FINANCIAL ACCESS IN THE

21ST CENTURY

Comptroller of the Currency Administrator of National Banks Financial Access in the 21st Century

Proceedings of a Forum

Held on February 11, 1997 Washington, DC

Foreword Eugene A. Ludwig Comptroller of the Currency Washington, D.C.

Few retail consumer businesses can keep their doors open for long if they fail to attract and retain new customers. In the increasingly competitive financial services marketplace, banks and their nonbank competitors know well that today’s overlooked business opportunities may be tomorrow’s missed profits and may even threaten their viability. Thus, I have been puzzled often by why so many of our nation’s lower income consumers conduct their financial affairs outside of the traditional banking industry. Is this phenomenon best explained by consumer choice? Weak profit potential? A nonbank edge in lower-income product and service design and delivery? The high cost structure of regulated depositories? Or merely a lack of consumer access to the physical facilities of insured banks and thrifts? To explore these and related questions, I asked the Consumer Bankers Association last fall to co-sponsor with the OCC an industry forum examin­ ing the business case for expanded access to financial services. This publica­ tion, “Financial Access in the 21st Century: Proceedings of a Forum,” presents the substance of our day long discussion earlier this year among bank and nonbank financial service providers, economists, sociologists, technology and delivery system manufacturers and vendors, consumer representatives, and government officials. We came together to gain knowledge about the financial service activities of the millions of households across our nation who do not own deposit accounts or otherwise maintain relationships with insured depositories. We came together to share the experiences of banks and nonbanks that have pur­ sued successfully business opportunities with those nonbanked households. And we came together to explore the economic, social, and regulatory barri­ ers that may impede access to financial services by such a large number of American households. We learned that profitability, in itself, may not be a barrier if providers are willing to be creative in their product design, marketing, and delivery to lower income consumers. We learned that opportunities exist for expanded customer relationships among, not only those who have never had a rela­ tionship with a banking institution, but also among those who have recently left the depository fold and those who are only marginally within it. We learned that new technologies are lowering cost structures and spurring new product and delivery system designs that may soon portend greater access to traditional banking institutions. And we recognized that the congressional mandate to make all government payments electronic by 1999 will change, not only how millions of today’s unbanked federal payment recipients access their funds, but also the competitive landscape of financial service provision in lower income communities. The assurance of financial access is vital to the OCC’s core mission. This forum is only part of a much broader access-oriented program at the OCC that includes our compliance responsibilities under the Community Rein­ vestment Act and fair lending laws; our encouragement of national bank involvement in community development activities; and our research, out­ reach, and advocacy directed at the exploration of new business opportuni­

iii ties among underserved segments of the financial service marketplace. Expanded access is fundamental to the OCC’s mission because it will pro­ mote greater consumer choice, a more competitive marketplace, and increased business opportunities for financial service providers. And we know that greater participation in a fuller financial service system brings with it real benefits to households entering the economic mainstream. Even with the benefit of our forum’s discussion, we still do not know near­ ly as much as we should about the millions of American households, who do not maintain deposit accounts at insured institutions. We need to understand better these households’ financial service needs, how they meet those needs today, and how they might meet them tomorrow. I encourage our forum’s participants and others to explore these and related access-oriented ques­ tions in the months and years ahead. We have made access an ongoing pri­ ority at the OCC, and I am particularly pleased that we have recently estab­ lished the National Access Committee to institutionalize the OCC’s commit­ ment to further research and policy development in this area. We would not have the benefit of this rich volume were it not for the strong support and commitment of the Consumer Bankers Association on this pro­ ject. Particular thanks are extended to Richard Hartnack, CBA’s chairman and the vice-chairman of Union Bank of California, and Joe Belew, CBA’s president, for their contributions to the forum discussion and their dedicat­ ed work in planning the event with the OCC. Treasury Under Secretary for Domestic Finance John D. Hawke deserves our gratitude for his frank lun­ cheon discussion of the Department’s many challenges and exciting oppor­ tunities in implementing the congressional EFT ’99 mandate. And, finally, I wish to acknowledge the contribution of Ralph DeLeon and Karen Furst of the OCC, who provided essential planning and logistical support. Mostly, though, I want to thank each of the forum’s many participants for their valuable contributions to this most important inquiry. I learned a great deal from our discussion—far more than I ever expected. I am particularly pleased that we are able to share their insights now with a broader audience through the publication of this volume. Additional copies of this publication can be obtained by sending $15 for each book to Comptroller of the Currency, PO 70004, Chicago, IL 60673­ 0004. For further information, view our website www.occ.treas.gov/pubs1.htm.

iv Table of Contents

Welcoming Remarks Eugene A. Ludwig, Comptroller of the Currency ...... 1 Joe Belew, President, Consumer Bankers Association ...... 2

Defining the Market Characterizing the Nonbanked Population ...... 3 Immigrants and Foreign Remittances ...... 10 Savings and Insurance for Short-Term Emergencies and Long-Term Goals ...... 11 What More Needs To Be Known? ...... 14

Presentation: “Formal and Informal Financial Services,” Professor Robert M. Townsend, Department of Economics, University of Chicago . . . . . 17

Identifying Barriers to Serving the Nonbanked Perceived and Actual Barriers to Serving the Nonbanked ...... 25 Standardizing or Customizing Financial Delivery Channels ...... 27 Financial Service Design and Customer Service ...... 30 Partnerships Between Banks and Nonbanks in Serving the Nonbanked . 32 Effect of Government Policies on Serving the Nonbanked ...... 34

Luncheon Address: “Mandatory EFT ‘99,” John D. Hawke, Under Secretary for Domestic Finance, U.S. Department of the Treasury . . . . 37 Reflections on Issues Related to Mandatory EFT ‘99 ...... 41

Expanding Access through Technology New Technologies to Reach the Nonbanked ...... 43 Consumer Attitudes Toward Technology ...... 49 The Role of Consumer Education ...... 53

Closing Remarks Eugene A. Ludwig, Comptroller of the Currency ...... 55 Richard C. Hartnack, Chairman, Consumer Bankers Association and Vice Chairman, Union Bank of California ...... 55

Participant Biographies ...... 58 Forum Background Readings ...... 66

v

Welcoming Remarks

EUGENE We are thrilled to sponsor this forum, “Financial Access in LUDWIG, the 21st Century.” I think this conference can accomplish a Comptroller of the lot of good. I will introduce the forum with three thoughts. Currency One is to emphasize what we do not know. It is remarkable how little we know about the population of the unserved and underserved. Before we determine what can or should be done about this issue, we have to understand the population better and the efforts thoughout the country to serve the people it includes. Thanks to Professor John Caskey of Swarthmore College and others, we know a little about the unserved group. We know that 12 million households, about 12.5 percent of the population, do not have deposit accounts. In addition, a large, but unknown, number of people are underserved. The unserved represent a third of all minority households; one of four renters; one of six of those under 35 years of age; and 15 percent of the working poor, that is, families earning between $10,000 and $25,000. That population, combined with the underserved, is large, but certainly does not repre­ sent the majority of the population of the United States. Second, I want to mention the possibilities and the tremendous benefits from exploring how we can better serve the unserved and the underserved. I have spoken around the country about the democratization of credit. If you look at that process in some detail, it is enormously exciting. I refer to this institutionally and personally. President Lincoln, who established the Office of the Comptroller of the Currency, had a strong interest from a young age, when he entered politics, in setting up a national banking system. This was due, in part, to his father’s lack of opportunity. His father was a farmer who was never able to succeed at farm­ ing. He moved from farm to farm and did not establish a

1 FINANCIAL ACCESS

stable household. Several tragedies intervened, policy. For virtually a century, banks have been including the death of his mother, but I think prohibited from looking at their market ratio­ Lincoln viewed his father’s situation in part as nally when they could, because of unit banking lack of opportunity to obtain financial services. and other branch banking rules and the enor­ So Lincoln was interested from an early age in mous costs associated with opening branches. a national banking system that could spread So public policy probably impeded the kind of across the country and provide services. market access that Western Union has been We have seen for the last 200 years a democ­ able to provide. ratization of financial services. Services once So, although government can play a useful thought impossible or unsafe have become role, it must be judicious about the definition of mainstream activities that are now fundamen­ its role. This conference is useful because tals of the banking business. Home mortgage before we take action, we ought to know what is lending, for example, was prohibited to nation­ happening. In that spirit — a spirit of learning al banks as late as the turn of the century. When and sharing knowledge before one acts (if one the first car loan was made by a banker in Illi­ does act) — I am pleased to open today’s activ­ nois, the OCC examiner made him write off the ities. I will turn this over to Joe Belew, who had loan, because he believed that was unsafe per se the vision, the courage, and the energy to help to make a loan on a moving vehicle. But, in fact, us convene this group to address these impor­ during the Great Depression, not only did car tant problems. loans grow from $20 million to $600 million in volume, but the consumer portfolio performed JOE BELEW, President, Consumer Bankers better than the commercial portfolio. Association: The Consumer Bankers Assoc­ Indeed, the progenitor of Citicorp entered iation is delighted to participate in this forum. the retail banking business because the city of We enjoyed working with the OCC staff in New York wanted an alternative to pawn shops, creating this forum, and I am very excited which city officials believed were preying on about it. I plan mostly to listen today, because people. Citicorp had to hire two former pawn we have assembled some of the best-informed shop owners to help them form the retail busi­ thinkers in and around the industry that I have ness. Consumer lending is now the mainstay of seen in a long time. Citicorp’s business. But it did not happen nat­ At the risk of delaying the proceedings, I urally or easily. want to compliment the Comptroller for com­ The country has moved beyond that great ing up with this idea in the first place. This is vision of the democratization of credit to the another example of the leadership he has democratization of services. I believe that here­ shown. I remember the first time I met you, in lies an enormous opportunity, and our Gene, in your office. You quickly said that you focusing on the issues today can provide a basis had a couple of things you needed to do, first, for furthering that opportunity. to move forward on CRA and fair lending, and The third thing I wanted to say is, that we do second, to make sure the banking industry was not want to be in the position of implying that not an anachronism. You have done wonders “We’re the government, we’re here to help on both issues and on behalf of our board I you.” Although government can play a positive compliment you. role in terms of bringing people together to We have developed a good formula for discuss what can be done, in truth, government today’s agenda. First, we will put some facts on can also play a negative role. the table, so that we are not proceeding from a Thomas Norton of Western Union told me mythological base. Second, we need to discuss last night that as a business matter, company the business climate from both the private and executives literally pinpoint the location of public sectors’ perspectives. Third, similar to a Western Union on a map of the United States Venn diagram, we want to identify the intersec­ to ensure that its presence is everywhere. They tions and see what is possible. There is a lot to believe that having a broad geographic spread be learned. As Gene said, this forum is a learn­ is the way to do business most sensibly in order ing experience to which I am looking forward. to serve the customer. Now, the reason why banks do not follow suit is not a matter of stu­ pidity or venality, but rather of government

2 Defining the Market

What market research is being conducted on financial service needs of nonbanked households? What are the findings? Who are the nonbanked and what services do they use? What is their current level of activity? What more needs to be known? Characterizing the Nonbanked Population Several participants drew from survey data to characterize the nonbanked population, while others presented findings from focus groups or more anecdotal experience. Based on this information, a variety of hypotheses were presented on why nonbanked households do not use banks and why they use alternative financial institutions and informal financial services.

