February 1, 2004
Fannie Mae Foundation
Research conducted by the Urban Institute on behalf of the Fannie Mae Foundation reveals that alternative financial service providers cluster in neighborhoods with a higher share of minority and low-income residents. The study also shows that, contrary to popular opinion, alternative financial services providers do not operate in geographic isolation from banks. Moreover, local business regulations make little difference to the number or location of alternative providers or banks. This combination of findings suggests that, contrary to popular perception, consumers do not choose alternative financial service providers because an area lacks mainstream providers. Rather, location is not the only factor affecting a customer's decision to use an alternative provider instead of a traditional bank. It appears that mainstream financial providers either are not offering lower-income, minority households the core products and services they need or providers are not effectively reaching out to these consumers. These possible shortcomings point to the need for further research into the financial service needs of low-income communities and the effectiveness of different outreach strategies.
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