Raj Date says that with modern data analysis banks could offer payday loans on much less extortionate terms. Felix Salmon retorts that banks don’t actually want to do business with poor people unless they can scrape them for high fees. Otherwise the costs of dealing with the accounts exceeds the profits to be made by having them as customers.
The solution to this problem, I think, would be for banking services to be performed by a firm that already has low-income clients and would have an interest in increasing its level of engagement with them even if the payday lending operation wasn’t profitable per se. In a word, you need Wal-Mart. A few years back, Wal-Mart started offering check-cashing services that were much cheaper than the prices charged by stand-alone check-cashing places. And it’s no surprise that this worked. If your whole business is cashing checks, then your check-cashing fees have to be high. But if check cashing is basically just another way to get people in the door of your store, then it makes business sense to offer attractive terms. Wal-Mart once applied for a banking license and was turned down so it can’t lend money. But if low-end retail chains were allowed to get bank charters, you could imagine one or more of them wanting to offer discount payday lending services for similar reasons—it’s a great way to get customers in the door at a time when you know they have money to spend.