2013 Conference

Financial Services

Financial Services

In recent years, the choices available in both the type and delivery of financial services have grown tremendously. Technological innovations continue to spur on additional payment platforms and methods that leverage lower-cost electronic delivery systems. Even as innovations continue, 8.2 percent of households (roughly 10 million households) are unbanked (do not have a checking or a savings deposit account) and meet their financial transaction needs outside the financial mainstream (FDIC, 2011). This study seeks to determine the extent to which specific socioeconomic and demographic factors contribute to household choice of financial transactions services. We employ a recursive bivariate prohibit empirical specification because it allows for the possibility that the consumer jointly decides whether or not to use a bank account, and whether or not to use nonbank alternative financial service providers. We extend earlier research by estimating the model on a nationally representative, sample of US households using data from FDIC Household Survey of the Unbanked and Underbanked, a module administered by the US Census as a supplement to its Current Population Survey (CPS) in June 2011. Our results are more comprehensive and generalizable to the entire U.S. population. Household choice of financial transaction services providers has important implications from a policy perspective. Consumers who use mainstream financial services providers benefit from consumer protection laws and regulations, a situation unlikely when using providers operating outside the financial mainstream (e.g., check cashers). Understanding the factors that influence consumers’ choice of financial services and the providers who make them available in the marketplace is essential to policymakers and others interested in encouraging mainstream participation.