My dollars matter
“My dollars matter.” Those were the words spoken by a Mississippi resident in a short film produced by the Financial Times recently on how US bank branch closures widen social inequality.
Bank branch closures are nothing new and the trend has been accelerating in recent years. As of Q3 2022, there are now 4,157 FDIC-insured commercial banks in the US, compared to over 8,000 in 2000. However, the closures have disproportionately impacted the disadvantaged communities. According to the National Community Reinvestment Coalition, one-third of the branches closed from 2017 to 2021 occurred in areas that were predominately lower-income and majority-minority.
By now, you are probably shrugging your shoulders while offering the rehearsed commentary of “Just switch to digital banking!”
Reality is not always that simple.
“My dollars matter.”
“My banking matters.”
Branch closures hurt not only consumers, but also small businesses and their local communities. Banking opportunities are economic opportunities, and the American Dream is fueled by access to capital and the flow of capital. From getting access to loans to establish a small business, to securing your first mortgage for your dream house, many of these transactions still require a physical handshake. As for those who still conduct their business with cash, they will now have to drive further to make a deposit or withdraw money. This becomes not only a ‘convenience’ issue, but also a safety concern. None of these are simple issues that ‘switching to digital banking’ can easily solve – especially for neighbourhoods that lack Internet connectivity due to cost or infrastructure challenges. Southern states also tend to have higher poverty levels that correlate with lower levels of Internet connectivity.
According to the Pew Research Centre, in 2021, 7% of Americans, approximately 23 million people, do not use the Internet and 23% do not have access to a broadband connection at home. Unsurprisingly, only 57% of US adults with less than $30,000 annual household income have a broadband connection at home, compared to 92% for those making $75,000 or more. Moreover, only 27% of American adults in the lowest income group are smartphone-only Internet users.
So where does that leave the rest of the population, especially those living in banking deserts?
Cue Mississippi, a state with a population of 2.95 million people in 2021, where there are more payday lenders per capita than Starbucks stores. It is also the poorest US state, with over 19% of the population living in poverty, according to the Census Bureau.
Across America, disadvantaged communities in low-income neighbourhoods and banking deserts are more likely to use non-traditional and high-fee lending options such as payday loans and cheque-cashing services. People may turn to predatory firms promising easy access to quick, short-term small dollar loans without credit checks, and unfortunately, this is often the only option available for those with thin credit files. Such exploitative practices target those who are most in need and trap them in debt with APRs that are close to 400% on average.
Could there be another way?
My good friend and banking veteran, Stessa Cohen, offered her take recently on the issue. She believes that financial institutions should view branches as their strategic assets, and instead of closing the unprofitable branches, they should repurpose them to support local neighbourhood entrepreneurs and start-ups via partnerships with local community players.
As we often say, small businesses are the backbone of our economies. Financial institutions have the power, the resources, and the footprint to help our local communities re-imagine banking so that they can grow and thrive.
Their dollars matter.
About the author
Theodora (Theo) Lau is the founder of Unconventional Ventures. She is the co-author of Beyond Good and co-host of One Vision, a podcast on fintech and innovation.
She is also a regular contributor for top industry events and publications, including Harvard Business Review and Nikkei Asian Review. All opinions are her own.