I will spend a few minutes reviewing the research that gov­ JOHN ernment agencies and others have conducted on defining CASKEY, the unbanked. First, I would have to say that we do not know Swarthmore College the percentage of the population that is unbanked. The Yankelovich Monitor database says 6 percent. The Federal Reserve’s Survey of Consumer Finances says 13 percent. The Population Survey of Income Dynamics, which focuses on lower-income families, says 22 percent. (All of these mea­ sures are weighted to represent percentages of the overall population, not of the particular group surveyed.) So we do not know the exact percentage. The Survey of Consumer Finances’ estimate may be a good guess, since it is in the middle of the range. There is more agreement on who are the unbanked. Every­ one agrees that they are primarily low- and moderate- income families, with household incomes of $25,000 and less. They tend to be less well-educated than the overall population; that is, families headed by someone with a high school degree or less. The household head is more likely to be younger than is true in the overall population, say, younger than 35 years old. Household heads over 60 years old are more likely to have bank accounts. The heads of unbanked households tend to be non-white and to rent rather than own their homes. Interestingly, we do not have

3 FINANCIAL ACCESS

any information on the breakdown of rural and savings services, so if people do not need versus urban. the savings services, they do not use banks. A consensus is emerging from the surveys Instead, they buy only the payment services. that address the question of why the unbanked The second reason they do not use banks is do not use banks. The foremost reason seems that they do not like bank fees, particularly to be that they have no financial savings at the account fees. They do not maintain sufficient end of the pay period. They live from paycheck funds to avoid those fees. People who have low to paycheck. Banks bundle payment services balances in their accounts are inclined to bounce checks and incur TABLE 1 bounced check fees. A CHARACTERISTICS OF HOUSEHOLDS third major reason is WITH AND WITHOUT DEPOSIT ACCOUNTS that they want to keep SELECTED AREAS, 1996 financial records private to avoid government attempts to enforce child Households Households support judgments or to without with evade debt collectors, Deposit Accounts Deposit Accounts immigration officials, or Percentage Number Percentage Number taxes. A smaller category of people are merely Age: uncomfortable dealing a. 18-24 4.6 9 5.9 41 with banks. Finally, some b. 25-34 22.2 43 25.0 174 say that banks will not let c. 35-49 32.0 62 32.5 226 them open an account, d. 50-59 37.6 73 34.2 238 and I presume that they e. 60 or older 3.6 7 2.3 16 have a history of bounced checks and out­ Highest education level: standing debts. a. No high school degree 20.2 40 9.4 66 One myth that I b. High school or GED 44.9 89 38.8 271 believe is important to c. Vocational/technical school 13.1 26 10.6 74 correct is the view that d. Some college 12.1 24 19.0 133 people do not use banks e. Two-year college degree 4.0 8 8.7 61 because they lack physi­ f. College degree or more 5.6 11 13.4 94 cal access to them, that banks are not located in Annual household income: low-income areas. This a. Less than $5,000 17.2 31 6.6 44 may be important in b. $5,000 to under $10,000 20.6 37 9.1 60 some areas, but not c. $10,000 to under $15,000 22.8 41 17.7 117 nationally. Plenty of d. $15,000 to under $20,000 17.2 31 20.8 138 check cashing outlets are e. $20,000 to under $25,000 20.0 36 39.1 259 located directly across f. Over $25,000 2.2 4 6.6 44 the street from banks, or even in some cases inside Race or ethnicity: the bank, and people a. White 39.8 74 64.0 440 still go to the check cash­ b. Black 49.5 92 27.2 187 ing window. c. Hispanic 5.4 10 2.5 17 The unbanked are not d. Asian 0.0 0 0.9 6 synonymous with the e. Native American 2.7 5 2.3 16 customers of check cash­ f. Other 5.4 10 3.1 21 ing outlets. Many of those customers are Source: John P. Caskey, “Consumer Financial Services and the Poor,” Swarthmore College, Draft paper, October 4, 1996. Collected from a telephone unbanked, but many oth­ survey in Atlanta, Georgia; Oklahoma City, Oklahoma; and five smaller cities in ers have bank accounts. Eastern Pennsylvania. The latter use check

4 FINANCIAL ACCESS

TABLE 2 USE OF FINANCIAL SERVICES BY HOUSEHOLDS WITH OR WITHOUT DEPOSIT ACCOUNTS SELECTED AREAS, 1996

Households Households without with Deposit Accounts Deposit Accounts Percentage Number Percentage Number Responding Responding Responding Responding Ye s Ye s Ye s Ye s Why no deposit account? a. Bank account fees too high 23.1 46 Which fee is the biggest problem? 1. Monthly account maintenance fee 40.0 18 2. Check-writing fees 20.0 9 3. ATM fees 11.1 5 4. Bounced-check fees 28.9 13 b. Banks require too much money just to open an account 22.1 44 c. Don’t need account because we have no savings 53.3 106 d. Not comfortable dealing with banks 17.6 35 e. No bank has convenient hours or location 8.5 17 f. Banks won’t let us open an account 9.5 19 g. We want to keep our financial records private 21.6 43 Where do you usually cash checks? a. Bank, savings and loan, or credit union 48.5 96 91.0 636 b. Grocery store 23.2 46 3.4 24 c. Convenience or liquor store 4.5 9 0.6 4 d. Check-cashing outlet 17.2 34 1.0 7 e. At employer 1.5 3 0.4 3 f. Somewhere else 1.5 3 0.9 6 g. Did not cash any checks 3.5 7 2.7 19 Does this place usually charge you a fee for cashing checks? 41.4 77 7.9 53 If you cashed a check this year, did you ever use a check cashing outlet? 45.5 87 13.2 89 If so, about how often? a. 1-5 times 45.7 37 69.4 59 b. 6-20 times 33.3 27 23.5 20 c. 21 or more times 21.0 17 7.1 6 How many times did you purchase money orders this past year? a. Never 15.8 29 52.2 354 b. 1-10 times 15.3 28 30.2 205 c. 11-30 times 29.5 54 10.2 69 d. 31 or more times 39.3 72 7.4 50

Source: See Table 1.

5 FINANCIAL ACCESS

cashing outlets, because they have so little vices? It is useful to think about four different money in their account that when they get their financial services: check cashing, savings, pay­ paycheck, they cannot take it to the bank and ments, and credit. The unbanked mainly use cash it immediately. The bank will insist that banks for cashing checks, even though many they deposit it and wait for it to clear. Still other banks charge fees. They also use grocery stores people use check cashing outlets for conve­ and check cashing outlets. Nationally, 10 per­ nience and are willing to pay for it. They want cent to 20 percent of this population are regu­ their cash right away, and the check cashing lar users of check cashing outlets. outlet may be right across the street from where Cash is the main form of savings for the they work. unbanked. Other forms are household goods Where do the unbanked obtain financial ser- or precious items, such as jewelry. In many low- income communities there are stores that buy TABLE 3 and sell gold. For the HOUSEHOLD USES OF CREDIT unbanked, that becomes SELECTED AREAS, 1996 a form of saving. Households About 60 percent to 70 percent of the unbanked Percentage Number Number purchase 10 or more answering responding answering money orders a year. “Yes” to question “Yes” Check cashers note that Have a Visa, MasterCard, many customers cash Discover, or Optima credit card? 48.7 900 438 their checks and purchase If so, is it secured? 18.2 424 77 a variety of money orders Personal loan from bank or to pay bills, plus one S&L in past year? 8.6 899 77 made out to themselves, If so, was most recent loan because they do not want for less than $700? 20.0 75 15 to leave the check cashing outlet with a large amount Personal loan from credit union of cash. They make long- in past year? 5.1 900 46 distance payments with If so, was most recent loan money orders or wire for less than $700? 23.3 43 10 transfers. They use utility Personal loan from finance bill payment services company in past year? 10.1 899 91 operating at check cash­ If so, was most recent loan ers, grocery stores, and for less than $700? 56.3 87 49 convenience stores. Received payday loan from check The unbanked have a cashing outlets in past year? 1.2 900 11 large need for consumer credit. Most of them have Had “auto title” loan in past year? small financial savings (Only asked in Georgia) 9.1 187 17 and no financial margin Received pawnshop loan in of safety. When bad past year? 5.0 900 45 things happen to them — If so, how often: a job layoff, an illness in a. 1-3 times 71.1 32 the family — they need b. 4-10 times 24.4 11 consumer credit to c. 11 or more times 4.4 2 smooth consumption Used rent-to-own in past 2-3 years? 5.4 900 49 over time. Many of the If so, did you intend to unbanked also have bad purchase rented item? 73.5 49 36 credit records, which accompanies the lack of financial savings. Very few Source: See Table 1. of the unbanked have

6 FINANCIAL ACCESS

general-use credit cards, although many have which U.S. households are involved in the store credit cards. formal financial sector. For emergency cash, they find extra work. The following charts depict deposit owner­ They also juggle their bill payments, paying ship patterns and are based on data from the the most pressing bills first and delaying oth­ Federal Reserve’s 1992 Survey of Consumer ers. They approach family, friends, or employ­ Finances, the most recent data available. The ers when they need to borrow money. Sec­ first two charts refer to household ownership of ondary sources of loans are financial institu­ deposit accounts — total balances held in any tions, small loan companies, pawn shops, rent­ kind of deposit account (savings, checking, to-owns, and some check cashing outlets, which money market, or brokerage accounts) and offer high-interest payday loans. held with any type of financial institution (such as banks, thrift institutions, credit unions, or CONSTANCE DUNHAM, Office of the brokerage houses). These charts show large dif­ Comptroller of the Currency: Households use ferences in the rates of deposit account owner­ a variety of formal and informal financial ship by households of different income levels, services, including savings, transaction, race, and ethnicity. insurance, investment, and credit services. As a Chart 1 indicates that substantial portions of result, no single indicator can summarize fully low-income households did not own deposit the degree of household involvement in the accounts, for example, 30 percent of all house­ formal financial sector. Deposit ownership is holds with less than $15,000 in household one, but only one, indicator of the degree to income. Many other low-income households

CHART 1 CHART 2 HOUSEHOLD OWNERSHIP OF HOUSEHOLD OWNERSHIP OF DEPOSIT ACCOUNTS, 1992 DEPOSIT ACCOUNTS, 1992 BY HOUSEHOLD INCOME BY RACE AND ETHNICITY

Percentage of U.S. Percentage of U.S. Households with Income: Households That Are: Asian & Other <$15,000 5 Black $15,000­ 30 13 30,000 Has no account Hispanic Has no account 26 7 $1-$200 in account 44 $1-$200 in account 75 White >$200 in account >$30,000 >$200 in account 100 100 45 51 74 85 77.5 80 80

52 77 95 77.5 60 60 13

40 18 40 20

42

Percent of Households Percent 20 12* 20 13 10 of Households Percent 29 10.0 30 8 2* 3 10 12.5 14 7 12.5 0 0 <$15,000 $15-30,000 $30,000+ All U.S. Hispanic Black Asian & White All U.S. Households Other Households

* Indicates a sample size less than 30. * Indicates a sample size less than 30. Source: Based on data from the Federal Reserve Board, Source: Based on data from the Federal Reserve Board, 1992 Survey of Consumer Finances. 1992 Survey of Consumer Finances.

7 FINANCIAL ACCESS

had deposit accounts with typical balances of and show that the patterns of checking account $200 or less. Many of these households did not ownership also vary with income, race, and eth­ have balances large enough to obtain immedi­ nicity. They also show that over half of all ate availability of funds from their deposited households currently without a checking paychecks, and some may have cashed their account had held one in prior years, indicating checks at alternative financial institutions, such that, for many, there is no absolute bar to own­ as check cashing outlets. In contrast, almost all ing a checking account. The data do not reveal of the households with incomes of more than why those households stopped using checking $30,000 owned deposit accounts with balances accounts. Some may have found that the bene­ exceeding $200. fits were not worth the cost. The accounts of Chart 2 shows the patterns of deposit owner­ others may have been closed because of repeat­ ship for households that differ by race and eth­ ed overdrafts or other misuse. The best we can nicity. Again, we see some profound differ­ say is that the data indicate the degree of mis­ ences. Large portions of Hispanic and black match between product design and patterns of households had no deposit accounts. In con­ customer usage. trast, almost all white households owned deposit accounts, and the great majority of KENNETH ROSENBLUM, Chase Manhattan these held total balances exceeding $200. Bank: We see a fair amount of diversity in what The last two charts refer exclusively to we call “unbanked potential clients.” To give households lacking checking accounts in 1992 you a sense of this diversity, it was not unusual,

CHART 3 CHART 4 CURRENT AND FORMER CURRENT AND FORMER HOUSEHOLD OWNERSHIP OF HOUSEHOLD OWNERSHIP OF CHECKING ACCOUNTS, 1992 CHECKING ACCOUNTS, 1992 BY HOUSEHOLD INCOME BY RACE AND ETHNICITY

Percentage of U.S. Percentage of U.S. Households with Income: Households That Are: Asian & Other <$15,000 5 Black $15,000­ 30 13 30,000 Never owned Hispanic Never owned 26 8 Former owner Former owner 44 75 White Current owner Current owner >$30,000 100 100

52 59 85 91 84 80 80

64 85 96 84 60 60

40 16 40 16 16 Percent of Households Percent 20 20 20 9 of Households Percent 32 25 9 10 9* 72 1* 2 5 8 6* 8 0 <$15,000 $15-30,000 $30,000+ All U.S. 0 Hispanic Black Asian & White All U.S. Households Other Households * Indicates a sample size less than 30. * Indicates a sample size less than 30. Source: Based on data from the Federal Reserve Board, Source: Based on data from the Federal Reserve Board, 1992 Survey of Consumer Finances. 1992 Survey of Consumer Finances.

