A note on alternative financial service providers and the spatial void hypothesis

Many consumers use alternative financial service providers (AFSPs)—such as check cashing outlets, payday lenders, and pawnshops—to conduct some of their financial transactions. However, the fees for these services tend to be higher than those charged at mainstream financial institutions. One rationale why consumers continue to patronize them is that AFSPs serve the financial needs of patrons by filling a void created by the absence of traditional financial institutions—known as the spatial void hypothesis. Two studies have tested the spatial void hypothesis and reached opposing conclusions. While the most recent inquiry used alternative statistical methods to find support for the spatial void hypothesis in the counties investigated, questions arise as to its applicability to other geographical areas. This study applies the alternative methodology to examine the spatial void hypothesis in selected counties in the states of New Jersey and Delaware. It formulates appropriate null hypotheses of “indistinguishability” and tests these hypotheses by Monte Carlo methods and finds further support for the spatial void hypothesis.