In the past few years, more large retail banks have started going into alternative financial services, or offering services traditionally the domain of payday lenders and check cashers. The onslaught continues as more of the banking elite court the poor and unbanked.
Banks want unbanked to be banked
A certain segment of the population does not have a bank account of any kind. No checking, no savings, no credit cards of any kind. To cash paychecks, they go to a check cashing business. If they need to pay with a check instead of with cash, they get a money order and if they need credit they go to a payday loan lender.
Estimates range as to the size of the unbanked population, according to Forbes, but it’s believed that 18 to 24 percent of the United States doesn’t have a bank account. The alternative services they use amount to roughly $45 billion in business.
That is precisely why, according to the New York Times, that large retail banks that typically ostracize the unbanked are trying to lure them in.
Various large retail banks like Wells Fargo, US Bank and Capital One are offering products and services that are typically the province of alternative service providers. All three offer prepaid debit cards.
Many of these banks offer short term loans, similar to payday loans. A short term loan from Wells Fargo, according to Time magazine, will cost $10 per $100 borrowed, less than the rates on payday loans. It is often marketed as a “deposit advance,” or a cash advance on an account holder’s next deposit, according to MSN, a lot like a payday loan. Wells Fargo, Fifth Third Bank and US Bank all offer them. Regions Bank, according to the New York Times, found out that some Regions customers were visiting payday loan lenders and started offering the loans last year.
Looking for fee revenue
The reason why banks are starting to offer such products and services may not necessarily be to bring people into the mainstream of banking, but rather to get procure more fee revenue.
Prepaid debit cards, for instance, aren’t subject to much in the way of regulations like traditional debit cards are. Prepaid cards also usually carry higher fees than traditional debit cards. For instance, holders of a prepaid debit card from Capital One are subject to a $1.95 fee if they use an ATM more than twice per month. A US Bank prepaid debit card, it costs $3 to set up. US Bank also charges a $3 monthly maintenance fee and a $3 fee to speak with a teller.