8 FINANCIAL ACCESS

though not the norm, to sit in focus groups and income consumers. We found great diversity hear customers of check cashers talk about within this population. their mutual fund accounts. For example, we found that Hispanics were We also give credence to the cultural norms much less likely to be tied into the formal related to why people remain unbanked. Some financial network than were certain other people elect to cash their checks to preserve ethnic groups. We also found large differences their privacy and prerogatives. They may among groups in attitudes, ages, and incomes. believe that what they earn belongs to them, So combining all these people into one group and they want to keep that a secret. For exam­ may not be a good way to discover what it is ple, some may cash their check, take the over­ that they really need. time pay to spend as they like, and make avail­ able the rest of the paycheck, the base pay, to (The discussion of nonbanked households by Paul the family unit. Hammond of Yankelovich Partners has been with­ Another dramatic finding of our research is drawn because the firm is not confident that the that check cashers are far superior to banks in underlying data represent a reliable portrait of the terms of the days and hours they are open for nonbanked, and the firm plans to develop more reli­ business and their ease of access. Many banks able data.) close at three o’clock in the afternoon, while most people leave work much later. People are MICHAEL SHERRADEN, Washington Uni­ willing to pay for the convenience. We are versity: I am going to comment briefly on the spending much time and attention on improv­ poorest population, which has been my major ing access for our customers. focus. I do not have a lot of systematic research The research also revealed that many people about how people save. Most of my work has prefer using a check casher rather than a bank focused on the difference that having assets because they believe that they are being judged makes in people’s lives, which is a slightly dif­ by the bank teller. The bank teller’s request for ferent question from how people save. We have the customer’s identification and scrutiny of it conducted some in-depth interviews in St. made people uncomfortable. They were seek­ Louis with public welfare recipients and public ing a nonjudgmental interaction. In fact, they housing tenants, who were put in small group expressed a distinct preference for using samples of five and ten in different parts of the automation, such as ATMs, wherever possible city. I would like to give you some observations to avoid being judged. about their financial lives based on these in- The final issue that emerged is personal depth studies. security. People want to be comfortable that The poorest people have few economic their transaction is not observed, and they are options. They are living on the edge. A mini­ not exposed or put at risk when they leave the mal number have a relationship with a formal premises. That has become a major considera­ financial institution. In the past some of them tion in assessing our current channels and had a checking or savings account, but usually developing new ones, whether they be standard they do not have accounts when they are receiv­ branches, our checks-to-cash club program, or ing public assistance or living in public hous­ supermarket banks in low- and moderate- ing. As Carol Stack found in the 1970s, this income areas. population still relies on friendship. The risk is I would estimate about 7 percent of the resi­ pooled because they rely on one another. If dents in the New York metropolitan area mar­ they run out of money, they borrow from ketplace are unbanked. Our research, which friends or relatives. As Professor Townsend includes both focus groups and quantitative found, there is a lot of “reduction of consump­ analysis, corroborates many of the same char­ tion,” which means that in a crisis, their con­ acteristics mentioned already in terms of sumption level goes down until they can re­ income, ethnicity, etc. establish a little bit of income.

PAMELA FLAHERTY, Citicorp: Citicorp’s ROBERT FRIEDMAN, Corporation for Enter­ perspective comes not from conducting prise Development: Most of my experience research on the unbanked per se, but as a bank over the last 20 years has been looking at how looking at marketing to low- and moderate- low-income people move forward economically.

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I do not have definitive data. My information is building in the microenterprise field and to cite anecdotal and impressionistic, but it is impor­ some of the research that Professor Sherraden tant in that it focuses on the behavior of people has provided about saving among poor popula­ who are moving forward. tions. I do not think that poor peoples’ latent Saving is not encouraged by the culture. Sav­ interest in saving can be underestimated. This ing is not easy, especially in low-income com­ interest is not endorsed in this country. munities, where few incentives to save exist. So I find it is useful to look at programs that give Immigrants and Foreign some support to saving. My experience is most­ ly with the microenterprise, or self-employ­ Remittances ment, movement in this country; with savings Foreign remittances are an important payments groups; with individual development accounts service for many immigrant households. (IDAs); and with asset-building. Participants discussed the implications of foreign People complain that they do not have a remittances for understanding the financial place to save. Frequently, loans made to a par­ service needs of nonbanked households. ticipant were dissipated to friends and family members whose claims in a financial crisis can MARTIN LIEBERMAN, Community Curren­ be overwhelming. We also found a desire by cy Exchange Association of Illinois: The His­ these persons to repair their credit histories, panic community studied by Professor Town- and to establish relationships with banks. They send, is extremely unique. Hispanics tradition­ often take that as a point of honor, even if they ally have very strong family ties. Even though have to pay taxes as a result. the concept of a “mattress bank” may apply in The poor are often offered lesser incentives some of the other poor communities, Hispan­ to save than the non-poor. I had an experience ics send money back home. 30 years ago, when I was lined up behind sev­ The vast majority of Hispanics are here for a eral middle-aged African-American women short period of time, to make money and send who were depositing money into a Christmas it to their families. Often the money to open a club account. I remember (not understanding business comes from Mexico. Conversely, we information and transaction costs) asking the sell money orders to Hispanics regularly and a teller what interest was paid on these accounts. great portion of the money returns to Mexico She said, “Oh, no. This is a service we provide. via Western Union. We don’t pay interest.” So the Hispanics’ relationship to banks is We found a lot of reinvestment in small busi­ unique. They do not believe that they are going nesses. We were concerned that people were to be here long. They do not want to establish drawing out less income from their businesses a relationship. They come to the United States than they could afford. We asked why and were to support their families abroad. told, “Don’t you see, I’m reinvesting in the busi­ ness so that I can grow it, so that tomorrow I can ROBERT TOWNSEND, University of Chica­ get more back.” We found, particularly among go: Although some Hispanics may not have low-income microentrepreneurs, including wel­ formal relationships with banks because they fare entrepreneurs, that asset build-ups were send a lot of money to their homes outside of much larger than we expected, both in the busi­ the U.S., the average residency of Hispanics in ness and personally. Two-and-a-half years after our study was 16 years. This indicates that certain welfare recipients had started business­ many Hispanics also have a long-term strategy es, they had accumulated about $5,000 in net of establishing residency and citizenship in the business assets and $9,000 in gross personal U.S. assets that they did not have before. We also have “nonresident” Hispanics who run businesses from outside of Little Village. LISA MENSAH, Ford Foundation: Some excel­ This subgroup is more upper-income, more lent research on the unbanked population has fluent in English, and more connected with been presented today. I think that foundations others outside the Hispanic community. should support more of this research. I would like to reiterate some of the evidence EDWARD FURASH, Furash Associates: We that Robert Friedman has shared about asset should remember Harry Truman’s saying:

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“The only thing new in the world is the history save if you use coupons or buy at secondhand you don’t know.” We cannot ignore history stores. when we talk about the unbanked, because the Savings, as it is understood by welfare recip­ problem of reaching and serving them has a ients is almost always short-term savings. For long history. welfare mothers it often means saving for a For example, this discussion of foreign re­ child’s winter coat, for something needed for mittances makes it seem as if it were almost a school, or for money for a school trip. Those brand new problem. But foreign remittances considerations are important to welfare fami­ were a substantial activity in the 19th century, lies. beginning with the Chinese immigration. In those households there is almost no dis­ Thousands of men from China came here to cussion or hope for long-term savings. The work on the railroads and to send money back welfare rules have discouraged long-term asset to their families. That did not prevent the Chi­ accumulation. I am pleased to say that welfare nese community, over time, from becoming a rules limiting assets are beginning to be eased major force in the world of commerce in some in the 1990s. More than 40 states now have parts of this country. The Chinese accom­ raised their asset limits. I believe that changes plished that by pooling funds in the communi­ ty. So a concern that foreign remittances might harm an immigrant’s ability to build a life here …if the instruments is not historically based. The other waves of immigrants who came are appropriate, there is a demand from 1890 to 1923, until passage of the immi­ for savings in a gration restriction acts, also sent large amounts very low-income population. of money home. The fact that many immi­ grants come here today to support their fami­ lies at home is not a new phenomenon. Nor have taken place largely because of the recog­ should it be used to criticize whether or not nition of the need for low-income households immigrants also start businesses here. They to be able to accumulate assets. came here to support their relatives in their What would facilitate savings in this popula­ native lands or to bring them here. That is tion? Some may believe that savings in this what America is all about. population may not be possible. I do not agree with that view, although my belief is not sup­ Savings and Insurance for ported by much empirical evidence. We must Short-Term Emergencies and conduct more demonstration programs with Long-Term Goals different financial instruments. Participants discussed whether there is untapped I refer to the work of Marguerite Robinson, whose paper is included in the forum back­ demand for saving by low-income households; the ground materials. She interviewed low-income purposes for their saving; and the implications for Indonesians about desirable savings vehicles. the design of new vehicles to respond to those The People’s Bank of Indonesia (Bank Rakyat needs, to stabilize their economic positions, and to Indonesia, or BRI) developed six or eight sav­ support asset accumulation for their economic ings instruments for different purposes. The advancement. population showed by their responses that an extraordinary latent demand for savings exist­ MICHAEL SHERRADEN, University of Wash­ ed in Indonesia. I think the BRI now has 12 ington: My primary interest has been savings. million savings accounts: about six savings The unbanked do not constitute a population accounts for every credit account. This is con­ that typically thinks about savings. Low-income vincing evidence that, if the instruments are people will tell you that they do not have appropriate, there is a demand for savings in a enough money to save. Even the word “sav­ very low-income population. ings” means something different to them, so I have several observations from an experi­ more ethnographic work must be done. To very ment with electronic benefit transfers (EBT) for poor welfare populations, the word “savings” welfare recipients in a St. Louis neighborhood. means, foremost, efficient consumption. You EBT will be available for that population and

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represents a huge opportunity to bring finan­ the difference between long-term savings ser­ cial services, not only benefit transfers, but also vices and liquidity management services. a range of financial services, to this population, Yankelovich data indicate that people general­ resulting possibly in greater savings. ly want to save to protect themselves against Anecdotal evidence from both those working emergencies, for an annual vacation, and for in the EBT system and participants revealed children’s futures. Those desires will motivate that participants tended to have some money people regardless of their cash flow. But John left at the end of the month. Most of the welfare Caskey spoke of the need for liquidity manage­ population does not even reach the end of the ment services. month before having to rely on food pantries. Traditional bank accounts marry those two The EBT money was kept a bit separate and not types of services, so the longer term savings as available to the demands of friends and fam­ (i.e., required cash balances) provide a cushion ily. So a population that typically has no money for liquidity management. The banking system left at the end of the month had a little bit left. is structured so that if no cushion exists, your This provides some evidence to support the check will bounce or you will have to pay fees development of EBT systems that structure, and penalties. and perhaps even give an incentive for, savings So it seems to me that offering savings ser­ as a segregated part of the account. vices that appeal to longer term needs some­ Individual development accounts (IDAs), what separately from those that meet liquidity which involve matched savings, provide large management issues will be a key to developing incentives for savings at low-income levels. The a service structured for this population. This matching amounts can come from either pub­ service would appeal to the undeniable desire lic or private sources. We can also be creative of people to save for the longer term, which in about incentives associated with savings that turn would support the liquidity management provide some fun, because there is little money needs. The two functions would be provided, in these households for any kind of entertain­ but would not be so closely tied together that ment. Perhaps we can provide incentives that liquidity management fluctuations negate allow people to have movie tickets or a coupon longer-term savings. to eat out at a local restaurant. About nine out of 10 welfare recipients we ROBERT TOWNSEND, University of Chica­ interviewed said that they would save if some­ go: Our survey in Little Village, Chicago, shows one matched their savings one-to-one. that nonbanked people are interested in better Although we do not have much empirical evi­ ways to cope with emergencies. One motive for dence for this, the Corporation for Enterprise savings, for example, is to buffer emergencies Development is starting an IDA demonstration and shortfalls. That was one of the most impor­ program at 10 sites and will conduct a long- tant distinctions between the populations of term evaluation of how much people can save banked versus nonbanked. in IDAs. In the Indonesia experiment, savings Besides the surveys and neighborhood stud­ accounts multiplied rather dramatically after ies, we also need more demonstrations of par­ BRI introduced new savings instruments. A key ticular instruments or programs that facilitate feature of those instruments was that the savings and to conduct carefully-controlled depositor could withdraw the money at any studies on their effects. time. For example, the bank allowed people to withdraw savings on demand for holidays, such ELISABETH RHYNE, U.S. Agency for Inter­ as Ramadan, an important Islamic event. With national Development: Coming from the inter­ this assurance, savings would accumulate, national perspective, I am very familiar with decline during Ramadan, and accumulate Marguerite Robinson’s experience in Indone­ again. A product was offered to meet seasonal sia. Initially, a large unbanked population there needs as well as emergencies. In contrast, many did not save in banks. The instruments that BRI nonprofit organizations are promoting a type developed to meet that need were connected of mechanistic savings. They assume that the closely to transaction services; they were simple poor do not know how to save, that they have savings products with various liquidity features. to be taught to save, and that they should save I am struck in listening to this discussion by regularly and accumulate funds.

