Monday, November 26, 2012

Everyday Banking Services: Think Different

Reihan Salam posted an article written by guest poster Piotr Breziziniski that falls somewhere between "thought-provoking" and either "provocative" or "obnoxious trolling", depending on your mood. Breziziniski argues that Dick Durbin's (D-IL) amendment to the Dodd-Frank financial refor mbill, which limited swipe fees on debit cards, will perversely result in more low-income households resorting to payday lenders and other services even more usurious than large banks. It's a semi-legitimate argument. If low-income households are simply non-banked rather than relying on large banks on a regular basis (and it's not clear that Breziziniski's data support that argument), that might be genuinely worse. That said, the typical low-income household does not use payday loans. Poor households are more likely to use them, yes, but most poor people still manage to get by without using them. Even so, a state could go one step further and ban payday loans, but that might or might not be a good idea. In states that have banned or restricted payday lending, households are more likely to experience other adverse financial events (bounced checks, contact from collection agencies, etc.) but from a customer satisfaction perspective, those who would use payday lending are happy to have that option to have them taken away from them.

Paying for things with your Pasmo card in Japan
is both super convenient and has minimal
transaction costs.
Still, this whole conversation about how to meet the financial services needs of poor people is awfully small. We need to break out of the mold where the only alternative to relying on banks for financial services is to rely on junk service providers like payday lenders. Residents of greater Tokyo use their "Suica" or "Pasmo" card (the service networks of the two cards overlap in some way I couldn't understand) to pay for things other than bus services. And while the primary purpose of these cards is to get on and off the subway, they can also be used as a form of payment at many museums, convenience stores, and even some restaurance. You could easily imagine greater NYC trying something similar with Metrocards, or in less transit-friendly jurisdictions, combining toll & transit payments into one card and then expanding that card's use into more generic payment services.

In addition, 7-11 and other convenience stores operate ATMs & copy machines that provide all sorts of other services, such as bill payments, buying sports & theater tickets, and so forth.  Japan Post also provides a wide variety of basic banking & insurance services. Other models exist beyond the current American bank-vs-payday lender duality when it comes to financial services.

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