Alternative Financial Service Providers and the Spatial Void Hypothesis

This paper studies the spatial relationship between traditional banking services (Banks) and alternative financial service providers (AFSPs). The main objective is to test the so-called spatial void hypothesis that AFSPs tend to locate in markets where traditional banking services are under-provided. The key question of interest here is whether or not AFSPs serve markets with significantly lower income levels than those of Banks. A statistical methodology is developed for addressing this question that builds on previous studies. The present approach is based largely on K-function analyses of both individual and paired point patterns. These Monte Carlo testing procedures are applied to Banks and AFSPs in the four-county region around Philadelphia, Pennsylvania, and are also compared with previous methods. The main finding of this research is that there is indeed strong empirical support for the spatial void hypothesis in this Philadelphia region.