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What products do we have in this country to able to the less-well-off than are offered to enable low-income communities to cope with higher-income customers. More products have risk? Savings is one way to meet the high risk been designed that meet credit needs than sav­ they often face, especially if it has the right ings needs. I would like to ask Professor costs and attributes. Insurance is another Townsend what kind of evidence he has about method. For example, consumer the degree of satisfaction or dissatis­ finance companies could offer con­ faction with the mattress bank option. sumer loans that require customers to How did survey respondents charac­ buy life, disability, unemployment, and terize their savings options? other insurance. That mechanism, Is the once in place, could be expanded, so mattress ROBERT TOWNSEND, University that the insurance costing a higher bank of Chicago: Unfortunately, the premium could provide larger myth or answers to that await us. Our survey amounts of compensation and be was factual, finding out about the sav­ adapted for other circumstances. reality? ings experience of the household cur- There are institutions that currently rently and in the past, how house­ offer insurance in small amounts to the holds coped with hard times, and how low- and moderate-income population. they got businesses started. We did We know how to do that. Can banks do it? not venture much into the territory of opin­ ions. We plan to ask this in focus groups. HAL NIERNBERGER, HALsystem, Inc.: The core issue here is that no receptacle exists for RICHARD HARTNACK, Union Bank of Cali­ savings for the poor. Basically, their only vehi­ fornia: It is unclear to me whether, in fact, cle is the instrument known as the “mattress there are barriers to savings that we are pre­ bank.” Savings accounts, even credit union supposing in this conversation. Is the mattress accounts, are designed for people who are bank myth or reality? Do we really have poor already in the system. The basis for saving must people living in neighborhoods with house­ be a vehicle that offers transaction services as holds full of cash? I do not think so. well as the capability of laying away funds for You must recognize that we have many dif­ future investment or savings, not formal sav­ ferent populations here, from older people ings, but a replacement for the mattress. who have no desire to start a business or save money, to urban and rural persons, and every­ DONALD NEUSTADT, Ace Cash Express: We thing else. When my bank put together what I try to facilitate transactions for our customers would describe as a “barrierless” savings and they come back to us and say, “We would account — no minimum balance, no fees, no love to be able to save through you.” I am not nothing, just put money in regularly — the necessarily saying that such households will product appealed to only about 30 percent of begin a long-term savings program for the next the households in the check cashing segment. generation, but these persons do recognize So is the presupposed desire to save univer­ that they have a responsibility to put aside sal? Even if only some of these persons want to some funds. Based on the findings of focus save, what are the barriers to savings? Can we group research, I believe that many people overcome them by offering the savings would be interested in a service that would account, which is an incredibly simple product, allow them to save a portion of the check they in another environment? Do people not save are cashing, as long as they have reasonable because they do not want to come to a bank? access to it. Could we offer savings accounts through check cashers or liquor stores or other outlets? KATHARINE MCKEE, Self-Help: In reading the background materials, in listening to con­ KATHARINE MCKEE, Self-Help: I can offer versations, and in becoming acquainted with one example to answer your question, Mr. Professor Townsend’s research, I was impressed Hartnack. Durham, North Carolina, has a that there seems to be more of a discontinuity rapidly growing Hispanic population. In the in savings instruments than in the lending last month, the newspaper has carried an area. Relatively few savings options are avail­ account every three or four days of break-ins by

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a violent bunch of thugs into houses inhabited ent directions rather than to a central core of by several Hispanic families or an extended funding each other. family. As much as $1,000 was taken in some of The diminution of prejudice has acted these robberies, which are now being called against the formation of self-help groups. Self- “home invasions.” I was startled by that figure help groups in the last wave of immigration and by the level of savings that that represents basically were fostered by prejudice. As a result for people who have not been long-settled in new residents to the United States were afraid our area. that bank employees were not going to give them any money, and that they would have to PAMELA FLAHERTY, Citicorp: Many persons look elsewhere. Now it is easier to get money, in the mortgage business, in formal financial but the process is not necessarily better. I institutions, have now recognized informal believe that for community-based solutions, group savings as a legitimate way for persons to one should look at communal self help. Bank- produce down payments. The informal groups community partnerships are crucial in the with which I am most familiar in New York are absence of self-help funds pooling, because a called sou-sous. West Indian and Caribbean bank cannot have the force of the community. persons meet in these groups to save money. When a group accumulates the first targeted What More Needs To Be Known? amount of money, say $3,000, one member is given those funds to use as a down payment. JOHN CASKEY, Swarthmore College: What The members continue saving until everyone additional information do we need to under­ has received funds for their down payments, stand further the problems of the unbanked which they make through formal institutions. and underbanked? All the current surveys are This is an example of a linkage between the imperfect. A large-scale household survey tar­ informal and formal sectors. geted at low-income people should be conduct­ ed, as well as in-depth neighborhood studies. EDWARD FURASH, Furash Associates: The We do not know much about rural-urban dif­ problem of financing the underbanked may ferences or about differences by specific demo­ not be question of less available funding, but graphic groups. Our current data are limited in rather of more choices of where to put money. terms of sample size. For example, some sur­ Earlier in our nation’s history, when the con­ veys have a sample size of a little over 200 straints on the underbanked were at least as unbanked people, which is too small for assess­ great as today, few banks were involved. Immi­ ing specific demographic categories. grants and underprivileged groups had few On the credit side, we do not know much savings and investment vehicles and were about variations in state regulations. States that forced to rely on their own community to pool have restrictive usury laws have fewer pawn funds and to borrow. shops, small loan companies, or payday loan Because of deregulation, consumers have businesses. We do not know who obtains credit in more places to put their money. They can states without those institutional sources of high- choose to keep it at home, in the community, in cost, high-risk credit. We also know very little a bank, or in a money mutual fund to earn a about how other countries deliver financial ser­ higher yield. Consumers wishing to protect vices to low-income persons with small savings. their own interests are trying to manage unan­ Finally, there is the issue of the cost of deliv­ ticipated consequences. They may believe that ering payment services to the unbanked. Those it is not as secure to put their money into a pool who cash their checks consistently at a check (where they may or may not be repaid by cashing outlet will pay more for payment ser­ neighbors they may not trust) as merely to put vices than those who maintain a bank account it into a high-rate bank certificate of deposit. and obtain services through the bank. There Although pooling vehicles still exist, they are are good reasons for that. If a customer has not working as they did in the past. Many of $1,000 in the bank and cashes a check, the the people who could use them have safer bank is not really taking the risk, since it has investment alternatives; local business invest­ the $1,000 balance as collateral. The customer ments are more complex than they used to be; who maintains a savings account lowers the and their communities may be drawn in differ­ bank’s cost of providing payments services.

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So if we are interested in lowering the cost of not know how to increase the savings of low- financial services to low-income consumers, we income households. For example, we do not should encourage them to build financial sav- know which of the many consumer education ings. Here we need more research, since we do programs work well.

15

Formal and Informal Financial Services

Robert Townsend, professor of economics at the University of Chicago, presented the following address to forum participants based upon his ongoing research in a low- to moderate-income Chicago neighborhood. He emphasized the importance of understanding household behavior better, the causes of community development, and financial activity in low-income communities to develop more effective financial sector innovations and government policy.

ROBERT I do not think there is much dispute that the higher one’s TOWNSEND, income is, the more likely one is to use checking and savings University of Chicago accounts and other financial services. We should, however, focus, not only on income levels, but also on the growth of income and its fluctuations. Our country’s economic devel­ opment has been aided in no small part because of our strong financial infrastructure. But if not everyone partici­ pates in the financial sector, we will have growth with inequality, with some people lacking access to educational, occupational, and other opportunities that enable them to advance. Growth with inequality has engendered a variety of efforts to improve access. In the public sector, the federal govern­ ment has responded with the Community Reinvestment Act (CRA) and the Equal Credit Opportunity Act (ECOA). In the private sector, nonprofit organizations carry out much com­ munity-level activity, as do banks. Even beyond CRA require­ ments, many banks and other financial service organizations now view the middle- and low-income market as an oppor­ tunity to carry out profitable activities. Beneath the surface descriptions of low- and moderate- income neighborhoods are more fundamental issues of sup­ ply, demand, and economic barriers. To be more effective, governments, banks, and nonprofit organizations should define clearly their understanding of people’s behavior and

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subject that understanding to facts. This would Nonprofit organizations include ACCION provide a more useful framework for designing International, which opened in Little Village a and evaluating financial sector innovations, couple of years ago to extend its services to low- government policy, and notions of community income Hispanics. ACCION carried out a mar­ development and social welfare. keting survey in advance to determine whether This approach differs from the measures to enter that marketplace. About 96 percent of typically used to evaluate community develop­ the households responding to this survey said ment and social welfare, such as the number of that they would appreciate having a microcred­ customers, the volume of credit, and the per­ it lender in the neighborhood, indicating the centage of credit denials. Neither those mea­ existence of a large latent demand for small sures, nor simple correlations linking income loans. ACCION has gotten off to a relatively and financial service use, are the kinds of key slow start in Little Village, however. Its group facts upon which we should focus. We will not lending approach never took hold, although it improve matters by trying to undo those corre­ has made loans to individuals. lations, but rather by going beneath their sur­ face to better understand household welfare Liquidity Constraints and the causes of community development. In our research we used a conceptual model The measures that are the most important are of people’s behavior. If shown to be consistent based on a good understanding of the needs of with the facts, the model can underlie useful households and small businesses, and the actu­ government policies and financial innovations. al situation in which they operate. It presupposes that while the economy grows, Along with two of my colleagues at the Uni­ people discover potentially profitable invest­ versity of Chicago, Richard Taub and Marta ments, such as new occupations or small busi­ Tienda, I have tried to do that by studying the nesses. Since these investments require money, low-income people without access to sufficient sources of credit cannot invest in these oppor­ tunities. Instead, they remain low-skilled, low- A policy that encourages saving wage workers. could be important for Conversely, other people, by dint of inheri­ long-run economic growth and tance or good fortune, have sufficient funds to increased equality. invest in high-profit opportunities. On aver­ age, they earn high profits, which they reinvest. Their companies grow, their sons and daugh­ ters have access to money, which they reinvest, needs of households and small businesses in and so on. That process does not continue for­ Little Village, also known as South Lawndale, a ever, however, as wages eventually rise and low- to middle-income neighborhood in Chica­ workers can slowly save their way out of liquid­ go. We interviewed 327 Hispanic households ity constraints. Over time, their income growth and 235 Hispanic businesses, as well as a large approaches overall economic growth, leading number of Koreans in that neighborhood. Our eventually to a reduction of inequality. effort is complemented by the work of John We collected data to test whether this model Caskey, who has obtained detailed information, of economic growth provides an accurate pic­ which we have not, about currency exchanges ture of Little Village. First, we found that busi­ (check cashing outlets), consumer finance insti­ ness start-ups in Little Village are profitable. tutions, and other financial institutions that For every dollar spent in start-up costs, a busi­ operate in similar neighborhoods. ness earns on average about 70 cents per year Little Village has banks lining the streets: in profits. The risk of business failure exists, commercial banks, savings and loans, and with about 62 of the 235 businesses surveyed other financial service institutions, all of which replying that they were in danger of failing compete heavily with one another. One bank over the business’s lifetime. Even adjusting for recently renamed itself Banco Popular in an that risk factor, however, 70 cents to the dollar attempt to increase its client base. Yet there is a suggests that profitable business opportunities belief that none of these banks has succeeded exist and businesses can grow in Little Village. in penetrating the neighborhood. Among the households who took concrete

