“Where do you bank your cash?”
Cover, J., FUHRMAN SPRING, A. M. Y., & GARSHICK KLEIT, R. A. C. H. E. L. (2011). Minorities on the Margins? The Spatial Organization of Fringe Banking Services. Journal of Urban Affairs, 33(3), 317-344.
Some people may use a traditional bank or a credit union. Others may visit an alternative financial service provider (AFS) for banking services; AFS are pawnshops, payday lenders, check cashers, and car title loans. Minorities are the main users of AFS, which brings accusations that AFS are specifically targeting minorities.
In their study, Cover et al. (2011) research if AFS are targeting minorities by using spatial modeling, bivariate testing, and multivariate regression. Four case studies are used for the analysis: Boise-Nampa, Idaho, Yakima, Washington, Rapid City, South Dakota, and Waterloo-Cedar Falls, Iowa. The researchers choose small metropolitan areas because they have fewer banking options. Furthermore, the areas where specifically chosen because of their demographic makeup; Boise is a medium-size metro area and is about 11% Hispanic; Yakima is 41% Hispanic, Rapid City is 9% Native American; Waterloo is 6% African-American.
After choosing the metro areas, Cover et al. (2011) used GIS spatial modeling to map out the racial composition, neighborhood income, and commercial activity for each city. Data was obtained from the U.S. Census Bureau, Federal Deposit Insurance Corporation, Credit Union National Association, and Reference USA.
GIS mapping reveals that AFS are highly concentrated in Hispanic and Native American neighborhoods in Boise, Yakima, and Rapid City; however, black neighborhoods in Waterloo contained less AFS than the other metro areas in this study. As for poverty and AFS, spatial modeling indicates no clear pattern of poverty and AFS concentration for Boise and Rapid City: banks and AFS are more evenly distributed. In Yakima and Rapid City, AFS and poverty are in the same areas. In neighborhoods with AFS, poverty tends to be higher. It seems as if AFS are targeting poor neighborhoods and minorities, but this not the whole story.
Using multivariate analysis, Cover et al. (2011) were able to hold individual neighborhood characteristics fixed and determine which variable has the greatest effect on AFS location. The only problem with using multivariate regression for this project is that the sample size is too small, which restricts the number of variables to be used in the model. A poisson regression of count of AFS providers was used to determine which variable influences AFS location the most; independent variables include number of banks/credit unions, number of businesses, population, percent urban, percent of people who are 200% below the poverty line, and minority concentration. The results indicate that commercial activity, concentration of Hispanics, and neighborhoods with moderate poverty are statistical significant from zero and all three variables have a large effect on AFS location.
Cover et al. (2011) offer some explanations on their findings. First, AFS and banks tend to locate in areas that zoned for commercial activity; hence the reason why business activity influences where an AFS locates because that is where customers go to shop and spend money. As for Hispanic neighborhoods, AFS locate in those areas because Hispanics lack access to traditional banking services. Boise and Yakima are agricultural communities, and the Hispanics working in those cities may be undocumented workers. Therefore, undocumented workers do not have the prerequisites to open a bank account, such as identification or minimum account balances. When it comes to poverty, AFS locate in neighborhoods with moderate poverty because those areas have the need for such services. Areas with high poverty are not attractive to AFS since those individuals lack the income to obtain and repay such services.
This study can be used to provide traditional banking services to low-moderate-income households. More research should be done on larger metropolitan areas since this would increase the sample size. It may be that the market fails to provide traditional banking services to certain segments of the population.