The Unbanking of America
I saw on Twitter that Ohad recommends Lisa Servon’s The Unbanking of America to new employees at TrueAccord, so I thought I’d check it out.
It’s a sort of follow-on to Nickle and Dimed, an attempt to understand deeply the financial lives of America’s underclass. Servon goes “undercover” working at a check casher in the Bronx, interviews industry and policy leaders, and looks at a variety of statistics.
Traditionally we’ve thought of financial inclusion as “banked vs unbanked”, with the expectation that being “unbanked” is a matter of lack of access or understanding; and that if only those poor people used their bank accounts they’d be able to save their way out of poverty. You can even add nuance to this picture by describing the “underbanked”, who have some relationship with the formal financial sector but aren’t fully in its orbit.
Servon argues persuasively that the banking sector doesn’t meet the needs of the lower class in America. In fact, it’s relationship with them is best described as predatory. The reason people use check cashers, payday lenders, informal savings groups, and the like, is because these genuinely meet their financial needs better and treat them with more humanity. There are real problems, of course, with these alternate financial services, but simply making them illegal is going to make people’s lives worse: they use these services because it’s the best option for them.
There’s room, she believes, for banks to focus on real value-add instead of value extraction from their customers, and she points out a few banks, fintech startups and NGOs that she believes point the way to a better future.
I wish I had stopped reading this book sooner – I frankly didn’t learn much, a lot of this is well-trodden ground. But it’s a great primer on the subject for people who might be coming from other worlds.
Two fun statistics:
Of course, banks do offer all of us a short-term loan. It’s called an overdraft, and if it had a repayment period of seven days, the APR for a typical incident would be over 5,000 percent. Americans paid $38 billion in overdraft fees in 2011, more than they paid to payday lenders.
This is a great comparison, highly relevant.
Nearly one in five consumers has medical debt that has gone to a collection agency for nonpayment. That medical debt makes up over half of overdue debt mentioned on credit reports.
An insane statistic, our medical system is of course a completely evil institution.