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steps to start businesses, but did not eventually mediation in the community, so that those do so, 50 percent of our survey respondents who have funds and choose not to invest cited lack of credit and loan rejections as their directly can, through intermediaries, lend principal problem. That information is consis­ the funds to those who face limited access or tent with our model. Moreover, of the business­ constraints. es that did start up in Little Village, 58 percent began entirely with the owner’s own savings, Thus, a key issue relates to liquidity con­ that is, without any loans at all. Others straints: the ability of some, but not others, to obtained help from sources in the informal get financing for education, occupational financial sector, such as friends and relatives. choice, or small business formation. When Business start-ups were rarely financed with credit is limited, savings becomes important. loans from banks. However, rather than discuss the relative mer­ The dollar magnitude of the start-up costs of its of credit and savings, I want to stress the businesses was strikingly different for different importance of improved financial intermedia­ ethnic groups. The following are ranked from tion that should guide both financial innova­ lowest to highest in terms of business start-up tions and public policy. costs: Hispanic residents of Little Village, His­ panics who are not residents of Little Village, Risk Allocation Asian-Arabs, and whites. Differences between Now consider other elements of the eco­ the Korean and Hispanic communities account nomic growth model. For example, if higher- for part of the discrepancy in start-up costs. income households have greater access to the Korean business owners reported they finance financial sector than lower-income households, their larger business start-up costs with greater we should expect overall economic growth to personal savings and borrow from other Kore­ increase, with growing inequality. ans through business partnerships. All households face a choice of whether to enter risky occupations (or invest in education, The implications of this framework are that: small businesses, etc.) or to stay with “sure­ thing” occupations, which tend to have low and • Policymakers should realize that a policy that fairly stable wages. Staying with “sure thing” encourages savings could be important for occupations reduces risk, but also limits the long-run economic growth and increased accumulation of assets. Households can reduce equality. We should explore the barriers to risk by obtaining services from the formal savings to determine whether we can financial sector, even though they may have to increase the facility and use of savings incur certain costs to gain access. They may, for instruments throughout the population. example, obtain a conventional insurance poli­ cy. Or, they may receive “implicit insurance” by • In our study we found that networks in the obtaining a loan with flexible repayment terms, informal sector often financed business entry such as postponed payment options, or the in some population groups. Perhaps we possibility of extending maturities to avoid for­ should consider how to lessen the liquidity mal default. constraints for members of other population Both insurance and flexible loan arrange­ groups that contain fewer networks. We ments enable households to allocate better the could encourage the formation of more net­ risks from financial setbacks to which they are works. We also could investigate whether and exposed. By sharing, or reallocating, these how formal financial institutions can substi­ risks, their incomes are more stable. They are tute partly for the lack of such networks. But better able to invest in high-risk, high-yield first, we need to understand better what occupations and businesses. Their higher aver­ these networks accomplish and how. age incomes allow them to save more, which they can then invest in high-yield activities, and • Most importantly, we need improved inter­ their incomes grow faster still. mediation, the flow of funds from savers to In contrast, many households with limited borrowers. We want to encourage savings funds may be unable to obtain formal financial and to use those savings for credit. But the sector services. Without the ability to share or real challenge is how to create more inter­ reallocate risk, such households are forced to

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be financially conservative. They tend to 5). Only 12 percent answered that they bor­ choose low-risk, low-gain strategies. When they rowed from banks, whereas about 32 percent of suffer economic setbacks, they generally reduce the households said they received gifts and consumption because they have no other way loans from relatives and 28 percent received to meet shortfalls. help from friends. About 33 percent deferred Households that accumulate savings have a payments on previously incurred loans, most of buffer to withstand economic crises, something which came from the informal sector. to draw on when they face financial setbacks. Only 50 percent of the households surveyed Households with more savings tend to be less had savings accounts and 21 percent had conservative financially. They are more likely to checking accounts at banks. These and other invest in high-risk, high-yield activities. Higher households who use banking services tended to average incomes allow them to save still more be richer, more fluent in English, and more and invest their savings in high-yielding invest­ connected to others outside the neighborhood. ments, contributing further to income and con­ Households that use banks in financial stress sumption. situations benefit because they do not have to The possession of savings also means that reduce their consumption as much as those the household may not need the formal finan­ without such arrangements. Households that cial sector for insurance services, either those reported using informal financial services tend­ provided by conventional insurance policies or ed to have lower incomes, to be less proficient implicitly by flexible loan terms. In effect, in English, and less connected to others outside households can obtain insurance from their the neighborhood. They also were less likely to personal savings. own a home or have a home mortgage loan. We tested this behavioral model to see if it These results show a classic stratification of applies to Little Village. We asked households household characteristics in Little Village. whether they had experienced a financial set­ Many households find themselves in a real back in the last five years. Fully two-thirds bind in hard times and often experience diffi­ answered that they had experienced serious cult periods. financial difficulties during that time, due most The policy implications of households’ often to unemployment, sickness, and the inability to reallocate risk follow: death of relatives (see table 4). We asked households what they would do in • Risk is very high for low-income households. a hypothetical situation of financial stress. More than half (139) said they would TABLE 4 go to a bank and try to get PRINCIPAL SOURCES OF FINANCIAL DIFFICULTIES credit, whereas 133 said AMONG HOUSEHOLDS they would use savings. So LITTLE VILLAGE NEIGHBORHOOD, CHICAGO, 1994-1995 banks are on the minds of these households: they are Problems Households aware of banks’ presence and the possibility of using Number Percentage them. (In contrast, the businesses that we sur­ Death or illness of relatives 127 38.8 veyed in Little Village were not eager to borrow from Unemployment or unusually low income 163 49.8 banks.) However, in practice, Increase in living expenses/dependents 125 38.2 these households do not use banks much. The sin­ Total households citing at least one problem 210 64.2 gle most common practice cited for getting by in hard Note: Because multiple responses are considered, sum of responses is greater times (36 percent of than total households responding. respondents) was to use Source: Philip Bond and Robert Townsend, “Formal and Informal Financing in a Chicago Ethnic Heighborhood,” Federal Reserve Bank of Chicago, Economic personal savings (see table Perspectives, July/August 1996.

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It is not uncommon for them to have to rocal gift giving, and so on. Our survey has decrease consumption when they suffer not documented exactly how such flexibility financial stress. When policymakers consider was accomplished. We need to hold focus social welfare issues, therefore, they should group meetings within the neighborhood to focus, not only on increasing the level of gather this data and to see if methods exist income, but also on improving security that the formal sector might possibly imitate. against fluctuations in income. TABLE 5 HOUSEHOLD RESPONSES TO • In practice, we do not FINANCIAL DIFFICULTIES find that households LITTLE VILLAGE NEIGHBORHOOD, CHICAGO, 1994-1995 (or businesses) use banks much for bor­ Response Households rowing or for deferring debt. So it seems that Number Percentage the formal financial sector is not playing Financial response (new source) much of a role in real­ Borrowed from banks or individuals* 25 11.8 locating risk. This sug­ Gifts or other assistance from relatives* 68 32.1 gests that we consider Borrowed from friends* 59 27.8 implicit insurance ser­ Gifts or assistance from friends* 28 13.2 vices, or perhaps even Borrowed from ethnic association* 17 8.0 explicit insurance poli­ Used credit cards 5 2.4 cies, for these low- and Transferred payments 28 13.2 moderate-income Received money/food from households. Insurance community organization 1 0.5 could either be com­ mingled with credit Financial response (existing assets) instruments or provid­ Used cash or household savings* 76 35.8 ed as a separate ser­ Sold assets* 17 8.0 vice. Delayed or failed to pay debts* 66 33.1

• Formal financial sector Labor response savings are used as a Works harder/increased hours* 88 41.5 buffer by many Little Got other job to tide over* 46 21.7 Village households. Put other family members to work* 25 11.8 Policymakers should therefore emphasize Consumption response savings as an impor­ Reduced household consumption tant financial instru­ expenditures* 97 45.8 ment. But we need to understand better the Other costs associated with Received nonmonetary help from relatives 2 0.9 having access to sav­ Somebody else will pay 1 0.5 ings and checking Other 20 9.4 accounts for low- None, because it did not cause income, non-English economic problems 14 6.6 speaking households. Migration 1 0.5

• Households in the informal sector appear *Responses explicitly mentioned as an option in the questionnaire. Notes: Total number of households responding = 212. to cope better with risk Because multiple responses are considered, sum of responses is greater than through the use of flex- total households responding. ible-term loans, recip­ Source: See table 4.

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Thus, a second key issue involves the reallo­ rich. This would imply that the poor would cation of risk. Banks allocate risk-bearing, but have greater access to capital than the rich. it is costly for many people to use bank services. In our conceptual model, however, we will Some observers have concluded that we should assume that the poor have limited access to focus on lowering those costs. However, much credit. This means that they are stuck in low- risk allocation is already occurring in the infor­ risk, low-yield, underfinanced occupations. In mal sector in ways that may be better suited to the short run, the economy experiences growth the needs of many households and small busi­ with inequality. In the long run, as the econo­ nesses. my accumulates capital, interest rates would This implies that policymakers should focus fall. This would lower the size of loan repay­ on improving access to savings as a method of ments, which would allow the poor to benefit insurance or on improving access to appropri­ more from the fruit of their efforts. This, in ately designed, formal-sector insurance ser­ turn, would increase their economic incentive vices. These are potentially important ways for to work harder, earn more money net of loan banking organizations to respond better to the repayments, save more, and become somewhat financial needs of low- and moderate-income wealthier. households. The poor may be able to improve their situ­ ation by creating their own groups. If they are Information, Incentives, and better able than outsiders to monitor each Financial Service Design other’s labor efforts, they may have a better A model of economic behavior and growth way to share risk internally without adverse dis­ might make the assumption that the poor have incentives. Under certain conditions, it may be less access to credit. One plausible scenario economic for formal financial institutions to assumes that, compared with others, the poor lend to a group rather than to the individual may need a larger loan to invest in education, members. In actual practice, we might see this a new occupation, or a small business because not as a formal group but as an implicit group; they have few assets of their own. If they obtain that is, one person with access to the formal a loan, they must repay a larger amount of sector would relend to his or her poor relatives. principal and interest relative to their expected We have not been able to collect data on this, earnings. however. This could make the prospect of borrowing Our survey of Little Village provides evi­ less attractive to the poor than to more finan­ dence that the poor have less access to credit cially independent households. The poor than others. We also have evidence of networks would face less of an economic incentive to bor­ and groups that vary by ethnicity. Examples row and work hard, because much of their reveal family members working together in a labor would be devoted to repaying the loan. A business; people forming partnerships by pool­ lower expected payoff, coupled with less work ing credit and other resources to go into busi­ effort, could increase the probability of failure. ness; and strong networks of co-ethnic suppli­ I am not putting this in pejorative terms. It is ers. The networks are stronger among those only that the poor will tend to find it less eco­ who have lower incomes, less English profi­ nomical to earn a return that exceeds their loan ciency, and less connection to others outside repayments. the neighborhood. Lender monitoring costs may exacerbate The networks are very real. Policymakers, this situation. If there are fixed monitoring bankers, and nonprofit representatives often costs per borrower, they will be relatively high think that a government agency, bank, or non­ for small loans. This gives banks less incentive profit organization is the only game in town, to make the small loans that poor households but this is not true. There is a lively Hispanic tend to borrow. informal sector with its own arrangements The model is sensitive to the exact nature of among family, friends, and suppliers. The private information incentives. For example, Koreans have another version that consists of another scenario could presume that the poor many more non-family professional business work hard to survive and that capital is com­ partnerships. plementary to labor, so that the marginal prod­ Lest I leave you with the notion that infor­ uct of capital to the poor is higher than to the mal groups offer a miracle cure, I want to

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emphasize again that when ACCION Interna­ lower costs to increase their access by the poor. tional went into Little Village to promote But informal sector information networks may microlending, group lending never began be more effective than formal sector efforts. despite the presence of these networks. Group lending arrangements may be effective The policy implications of these data indi­ ways for borrowers to obtain funds from formal cate that: financial institutions. Some persons may obtain credit or insurance from institutions and serve • We need to understand better the incentive as intermediaries to others who are not direct­ structures of financial services. ly linked. Although we have not measured them, these indirect connections to the formal • We need to understand better the conditions sector also may offer avenues to increase for effective group lending. Although group access. lending may work, it should not be viewed as In conclusion, policymakers, bankers, and a panacea. We must consider the possibilities nonprofit representatives may need to adopt of internal insurance, monitoring, and con­ innovative solutions to increase access to the tract enforcement among potential groups. formal financial sector. At this forum, I have heard two discussions of how check cashing • Policymakers and banks could consider pro­ outlets, which service those who apparently are viding formal loans to informal groups, not bank customers, are linked to banks, either using identifiable groups as intermediaries. vis-a-vis credit or check clearing operations. So In the Korean community, for example, one perhaps my dichotomy between the formal and can identify rotating credit associations. informal sector is overdone. Nevertheless, we Instead of lending only to individuals, banks need to draw the entire picture of the informal might also consider lending to this kind of and formal sectors before we decide that a rad­ informal financial intermediary. This seems ically underserved population exists. to be the thrust of the recent financial devel­ My major conclusion is that we should not opment community investment corporations examine simple correlations between income and the Community Development Financial and credit volume to assess social welfare, Institutions (CDFI) Fund that was recently introduce financial innovation, or develop gov­ created by law and is beginning to lend. ernment policy. Rather, we must try to develop a realistic picture of the processes in these com­ Lenders incur costs of developing informa­ munities. We should then base our notions of tion in screening loan applicants and monitor­ social welfare, financial innovation, and poten­ ing loans. If these costs tend to screen out the tial policy change on our understanding of poor, some observers conclude that we need to those processes.

