Lisa Servon has written a clever, accessible and pin-point clear piece of ethnographic research. It looks at how an underserved and underappreciated tribe, without access to regular financial services, has developed ways and means of coping in their absence. It’s also a damning indictment of the organizations that claim to offer them these services.

The tribe, of course, is middle class America, and the organizations are the banks that fail to serve them.

Many Prices

Over here in the UK we’ve seen a surge in the use of non-traditional, short-term financial lenders – payday loans is the most common form, but we’ve also seen a rise in the use of pawnbrokers. The typical view of the investing class I occasionally hang out with is that these companies are predators, feeding off the stupidity and poverty of the poorest and most desperate in our society.

When I tried to compare the fees charged by these lenders with those offered by mainstream banks I discovered something interesting. I could easily calculate what I’d owe for borrowing money from a niche provider – they’re increasingly regulated to ensure this – but I couldn’t easily figure out what I would pay for an equivalent overdraft with a high street bank. 

The more I looked the more puzzled I became: the charging structures between the banks were confusing for me, and I spend a lot of my life untangling this stuff. We’ve seen this before in Finance, Where the Law of One Price Doesn’t Apply where I discussed how financial service providers come up with deliberately confusing pricing structures and random additional services to prevent straightforward comparisons. This shouldn’t happen: rule #1 of economics is that the same service should, all things being equal, cost the same from different providers.

Customers are Fees

Which brings us to Lisa Servon’s book, The Unbanking of America, in which she’s taken the same puzzling behavior and done something so obvious (in retrospect) it’s brilliant; she’s actually gone and talked and worked with the people using these alternative loan providers. It turns out that these people aren’t dumb or exploited, they’re simply using the services most appropriate for them – and they’re doing this largely because in the US the mainstream banks have turned the exploitation of the masses for financial gain into an art form.