Is there anyone out there that is still yet to read Lisa Servon's article that appeared last month in The Atlantic Cities? Is it possible that such an under-the-rock person would also have missed her follow-up article in the New Yorker's Currency blog? At this point, the reach generated from her story of working in a New York City cash-checking store rivals the reaction
created by Anne-Marie Slaughter's "Why Women Still Can't Have it All" article in July/August 2012 edition of the Atlantic.
Maybe that overstates it a bit - the follow up to Slaughter's critique of the professional woman's career vision made the front page of the New York Times - but it certainly has been that impactful inside the world of those who think about alternative financial services.
During her four months working part-time at a South Bronx RiteCheck, Servon heard customers tell her about the value they felt they were getting from the store. It was one part "banks are not for me," another part "this is an inviting place," and one more part "I like certainty and immediacy." But "the glue at the RiteCheck," Servon said "is the customer/teller relationship." She described tellers that knew their regulars by name, who worked through their lunch breaks on days when government payments hit, and who were sometimes received a free cup of coffee from an appreciative customer.
My LinkedIn page is now flooded with comments on the piece.
Here is one such entry (from Jim Wells of Wellspring Consulting) that is fairly representative of the feelings that I have heard from many people:
Another great article relating the true story of consumers who choose to obtain financial services on a transaction basis, rather than through traditional bank accounts. It will likely infuriate those who see these people as 'financially illiterate' because they don't use bank accounts. Never considering that bank accounts don't respond to their financial needs and punish them with opaque fees, charges and policies. Too many people of influence fail to recognize that these people are NOT unbanked or under-banked. They could not care less about banks. They rely on convenient, community-based businesses that provide exactly the financial services they need, when they need them, in a transparent and fully-disclosed manner, without extraneous requirements.
But surprisingly, the response from consumer advocates seemed to build from two themes. A) bank checking accounts are bad and some credit unions are better b) this is thought-provoking. Perhaps the folks with a more negative reaction chose to remain silent, but overall the response was somewhat neutral.
What Constitutes a Healthy Relationship with a Financial Institution?
Of the many elements in Servon's article, the one that intrigues me the most is what it says about how the under-banked should relate to their financial institutions of choice.
Often the comparison is this: AFS is transaction and full-service banking is relational.
Servon's conclusion was that the employees of her check cashing store did develop a real connection with the people they served. That shakes up a few fairly well-accepted conventions. People from all places in the spectrum of policy discourse tend to agree the alternative financial services are not about relationships. Instead, people talk about them as being transactional. A prepaid card, for instance, is a very narrow service. In fact, there are few instances of bundled products. It is possible to buy several products in one setting, but even then they will each come with their own price tag and very possibly from several different brands.
Here is a comment coming from the pro-relationship perspective that was made in response to Servon:
The author misplaces the value of friendly customer service in these relationships. It is true that banks hit customers with hefty and surprising fees, and are both unapologetic about it and quick to blacklist customers who fall behind paying those fees via ChexSystems. However, the service provided with a smile at the check cashers costs more every single time no matter what. Positively comparing the latter to the former is like favoring the charming boyfriend that hits you every day over the one who hits harder but only sometimes. The moral response is to stop the violence, not succumb to - much less champion- more frequent beatings.
By contrast, a standard checking account is likely to be linked to others. My bank has at one time or another offered me a savings account, a mortgage, a line of credit, a credit card, a safety deposit box, a student loan, another mortgage, and more that I can't even remember.
I recently spent an evening in the presence of Dan Ariely, a behavioral economist who considers how temptation factors in to decision making. On that night, he talked about dieting, smoking, and budgeting. Ariely is definitely a progressive, but he works outside of the professional advocacy community. His take was that lots of people would be better off if they could be protected from banks. To paraphrase, his take was that "banks only make money when you borrow more....lots of people need to go on a diet."
His point - that the need for a relationship is definitely a factor of your capacity to withstand a mistake - is an important one in my opinion. Ariely would insist that everyone makes financial mistakes - carrying a balance on a credit card, saving too little for retirement, going to an out-of-network ATM - but some people can brush it off.
Less filling, but tastes great - that's what the check cashers are offering. If you have a light bank, it doesn't taste as good as a micro bank, but he seems to be saying that it gets the job done.
More largely, this talks a lot about the huge gap in the policy conversation surrounding financial services for the poor. Free choice shouldn't have to conflict with consumer protection. I have an advocate friend who seems to be slipping into the lonely place between either side. It is probably not a good spot to be if you want long-term funding. But there is plenty of evidence that a softer, longer-term take on cost is not naturally nourished on the supply side. When a publicly-traded company like Green Dot refuses to offer overdraft, some institutional investors (the private market's counter to a foundation) snicker. When Steve Streit says he would never consider it now or ever, some of those money guys try to point out that he could inflate his company's share price. But that would mean that he would be building the top line of his whole company on the backs of only a sliver of his customers. Transactional companies can be tempted to take short-term revenues at the expense of relationship.
Servon's article is about the most provocative thing that has come down the policy pike in years. If you are one of the few people who hasn't yet read it, then I encourage you to do so as soon as possible.