The Geography of Financial Access: Organizational Decisions and the Spatial Distribution of Banks and AFIs

• In Event: Personal Finance and Inequality

Abstract

Having access to financial institutions who provide a.o. credit is essential to build wealth. Even though the use of online service has risen, the physical location of financial institution still remains of great importance. Research has shown that in the US many low-income and minority neighborhoods lack traditional banks, which undermines access to financial services, savings and checking accounts, loans, and credit. In contrast, such neighborhoods often have a disproportionate number of alternative financial institutions (AFI), such as payday lenders and check cashers – known for charging higher fees and interest rates. This leads to unequal access to credit across race and class. This is reflected, for example, in higher underbanked rates among minority groups.
We ask why. While there is plenty of research on the consumer or demand side of this phenomena little is known about the supply side. But the distribution of conventional banks vs AFIs mainly reflect managerial decisions. We have conducted 50 qualitative interviews with managers of financial institutions to understand how this companies make location decisions.
We found that banks use large scale self-produced or third party produced data (“big data”) and publicly available data, AFI rely heavily on observation and experience (“gut feeling”). We discuss the implication for understanding the mechanisms of credit as an amplifier of social inequality.

Author

• Florian Koenig, Bremen University