Afs Industry Outlook

The AFS Industry’s Outlook

The alternative financial services industry was labeled a $320 billion per year industry in 2006 by the FDIC. (1) In 2014, there are no newly published reports available that would indicate whether this figure has grown or decreased. It is widely held that AFS will continue to be a formidable sector of the financial industry for as long as consumers have the ability to choose the convenient products and services offered by this industry. To support this claim, it is my goal to give the reader a brief glimpse of what is meant by “alternative financial services”, who uses these services, and why? I will also share with the reader policy issues that are impacting segments of AFS.

“Alternative financial services” refers to financial services that are offered by entities that are not typically a part of the federally insured banking sector. Check-cashing outlets, money transmitters, pawnshops, payday advance stores, car title lenders, and rent-to-own stores are all examples of AFS providers. In some cases, the “alternative” services and products provided by AFS are similar to those offered by banks. (1) Banks will cash checks, help facilitate online bill pay, and lend money. It is also a fact that where there is an AFS there is nearly always a bank within seven blocks of it. (3) This implies that consumers generally have a choice when it comes to financial services providers. They can walk into a bank and open up a checking account for a minimal monthly fee, which will give them access to free check-cashing services.

Many people choose to forego the banking experience and utilize higher priced alternative financial services. The above charts shed light on the ethnicity and age of these people. Forbes magazine reported that in 2012, nearly a quarter of all U.S. households used at least one AFS product over the course of the previous year. (6) It has long been held that lower-income families are more likely than other families to...