Why do fringe banks fill the inner city?

Conventional banks leave a void for other lenders

Within the last 30 years, accessing financial services has became trickier in low-income areas like Winnipeg’s North End.

Fringe banks, which include pawn shops, cheque cashing firms, tax refund advancers and payday lenders, have filled the void, but so too have credit unions, an expert argues.

Jerry Buckland is a professor of International Development Studies at Menno Simons College. He says his research on fringe banks was prompted by a consortium of community organizations in the North End in 2002, who were concerned with the growth of these alternative financial service providers in the neighbourhood.

“The phenomena of declining mainstream banking and the simultaneous growth of fringe banking is fairly common to low-income neighbourhoods in Winnipeg and other parts of the country as well,” Buckland says.

He says that in the past 20-30 years, conventional banks have closed physical branches in neighbourhoods, particularly lower-income ones, which he notes are less profitable for them.

In place of many smaller branches, conventional banks have consolidated in large branch centres. This trend, Buckland says, is harmful to lower-income residents, as they are less likely to have access to vehicles and the internet, making driving to centralized banks or using online banking services trickier.

Fringe banks, including payday lenders, moved in to fill the void, Buckland says. They focus on “transaction-oriented services,” such as cashing a cheque, bill payments and money wiring.

“(Fringe banks) have created a number of services that are very useful for low-income people. Now mainstream banks offer all of those services, and they do so at a fraction of the cost, but they don’t promote them in inner-city communities,” Buckland says.

Credit unions have received more attention as an alternative to fringe banks in low-income neighbourhoods.

Brendan Reimer is the strategic partner for values-based banking at Assiniboine Credit Union (ACU). He was also involved, as a University of Winnipeg student in 2003, on a team of researchers lead by Buckland that went into the North End to examine the fringe banking trend.

The research, Reimer says, involved asking people in the North End why they were using fringe banks. One interaction he recalls was with a woman in the North End, after asking if using fringe banks was a choice.

“She looked at me, and she said ‘you’ve obviously never tried to walk across the Salter bridge in winter with four kids,’” Reimer says.

He says this cemented in his mind the role of geographic barriers in pushing people towards using fringe banks.

In 2001, ACU opened a branch in West Broadway, and in 2012, they opened a branch on 315 McGregor St. Reimer says the West Broadway branch was opened after neighbourhood residents had raised concerns about the lack of financial services in the area at the time. The North End McGregor branch was also established, he says, to fill a service gap.

Buckland agrees that credit unions are playing a major role to fill the space left open by banks, particularly ACU with the North End and West Broadway branches.

“Those two branches are unusual in that they’re offering financial services in neighbourhoods with fairly limited average incomes, and you don’t find many big banks in neighbourhoods with those average incomes,” Buckland says.

Published in Volume 72, Number 5 of The Uniter (October 5, 2017)

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