of banked do the same. And they remit frequently!
Need help or advice on expanding your service offering? Contact an AllTrust representative today at 1-877-280-1679 or email us.