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Identifying Barriers to Serving the Nonbanked

What are the impediments and business challenges to reaching nonbanked households? Perceived and Actual Barriers to Serving the Nonbanked SEAMUS When discussing financial institution barriers for banks to McMAHON, reach the “underbanked,” bear in mind that serving these First Manhattan marketplaces does not mean serving only one segment; they Consulting are not only immigrants, nor only minority ethnicities. None Group of the potential impediments discussed here will cover all of those segments. Banks face three potential impediments to serving the underbanked: the profitability of the services; materiality, that is, the extent of this business opportunity; and the appropriate “branding” or positioning of the services that banks would provide. Surprisingly, profitability is almost certainly not an issue. The margins that banks could enjoy on smaller accounts are probably not a challenge to keeping them out of this busi­ ness. In fact our databases on behavioral characteristics of consumers — we are a consulting firm that works closely with banks — show little or no correlation between the income or wealth of current bank customers and profitabil­ ity. The reason is that low- and moderate-income customers are equally apt to pay fees and may have only modest ser­ vicing requirements. Indeed, banks have discovered that it is possible to con­ struct a low-cost liquidity account that enables payments against low deposit balances. This sort of account would entail approximately $100 a year in cost, and it is plausible that banks will receive more than that in revenues. So prof­ itability per se does not seem to be a real issue.

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Realistic opportunities also exist to cross-sell more about “the quality of the relationships.” streamlined loans and insurance products, if Many bank executives we talk to are concerned banks develop a relationship with unbanked or about their ability to appeal publicly to lower- underbanked consumers. The banking system income customers without clouding the may not create those loans or insurance prod­ “upscale” image they are trying to establish. ucts, but banks could serve as an outlet through Conversely, our own surveys indicate that many which third parties could distribute them. So lower-income customers believe that there is an we would reject the notion that profitability is unattractive, judgmental aspect to doing busi­ an insurmountable barrier. ness with a bank. The solution to eliminating A more challenging barrier is whether banks that impression is unclear. It may be as subtle will see this opportunity as too small on a sheer and as pervasive as a bank’s own advertising. Thus, we see solutions to these potential impediments, with some easier to attain than others. We think that profitability is manageable Banks face three potential through a combination of electronics, reduced impediments to serving the labor, and customer training. The materiality, underbanked… or size of business opportunity, looks relatively Surprisingly, profitability is almost small today, but could grow dramatically if certainly not an issue. banks develop appropriate instruments and products for a much larger group than merely the unbanked. And finally, some banks will like­ ly choose to enter this business nationally under revenue basis compared with other business one or more distinct brands. So none of these opportunities. For example, assume that the problems is insurmountable. total national after-tax profits from payments and loans to these 10-to-12 million households ELISABETH RHYNE, U.S. Agency for Inter­ could reach the $500 million range for the national Development: I would like to report entire industry, based on the balance sizes and on the findings of a conference that the U.S. fee structures that we envision. Although that is Agency for International Development not a small amount, it represents a small frac­ (USAID) sponsored in November 1996. It tion of total banking industry profits, and, in brought together about 25 commercial banks fact, equates to the after-tax profits of the twen­ from around the world that were engaged in tieth or twenty-fifth largest bank in the U.S. microfinance, which includes lending to However, this business opportunity could microenterprises, or very small businesses. grow if banks consider, not only the unbanked, Although this is not exactly the same situation, but also people who are marginally banked. I think that the findings of that conference These customers typically have small accounts apply to this discussion. at banks and believe that they are being under- First, commercial banks that successfully served. Marginally banked customers are some reached the informal sector did so through banks’ most profitable customers; they can separate outlets, not through their main generate $300 or $400 a year in overdraft fees. branches. This enabled them to establish a sep­ So this opportunity could be one that banks arate image — which relates to the branding reach out for — and may be forced to reach for, issue — and a completely different cost struc­ because current fee sources, such as overdraft ture from their regular branches. fees, are probably unsustainable over time. Secondly, they created a workforce that I personally think that the biggest impedi­ could reach this customer base — a staff who ment to banks explicitly targeting low-income could relate to the customer, such as people customers will be branding or product posi­ who come from the same communities. This tioning. Many banks now target middle- and issue was probably the most difficult one for the upper-income customers to compete with what banks to solve. they believe to be their greatest competitors, Thirdly, there was a need for high productiv­ which are mutual funds, financial advisors, and ity among the microfinance staff that exceeded stock brokers. that expected in mainstream banking opera­ In advertising statements, we hear more and tions. Because of the small size of transactions,

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the labor-intensity per transaction was very ing that these inconveniences are not a major high, so incentives for high productivity barrier to serving this sector, Consumer Feder­ became a crucial issue. The reward of increased ation of America conducted research about a pay for improved performance, contrary to year ago in Oakland California and found that normal bank operations, was opposed by the large low- and moderate-income residential unions representing the other bank employees. areas contain no banking institutions. Even if Finally, the internal corporate culture had to residents wanted to patronize those institu­ change. Employees at all levels had to begin to tions, they would find it highly inconvenient to see this population as a viable, legitimate mar­ do so. Other barriers include the relatively ket. This required a major educational effort high minimums to open deposit accounts and within the bank for all employees. avoid fees, and the refusal by most banking institutions to cash checks and make funds Standardizing or Customizing available immediately if there are no funds in an account. Finally, neither bank employers or Financial Delivery Channels most of their customers welcome the bankless Participants debated whether standard bank in their branches, nor do most institutions have branches, or innovative or customized delivery customer contact personnel that speak Spanish systems, are preferable for providing services to or Asian languages. the nonbanked. It is not clear which of those barriers are the most important. I suspect they vary for differ­ STEPHEN BROBECK, Consumer Federation ent subgroups of the bankless. This kind of of America: The marketplace may largely be analysis with so many different factors is very meeting the current demands of the bankless. complicated. We may be better able to figure These demands appear to be quick access to out how to serve these groups effectively, if we cash (through check cashing and small loans), can identify successful institutions and learn payments of utility and other bills by money why they are successful. orders, and perhaps convenient location. But the bankless have needs beyond those DAVID JOHNSON, Corus Bankshares: demands, including access to savings instru­ Although we have talked about how the ments, encouragement to save and not to bor­ unbanked population is not exactly a homoge­ row for discretionary spending, neous one, we have been talking relatively inexpensive services, about banks as though they are secure banking, and protection homogeneous, which they are against theft. At present, only not. Different banks have differ­ traditional banking institutions ent missions, different capabili­ — commercial banks, savings ties, and different abilities to and loans, and credit unions — The internal offer new technology. For exam- can meet those needs. ple, our bank is a $2 billion bank I would like to comment corporate culture in Chicago, which makes us briefly on barriers to servicing had to change. about the 200th largest bank in the bankless by traditional bank­ the country. We are a niche bank ing institutions, which are relat­ with only 12 locations. Our strat­ ed to both the characteristics of egy is not to open more locations the bankless and to the charac­ for any community, whether a teristic behavior and percep­ private banking, low-income, tions of the banking institutions. or middle-income community. The bankless may lack income or sufficient Other banks have different kinds of missions. motivations to save. They may not be aware of Banks do operate in lower income areas; to the generally higher cost of using alternative say otherwise is a fallacy. In such areas there are financial services. Some lack skills in using different types of banks, just as there are differ­ some banking services, particularly checking ent types of other institutions, and other kinds accounts. of consumers. Neither consumers nor the Banking institutions tend to have inconve­ financial institutions that serve them constitute nient locations or times. Despite surveys show- a homogeneous group.

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MARTIN LIEBERMAN, Community Curren­ to link with the check cashers, who can assume cy Exchange Association of Illinois: My view is their burden, so that the banks do not have to that the community seems to be well served. I go out there and do it. also question the suggestion that there are not Western Union takes an alternative enough banks in the community. That depends approach. It makes a point to serve the entire on the community. There are enough banks. It world, not only the nation and not only my is just that people do not require bank services, neighborhood. The check cashers have been or they perceive that they do not require the striving to get in there and serve. Why are the services. banks not doing the same? The real estate The difference between check cashers and agents go door to door. The insurance agents banks is basically a difference in attitude. go door to door, or they mail out their infor­ Check cashers are locally owned businesses, mation. Grocery stores send me a flyer every whether a check cashing outlet, a liquor store, single week, whether I shop there or not. If you or another establishment. The check casher want the customer, you have to get the cus­ staff speak the same language as the person tomer. The banks have people with MBAs and cashing a check, have a first-person relation­ a lot of business experience. Banks know how ship with the customer, fill out the forms, work to get customers and how to market. with the person — whereas it is perceived that The issue is one of making the commitment the bank staff will not, whether or not that is to serve the clients and not only a certain seg­ true. This perception may vary somewhat with ment of the clients, and the need to change the the specific bank, the specific person, and the way the service is marketed. For example, auto specific teller’s instructions for processing salesmen have learned that when they are deal­ transactions, but the perception exists. ing with an Asian or Mexican family, they have to sell to the family, not only to the person. The RICHARD JUAREZ, MAAC Project: I head a product must be different. nonprofit organization in an inner-city area. In banking a lot of focus has been placed on Whereas most communities have a 40,000­ loans to underserved communities, but there square-foot supermarket, we have 10,000 to has been little discussion of other kinds of ser­ 20,000-square-foot markets. Whereas most vices. In the housing industry, we have changed communities have super drugstores, we have the way we provide affordable housing to little pharmacies. Whereas most communities inner-city communities by altering the lending have a 15,000 square-foot Blockbuster video system. We have not changed our thinking in store, we have the 1,000-square-foot Joe’s that area, and that needs to be done. Video. Whereas other communities buy gener­ Also there is some question about whether al goods at Kmart and Wal-Mart, we have 99­ banks would make a profit when providing an cent stores. And whereas most communities intensive level of service to underserved com­ have banks, in the area in which I work, there munities. But the underserved comprise only is not a bank for a mile and a half. We have a 10 percent of the population, and banks are not population of 40,000 to 50,000 and one bank, making a profit in all areas. Or maybe it should the Bank of America is located there. Union be considered in terms of a long-term effort. If Bank of California is just outside the area. We banks are serious about moving to electronic do not have banks. We have check cashing banking, they will have to show some customers stores. first how to write a check and use the ATM. I serve on a bank board and have been lis­ tening to this discussion from that perspective. DONALD HAMMOND, U.S. Department of But it’s entirely different when I step back and the Treasury: I wanted to follow up on a com­ don my neighborhood hat. Then this entire ment made by Stephen Brobeck that the needs discussion about whether those communities of the consumer could be met only by an estab­ should have alternative services is outrageous. lished banking organization. The financial ser­ It hardly matters whether those services are vices currently being used in the low-income check cashing as an alternative bank, or the neighborhood tend not to come from a tradi­ 1,000-square-foot video store instead of the tional banking institution, but rather from Blockbuster, when the banks really do not want alternative service providers. Why, if you pro­ to serve them. The banks are figuring out how ject toward the future, do you look exclusively

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to the commercial banking system to provide the answer. Maybe banks need to go to where services that are already being furnished to the people are rather than expecting that the some extent by alternative financial providers? people are going to find the bank.

