When the problems of providing financial services in low-income neighborhoods are discussed, the response is predictable — "the poor need bank accounts."

The response derives from a middle-class assumption that life is impossible without a bank account; this notion is not just wrong, it's harmful. It causes valuable resources to be wasted in futile attempts to impose an inherently flawed cure on the manifold ills of poverty in low-income communities.

This "let them have bank accounts" solution masks the real problem: It's not bank accounts the poor need; it's money.

Still, that thinking stimulates a chain of reasoning that goes something like this: "What the poor really need is middle-class banking products, so all we need to do is shrink them down in cost and then force banks to offer these scaled-down products in low-income neighborhoods." This reasoning fails to frame the problem from the bottom up rather than the top down. It is like providing pots and pans as the solution to hunger.

To maintain a bank account one must leave some money in the account at all times. If you live from paycheck to paycheck, your hardship is compounded by having to leave some money in the account to keep it open. Low- and moderate-income people are better at managing their money than many more affluent persons because they must act within an extremely thin margin for error.

Rather than trying to shoehorn low-income people into the same money management behavior as those in the middle class, we should examine the lifestyle of those in poverty and try to see what they really need. From such an analysis we can construct products and services designed to meet genuine needs.

What financial service business has thrived in low-income neighborhoods since the Great Depression? Banks have come and gone; community development credit unions exist on thin margins only with the support of tax-exempt status and outside infusions. The check-cashing business makes a profit not because it charges high prices, but because its business model genuinely serves the needs of low-income consumers.

At its most fundamental, check cashers are in the business of selling transactions — letting their customers buy services as they need them — to help people manage to a tight budget.

On a theoretical level, one can look at the work of the microfinance specialist Marguerite Robinson of the World Bank. She has found three factors to be crucial to the success of financial services in low-income areas:

• Access. Low-income people need to make transactions before or after work; they need Saturday hours and availability that suits their schedules. Check cashers are open seven days a week, and many, 24 hours a day. 

• Liquidity. Many people need immediate access to their money. They cannot wait the four-day minimum for a bank to clear a check. Using a check casher gives the customer instant liquidity.

• Service. Check cashers take time with their customers so they will keep coming back. What is more, the people who work in our offices reflect the communities where they are based. Our customers come to us because they know they will get the products and services they need, including bill payment, money remittances and even prepaid debit cards that have an FDIC-insured savings component with a 5% annual percentage yield.

If you ask people why they don't like check cashers, the answer usually is, "Well, they charge such high fees." If you ask them what those fees are, they usually don't know or guess numbers way above the real ones. In fact, it is less expensive for persons on a low income to take care of their financial service needs at a licensed check casher than at a bank (especially if you factor in overdraft "protection" or exclude banking services artificially reduced in cost by government fiat).

Can we do better? Do more?

It would be genuinely helpful to offer a few transitional bank-type services at check-cashing sites without abandoning the basic model of transaction-based fees for service. But as this new creature evolves in the real world of our nation's low-income neighborhoods, we should cast a cold eye on the passionate call for everyone to have a bank account.

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