Will Private-Public Partnerships Lead to Fewer Families Unbanked?

Screen Shot 2015-12-07 at 10.09.22 AMNew Orleans    Jacob Lew, the US Treasure Secretary, standing with his partners, including Bill Gates representing the Gates Foundation, announced a public-private partnership that would include Treasury, Gates, JP Morgan Chase, PayPal, and others in trying to bring financial services to the “unbanked.” Lew indicated that globally 2 billion people relied on cash and that 20% of US households “continue to use alternatives like check cashers or auto title loans.” Although specifics were hard to find, he trumpeted ten initiatives to attack this problem.  Highlighted according to the story in  The New York Times would be a public-private partnership emphasizing the bringing basic banking services to the Mississippi Delta region, which has long trailed the country in access to financial services.

If this seems like puff and spin and been there, done that, it may be because this is not the Treasury Department’s first time in this rodeo. The real question might be what will be different this time to prevent the failures of the past.

The Treasury Department also launched a similar pilot program in 2008 and 2009 focusing on a number of different areas of the country from Fresno to Brownsville and from the Appalachian area of eastern Kentucky to the counties of the Mississippi Delta.They had private partners then too, though perhaps without the deep pockets summoned this time.

Looking at their report evaluating the pilot is instructive.Taking the Mississippi Delta as an example they note that in 20 odd counties where they focused there were 132,000 without accounts.  Statewide 16.4% of Mississippians are unbanked and the number doubles to 33.6% — more than one out of three – when we look at the stats for African Americans.  The 2008-2009 pilot program in the Delta focused on financial literacy and education. They claimed more than 4000 attended various classes along these lines. But, when it came to the question of whether more people became banked, the results were disappointing.The report said,

“While the CFAP partners believe that accounts were opened as a result of the initiative, consistent data was not gathered nor reported to the Treasury, so no accounts are documented.”

There’s no question that being unbanked cost lower income families big bucks, but looking at the bank offerings on the last pilot, the banks weren’t bending much to allow new families to come in so it was going to cost lower income families severely to be banked as well with some partners still charging almost $10 per month to service the account and up to $35 for bounced checks.

Speaking plainly, for many banks, especially big banks, promoting financial literacy and financial education is a rationale and head fake covering the abandonment of the banks of lower income communities and customers.  Such efforts are little more than marketing and publicity for most banks and an attempt to inexpensively cream the best of the unbanked into their system while continuing to run from the market.  Secretary Lew must not have gotten very good advice on lending either since small loans to customers has become both an urban and rural legend for the banked.  Nothing in this announcement seemed to set a different course.

These private-public partnerships, so critical to the neo-liberal project, verge too quickly into subsidies for private business expansion, rather than services to low and moderate income families.  Reports seem to indicate that most of the initiatives will involve more worshiping at the altar of technological utopia as well.  PayPal and Village Capital for example have signed on to offer technical fixes for transfers to Mexico.Given that the remittance channels between the US and Mexico are one of the few that have seen significant decreases in cost, I have to wonder if this is really about them trying to penetrate the market, rather than provide real services to the unbanked.

Hope springs eternal, and we can wait and see, but given the failure of these projects in the past and the blatant self-interests of the partners colliding with the targeted constituencies and their sensitivities to price and service, it is hard to see any reason this latest initiative will succeed or be substantially different than the failures of the past.

When it comes to banking and the low-and-moderate income community, they’re just not that into us.