Financial inclusion is seldom a topic in finance and policy making circles.  Policy makers and consumer advocates are concerned about the growing numbers of people without bank accounts, and those who use alternative financial services like payday loans, check cashers and pawn shops. The apparent answer? Move everyone to bank accounts.  It seems obvious, yet the numbers tell a different story—it seems that more and more people are moving away from banks.

The numbers of “unbanked” and “underbanked” people are indeed growing. Twenty five million Americans were unbanked in 2013, up from ten million in 2002; another 68 million are underbanked. In very low-income areas like the South Bronx, where I worked for several months as a teller at a check cashing store in order to better understand these issues, more than half of the residents have no bank account.

I had decided to work as a teller at RiteCheck, to understand why low- and moderate-income people are choosing not to use banks, if they’re really the best option. The answer was surprising: It turns out that many people—and not just the poor—are unbanked or underbanked by choice. Here are the top three reasons why:

  • Reason #1: Cost. The primary critique of check cashers is that they are expensive. I had believed that, too. When I interviewed my customers, however, I learned that for many lower income people, commercial banks are ultimately more expensive. The rapidly increasing cost of bounced check fees and late payment penalties has driven many customers away from banks, particularly those who live close to the edge. A single overdraft can result in cascading bad checks and hundreds of dollars in charges.

It’s no coincidence that, during the period that the number of check cashers and payday lenders has grown, banks have instituted a range of new fees and raised existing charges on automated teller machines (ATM) withdrawals, wire payments, debit-card replacement, and paper statements, among other services. The average monthly service fee on checking accounts increased 25 percent from 2010 to 2011. Some of this is an attempt by banks to make up the revenue they lost as a result of legislation that clamped down on what they could charge for overdraft fees and debit-card swipe fees—fees that banks charge retail stores for each debit-card transaction. Meanwhile, free checking accounts are becoming harder to find. Only thirty-nine percent of non-interest-bearing checking accounts were free in 2011, down from seventy-six percent in 2009.

  • Reason #2: Transparency. Many of my check casher customers told me that a lack of transparency at banks contributed to the costs they incurred; these people found it difficult to predict when and what they would be charged. At most check cashers, in contrast, the fees for each transaction are typically displayed on large illuminated signs that span the row of teller windows, like the menu sign at a fast-food restaurant.

The Pew Health Group recently analyzed 250 types of checking accounts at the nation’s ten largest banks and found that banks’ checking account disclosures are anything but transparent. These disclosures have, on average, 111 pages!

  • Reason #3: Depersonalization. The depersonalization of banking is widespread. But an increasing number of Americans frequent alternative financial service providers where the personal relationships between the teller and the customer still matter tremendously. I interviewed 50 customers after my stint as a teller and, when I asked them why they brought their business to RiteCheck instead of the major well-known bank three blocks away; they told me they trust their neighborhood check cashers much more than they do banks.

This all seems to suggest that most banks, as they are currently configured, don’t do a good job of serving low-income customers. Before we can begin to solve the problem about how to meet the financial needs of all Americans, we first need to understand what’s driving the choices they make.  I look forward to building this understanding with you on November 18 in Jacksonville.

Lisa J. Servon is a professor at Milano Graduates School of International Affairs, Management and Urban Policy, The New School in New York, New York. She can be reached at servonL@

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