STEPHEN BROBECK, Consumer Federation RICHARD HARTNACK, Union Bank of Cali­ of America: I said that today only traditional fornia: We certainly have tried everything we banking institutions would meet the important can think of. We did not operate the branch for financial services needs of the bankless. That eight years just for the fun of it. We have tried was merely an observation. Frankly, I have not everything within our range of knowledge and made up my mind about what kind of mix we capability. The community told us that estab­ need. This is why I suggested that we need lishing a traditional branch was the answer at more research on institutions that have met the time of our CRA agreement. So I show it as these needs most successfully. an example that the opening of a traditional branch in a poor community does not neces­ RICHARD HARTNACK, Union Bank of Cali­ sarily solve the problem. fornia: I want to challenge a comment about We have tried everything to market our ser­ banks not making a commitment to serve vices. We have used churches, seminars, knock­ clients in a low-income community. Eight years ing on doors, and massive advertising cam­ ago, as a result of a CRA agreement, our bank paigns. The fact is that if we had 100 percent of put a full-line branch in a very low-income the market, we would not make money there. community. It has not been successful and not for lack of trying. We tried very hard but have EDWARD FURASH, Furash Associates: I can­ been unable to make it economically successful. not help be impressed by this conversation’s Short of using flammable liquids, it is about the focus on the current and the conventional, fastest way I have found to lose money. when this forum’s focus is on the issues of the The branch will probably stay there, because 21st century. I am reminded of the intense it is established under an agreement, and it is arguments after World War II about whether an interesting place in which to learn. In all people on public welfare should be allowed to respects it is a traditional bank branch in terms have refrigerators. The answer at that time was of size, location, facilities, and everything else, “No — as long as the iceman still comes.” What except it is in a very poor community, and the happened was that the iceman stopped coming economics do not work. Using that platform is and people had to have a refrigerator as a not a way to make money. necessity of life. There is an obvious barrier. If you take all Access to financial services in the 21st centu­ the deposits in all the banks in that communi­ ry is similar. The entire U.S. population must ty and put them into one office, the branch still adjust to new methods of obtaining financial would not make money. The aggregate amount services. The old methods will no longer be in of money that is predisposed to go to banks in use. So new technology must be accessible to all that community is not sufficient to make because the financial service iceman is not money in a traditional bank setting. Banks are going to come anymore. good at dealing with money that is predis­ All the traditional methods of delivery, such posed to go to banks. But banks are perhaps as the branch or ATMs, have problems, because not as good at being salespeople for changing of a fundamental change in the economics of culture, changing habits, or changing attitudes financial services. Deposits are not worth any­ toward privacy. thing anymore, and consumers do not like pay­ ing for transaction services. The reason RICHARD JUAREZ, MAAC Project: I suggest deposits are less valuable is not that we happen that it is a matter of marketing. If the tradi­ to have low interest rates right now. It is tional banking approach to serving these com­ because the traditional way banks made profits munities is not working in that bank, you may — taking deposits, making loans, and living on need a different approach, using education, the spread — is disappearing and has been for personal interaction, and language. There is a 15 years. This business may continue for per­ movement toward putting mini-banks in gro­ haps another 15 years. cery stores. Perhaps the bank building is not This is because the securities market domi­

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nates financial intermediation in the United chores, fill out the forms, and provide financial States today — and will in the 21st century. The attention, and can get paid for doing them. If prices of deposits or funds are not set by banks. the price is too high, others will emerge. They are set by the money market mutual The 21st century will present a radically dif­ funds and others in the market. The price of ferent financial service environment for the loans is not set by banks, but by the securities unbanked. Checks will not be an issue, nor will markets through securitization. supermarket branches or kiosks. The critical The traditional technique of subsidizing solution is deciding how the unbanked can savers or borrowers by controlling rates disap­ make transactions that allow them to partici­ peared when Regulation Q expired. Deregula­ pate fully in society, buy the necessities of life tion basically drove deposits from the banking and, hopefully, be able to set aside money. Ulti­ system. For 15 years, the banking system has mately, this will require an electronic distribu­ been trying to reduce the cost of traditional tion system, if they are to have economic delivery methods, because banks can no longer opportunity. produce deposits at a total cost that enables As we look at the 21st century, our real goal them to compete against prices in the securities is to ensure that, first, we create prosperity in markets. this country. That is what banking is about. And This is a serious problem as it relates to second, that everyone has an opportunity to access to financial services in the 21st century interact with the financial system and to get the for the unbanked. Regardless of the degree to most they can for their money in doing so. If which we may think the unbanked have been you phrase it that way, there are many new disadvantaged, they actually have been, for a players that will enter the scene with new ways long time, the beneficiaries of a subsidized to do it. But if you phrase tomorrow’s needs in deposit system. The subsidy is disappearing terms of how we deliver things today, we always because deposits are not worth much and the return to subsidizing the unbanked, and I do cost to gather them is high. The costs that the not think we can afford to do that. unbanked are paying check cashers is probably a better reflection of the pure cost of transac­ tion services than what they pay in a bank. Financial Service Design and Banks are still subsidizing. Customer Service What are the choices? This is a social, not a Participants discussed barriers that can arise from financial issue. Is the only choice to tax banks financial service design and customer delivery. by saying they have to deliver in a traditional manner? We have tried that one, and people THOMAS NORTON, Western Union: I think that any commitment to service low-asset, low- income households requires a “mechanistic” If you phrase tomorrow’s needs in commitment. Many of these consumers are confused and intimidated by forms. It is com­ terms of how we deliver things today, mon in many of Western Union’s agent part­ we always return to subsidizing the ners for a clerk, or even the owner, to help the unbanked, and I do not think we can customer fill out a simple name and address afford to do that. form. This can take a lot of time. Many consumers do not have conventional identification, such as driver’s licenses, military do not necessarily come to the CRA store. Or identification cards, or birth certificates. Now, are we going to guarantee access through gov­ it is certainly acceptable for the Manhattan ernment subsidy, such as issuing bank stamps, elite to not have a driver’s license, but for as we do food stamps? somebody trying to apply for a loan or cash a Market competition has a better answer. check, the absence of one requires a bank Critics may not like the prices charged the employee to make a big decision. unbanked to serve them, but they are better In our experience, many of these consumers served because entrepreneurs and bankers see are transient. They might move within the met­ an opportunity there. We must encourage par­ ropolitan area or from Houston to Florida to ticipation by providers who can do all the do roofing every summer. This is intimidating

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for a bank that lends to these folks and sees the banks? It is not as if customers have to go 100 initial payment coupons returned two weeks blocks to reach a bank branch, or an eight-hour after they were mailed. drive, as was once required on the Navajo Because these households are hard to reach reservation. The banks are right there. I would by mail, you must have mechanisms in place to be interested to learn why people are not going take their payments in person during the hours to the bank offices. when they are available, often after conven­ tional banking hours. So one has to make a DONALD NEUSTADT, Ace Cash Express: We series of logistical commitments to these con­ operate in 29 states and have a fairly wide pop­ sumers. ulation base. Many of our customers are “trial rejecters,” who previously had a relationship JIM MEADOWS, Citizens National Bank: Our with a bank. They have had access to some kind bank delivers traditional banking services. We of a loan or credit facility. Perhaps a lender ter­ tend to make money at it, and our profits are, minated that relationship because of abuse. Or compared with our peers, very high. Our perhaps the customer chose to terminate it, income statement is characterized by high lev­ because they had a negative experience, and els of net interest income, high levels of nonin­ went elsewhere. terest income, and a low and stable funding Consumers are aware of banks and have base. tried them. But, for whatever reason, the cus­ Whatever successes we have had in serving tomer relationship did not work out and the the low-income market has resulted from our customers are less likely to return and try to willingness to do so. We are a one-unit bank, in reestablish a banking relationship. We have one location, and our customer base is primar­ conducted focus groups with customers that ily ethnic and low- to moderate-income. It was show that they trust us, like us, and have a dif­ a market that was given to us, and so we began ferent view of us than they may have of finan­ with the premise that it would be our primary cial institutions that closed their accounts. focus. This is not a niche of our business, but We hire our employees from our customer our primary focus. So everything we do is base, so they understand our customers and geared toward finding ways to identify the cater to them. I am not criticizing bank hiring needs of those customers, to price rationally, practices, but banks typically hire people who and to serve that business. are more able to cater to the customer segment We have high costs because we have lots of that banks want. I think that this is a significant customers in our bank and lots of employees part of the difference between the type of cus­ talking to customers. We have close relation­ tomer service we offer to our customer base ships with the public schools. We tend to reach versus what banks offer. more people through their children in schools than we do any other place. We do not have a MARVIN MORRIS, In-Person Payments: In lot of trouble getting traffic in our lobby, it is Main Street America people are allowed to thrust upon us at nine o’clock every morning. make bill payments at our locations. We have We have high security costs in our bank, not so taken this service, not only to check cashers, much for threat of robbery but for directing but also to pharmacies, hardware stores, and traffic. We have a lot going on — not a lot of beauty shops. Customers go to a trusted person deposits, but a lot of activity. in the community, who could be the pharmacist or the person who runs the hardware store. EUGENE LUDWIG, Office of the Comptroller They find it appropriate to discuss financial of the Currency: Professor Townsend gave us a questions and services with them. picture of Little Village, where the street was lined with banks. And one fact that seemed to RICHARD HARTNACK, Union Bank of Cali­ emerge from several of his stories is that sav­ fornia: We have conducted numerous con­ ings could be a boon to economic develop­ sumer interviews with our check cashing clients ment. to find out why they do not use the bank. In our If there are banks in Little Village that offer case it is very dramatic. The bank and the savings vehicles, and the population would check cashing window are in the same building, benefit from saving, why do people not use the in the same lobby, and use the same parking

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lot. The choice is obvious and they choose the how your own particular industries operate, nonbank solution. The reasons are all over the but also how to align yourselves with those of us map and include having had an unsatisfactory who are now, and have long been, serving the experience with banking. These people are community. For example, the first food stamp I well described by the term, “trial rejecter,” and distributed was on the very day they were intro­ their negative experience can relate to their duced — and at that point I had been in busi­ own personal discipline, to literacy, or to a vari­ ness for years. ety of things. There are definite advantages to a partner­ For some the issue is privacy. Some people, ship between check cashers and banks. We, in for a variety of reasons, want to keep their the check cashing industry, believe that we do financial circumstances as opaque as possible. not compete with banks, and that a partnership Illegal immigrants have no desire to develop a is a logical conclusion. Check cashers have relationship with a bank, which they see as a space that is less costly than bank lobby space quasi-governmental body. This is particularly and have generally lower operating costs. They true for people who come from countries where work longer hours and are open more days in banks were part of a government that was a week than are banks. Check cashers could oppressive or provided an element of risk. Oth­ lend to banks their location, staff, and under­ ers have had legal difficulties with a spouse or standing of the marketplace. Our discussion someone who is suing them and do not want to today reveals that a glaring flaw in the banking have money in bank accounts. A number of system is its lack of understanding of the moti­ people use both bank and check cashing ser­ vation of nonbanked persons. vices. They have two lives: their wage-earning Check cashers, however, need access to the life and another aspect that they do not want federal banking system. The government at all people to know about. levels is comfortable working with banks. Banks are insured, sophisticated, and have the EDWARD FURASH, Furash Associates: ears of the legislators. Promising new products Providers exist today who deal with the risk of that have a good chance for success, both with­ providing financial services to the unbanked. in the community and in the political arena, all When a check casher decides to cash a check, seem to point to a partnership between the he takes on risk for which he is paid. Banks that banking world and either state-run check cash­ handle check cashing more conservatively are ing associations or individual check cashing merely stating they will not compete at that companies. high a risk. Perhaps the pool could be enlarged of those STEPHEN BROBECK, Consumer Federation who will compete on the risk of widening finan­ of America: Our research on branch closings in cial service access through insurance, cross-sub­ Oakland revealed that virtually all of the sidization through pooling, or cross-guarantees branches that were closed in a 15-year period — preferably on a private-sector basis. This had assets under $20 million. Most branches might give the less-served and the unserved with assets over $20 million remained open, the level of service that they need to ensure suggesting that profitability may be related to their access in the system in the next century. the size of a branch’s asset base. This raises the question of whether banking institutions will Partnerships Between Banks and find it profitable to serve the unbanked without Nonbanks in Serving the charging high prices. Although they can lower Nonbanked costs by downsizing their branches and putting Participants discussed the merits of partnerships them in supermarkets, that might only reduce the break-even point to a $15 million asset between banks and nonbanks as strategies for base. Many communities will be unable to sup­ overcoming barriers to reaching the nonbanked port even that lower asset base. populations. To serve those communities we may have to turn to institutions that have very low costs, MARTIN LIEBERMAN, Community Curren­ such as the U.S. Postal Service. Postal banks in cy Exchange Association of Illinois: I encour­ Europe meet many of the needs of low-income age those at this forum to think, not only of households. If banks could accept this option,

32 FINANCIAL ACCESS

not only would more of those needs be met, but cost, customers who are receptive to their also banks would operate under less pressure to products. meet the financial services needs of low-income Many CDFIs would like to offer to our cus­ and unbanked populations. tomers an account similar to a Union Bank of The second way to meet those needs involves California account. Perhaps kiosks or other using nonprofit institutions. The banking ser­ kinds of simple technology could be located in vices they provide would be subsidized basical­ CDFIs, which could help increase customer ly by foundations, their for-profit funders, the acceptance of the new technology. Partnerships government, and the people who volunteer or could also be forged between CDFIs and the work in these nonprofits for low wages. offerers of the new individual development accounts, now being broadly tested, which pro­ LISA MENSAH, Ford Foundation: We should vide incentives for savings by low-income also consider the wealth of institutions in the households through matched contributions. communities that we are discussing. Rather CDFIs could help their customers find produc­ than talking about people as if they were disas­ tive investment uses for the savings, such as sociated persons, we should consider the medi­ starting a microbusiness or purchasing a home. ating institutions that are not represented here Many CDFI depository institutions could or in our discussion. Churches, local civic orga­ also benefit from technological help in their nizations, local community development cor­ transformation from a manual-labor, volun­ porations, and other smaller institutions do teer-dependent structure, which is untenable. mediate in people’s lives and help them to nav­ igate through the emergencies and the stresses. LARRY STOUT, Financial Management Ser­ These institutions, which have been con­ vices, U.S. Department of the Treasury: One cerned traditionally with low-income popula­ important issue I would like to address is how tions, would be helpful allies. They would oper­ technology can be used to make significant ate as strategic mediators or providers of infor­ links between traditional and nontraditional mation, which are important roles when financial service providers. I work for the part attempting to reach a population that is of Treasury that issues some 850 million pay­ unbanked. ments a year primarily to benefit recipients (Social Security, Supplemental Security KATHARINE MCKEE, Self-Help: Nonprofit Income, Veterans Administration, civil service community development financial institutions retirees). In our research of that population, (CDFIs) constitute potential partners of banks we found that about 15 percent remain and nonbanks. Self-Help is the largest of the unbanked. We found that they did not like a 500 nonprofit CDFIs across the country, with checking account or overdraft charges, nor did about $100 million in assets. Although our sec­ they believe they needed a checking account. tor is relatively small in size, we work largely To identify a product that might better serve with the customers that we have been dis­ the needs of that population, we built a pilot cussing today. program in Texas, which linked the traditional To date, there have been quite a few part­ bank providers with ATMs and point-of-sale nerships on the lending side between banks terminals at the grocery stores where those per­ and CDFIs. We want to work with banks and sons cashed their checks and bought money nonbanks to see if technology can help us bet­ orders. We developed a product that they liked, ter serve our core customers, the small busi­ would use, and for which they would pay a rea­ nesses and home buyers, who will be left out by sonable price. Although some people have an a credit scoring world. I also see potential for aversion to technology, we must face the fact joint work in providing our customers with that technology is with us now and will contin­ access to new financial products for savings ue to facilitate the linkage between traditional and investment. They may be more receptive and nontraditional providers. to those products as customers of CDFIs. We I believe that electronic payment will provide would benefit to the extent that we help fami­ our constituents with the greater safety, conve­ lies build assets and stabilize their economic nience, and protection that accompanies hav­ situation. This relationship could help our ing an accessible place to deposit money. Ben­ bank or nonbank partners acquire, at lower efit recipients are 21 times more likely to have

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a problem if we issue checks than if we deposit SEAMUS MCMAHON, First Manhattan Con­ their payments in accounts electronically. Prob­ sulting Group: I understand the potential lems that arise from electronic payment can be problems that exist for banks, but the facts are resolved in two to four days, whereas it takes at different. About 30 percent of the currently least two weeks to solve a problem about a banked population pay about $100 or $120 a check. Since it costs Treasury 43 cents to issue a year in revenues to banks, but cause banks to check and only two cents to make an electronic incur costs of $150 to $400 per year. These cus­ payment, we can solve a problem in a manner tomers are extremely unprofitable to banks and that combines good government with provid­ the banking industry will have to develop a ing better service. lower-cost solution for them. It is plausible that the same solutions that would provide for low- Effect of Government Policies on cost outlets, high-productivity labor, or differ­ Serving the Nonbanked ent branding, could apply to multiple seg­ Participants discussed how banking regulations, ments of income. People would not be differ­ government policies regarding receipt of public entiated solely by income, but by what they are welfare benefits, and federal tax policy incentives willing or able to spend on banking services. for household savings and investments may serve PAMELA FLAHERTY, Citicorp: Banks are as barriers to attracting and serving nonbanked under pressure regarding their services to all households. customer groups. This is not just an issue of providing services to certain segments versus JOHN CASKEY, Swarthmore Col­ others. The banking industry is lege: Gene Ludwig mentioned changing. The way we conduct our regulatory barriers earlier. Regula­ business, where we are headed, tory barriers may currently pre­ and how we serve different cus­ vent banks trying to serve low- tomers is a subject of intense income populations from develop- We must debate. Bankers all over America ing small offices that may house a consider are trying to understand the different type of staff and culture research on how to serve customers and may not offer loans or a full building an inclusive in a changing world where the eco­ range of services. Other regulatory nomics are very different. barriers could also keep banks investment The economics are changing from teaming up with check cash- system. for all customers. Many assume ers, which could take deposits and that all the profitability issues for provide banking services to this banks are linked to income charac­ population, perhaps as an agent teristics, but I do not think that for the bank. the evidence supports this. We have talked about brand name identification. Political problems may JULIA JOHNSON, Banc One Corporation: I arise for any bank that tries to tailor its services have a question for John Caskey. Do needs- to different population groups. A bank that based tests for eligibility for public benefits served a high-income area might have leather serve as a disincentive for asset accumulation? chairs and private banking loan officers. Already, some bank ads offer private banking JOHN CASKEY, Swarthmore College: Michael services to customers with at least $5 million in Sherraden, who is here, is the expert on that. I assets. Middle-class banking would tend to would say no and yes. Yes, it does after you resemble large supermarkets. Finally, lower- reach a certain asset level. Many states declare income banking would offer a different kind of people who have more than $1,000 in financial branch in low-income areas and minimum ser­ savings as ineligible for welfare. That is clearly vice, based on fee-for-service. The fee structure a disincentive. You do not want to accumulate would be different in each place. Banks would more than that amount if you are on welfare or be asked why they do not give everyone exactly expect that you will go on welfare. But we could the same thing — that is a political reality that still encourage people to accumulate and main­ banks must face. tain $300 in their savings account, which would

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lower their cost of payment services. In most poverty. We need to develop an inclusive invest­ states, that would not be an impediment to ment system. receiving benefits. The second set of barriers involves hope and expectation. If you do not expect that you can ROBERT FRIEDMAN, Corporation for Enter­ find a way out of poverty, you do not try. We prise Development: One significant barrier to know that kids who get pregnant early and kids savings are the welfare regulations that stipu­ who commit crimes may do so because they do late that persons can have only $1,000 in assets not have hope. Michael Sherraden notes that before they lose eligibility for welfare and “assets are hope in concrete form.” We have access to Medicaid. Three other barriers tran­ seen that even with small-scale savings clubs scend and surround the kind of barriers we and IDAs, that when a low-income person buys have been discussing: consumption orienta­ a house, it raises the expectations of the entire tion, lack of hope and expectation, and lack of community, who may think, “Oh, if she can do tax incentives for savings. it, then I can do it.” We need to do much more The first is cultural, particularly as it applies to develop those escape routes from poverty to poor communities. For at least 50 years, assis­ and those success stories. tance to these communities has been oriented Thirdly, we use tax policy as an incentive for toward income maintenance, consumption, and the non-poor and wealthy to save. But this pol­ debt. We have believed that we need to sustain icy does not offer the same incentives to the consumption in low-income communities. Our poor. We subsidize, or (if you prefer) incen­ income maintenance system is built upon that. tivize, the saving of the non-poor and largely As a result we have honored savings in the the wealthy, through the tax system: the home breach, not in practice. I think that is as true in mortgage deduction, preferential capital gains the development community as it is in the insti­ treatment, pension fund exclusion, individual tutional structure. We have tended to empha­ retirement accounts (IRAs), and Keoghs, etc. size low-income housing and only recently Any new trend in savings incentives offered by focused on low-income home ownership. We the government is through continued use of concentrated on microenterprise loan funds the tax system — through the expansion of and only now have shifted emphasis to savings IRAs, 401(k)s, and medical savings accounts, incentives and structure to provide an equity etc. Again, none of these systems provides base in low-income communities. An income equivalent incentives to the poor. We must con­ maintenance structure can maintain consump­ sider building an inclusive investment system. tion, but it does not provide ladders out of

35

Mandatory EFT ‘99

JOHN I would like to begin by describing the process of prepar­ HAWKE, ing paper-based Social Security benefit checks. The process Under Secretary for begins very early in the month, after the Social Security Domestic checks have been sent out for the previous month. Each pay­ Finance, ment check is inserted, along with any flyers, into an enve­ U.S. lope, which is then closed. Piles of these sealed envelopes are Department of the Treasury stacked onto carts, which are then rolled into a section of the building containing cart after cart of numbered and careful­ ly arranged Social Security checks. Later in the month, the Social Security Administration provides information about the people who have recently died or become ineligible for Social Security. Somebody goes back to these stacks of checks, finds the checks for those peo­ ple, pulls them out, and withdraws those checks from the process. Then the remaining checks are picked up by the Postal Service, which puts them in the mail system. One has only to spend a few hours watching that process to get a dra­ matic view of how labor- and paper-intensive the paper- based payments process is for the 30 or 40 percent of Social Security payments that are not made electronically. All that will soon change. The capable staff at the Financial Management Service (FMS) who process those paper-based payments will have to find other work within the next couple of years. Last year, Congress passed a law with a deceptively simple mandate: all federal payments made after January 1, 1999 shall be made by electronic funds transfer. Often referred to as “EFT ‘99,” this act covers every pay­ ment that the government makes (including vendor, salary, benefit, and retirement payments), except for tax refunds. The statute gives the Secretary of the Treasury the authority to develop standards for granting waivers for classes of recip­ ients or instruments for hardship or other circumstances.

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That waiver authority will have to be used other than a financial institution, since it is selectively or the benefits of the electronic pro­ articulated separately in the statute. What evi­ gram could be undermined. dence, if any, do we need of the agency rela­ Each recipient of those payments is required tionship between the individual, and is the to designate one or more financial institutions authorized agent the individual’s agent or is it or other authorized agents to which payment our agent? What standards of responsibility, if shall be made. The statute does not say when any, do we promulgate for authorized agents? or how this is to be accomplished. That is the In many ways these are the typical kinds of decision of FMS and the Treasury Department. problems faced by any agency trying to carry But, by January 1, 1999, we know that recipi­ out a broadly stated congressional mandate. ents will have to give instructions about where But we have one additional challenge which I to send their electronic payments. think is our greatest challenge: defining our The Treasury Secretary is directed by the responsibility to ensure access to an account. statute to prescribe regulations that, among What does that mean? Does that mean that we other things, “ensure that individuals required need to provide an account? Does that mean under this law to have an account at a financial that we need to require institutions to offer or institution to receive payments will have access make available an account for these purposes? to such an account at a reasonable cost and Or do we merely have to ensure that reasonable with the same consumer protections with alternatives are available in the marketplace at respect to the account as other account holders reasonable cost? But then, how do we deter­ at the same financial institution.” mine reasonable cost? What standards of refer­ This new law takes effect in less than two ence do we use to determine whether a product years. It presents formidable challenges, not that is being offered, say, by a commercial bank only for the Treasury Department, but also for is being offered at a reasonable cost? the entire financial services industry. The chal­ We do not have a lot of time to solve these lenges for Treasury are clear. First, we have to problems — less than two years before the trig­ decide how and to what extent we are going to ger date in the statute arrives. A good part of exercise our waiver authority. What does hard­ that time will require a very significant public ship mean? How do we determine what classes education campaign to alert recipients of fed­ of recipients or payments should be excluded eral payments that they will not receive checks from the act without undermining its very pur­ anymore, but instead will receive credits at a pose? Are we going to get embroiled in litiga­ financial institution or authorized agent that tion over the exercise of that waiver authority they designate. or our refusal to grant waivers? We are now This statute also presents an enormous chal­ looking at all those difficult issues. lenge for the financial services industry. To put We also have the problem of definitions. How it in its broadest terms, how do we provide do we define “financial institution?” The statute recipients of electronic payments a share in the does not say “insured depository institution” or enormous cost savings that are going to result “depository financial institution” or “bank.” It from EFT ‘99? When those rolls of paper dis­ says “financial institution.” Does that mean that appear at the processing centers and the peo­ only depository institutions can be selected as ple who stack those paper checks are employed payment recipients? To what extent do we have in other occupations, how do we ensure that discretion under these definitions to narrow or the cost savings will enure to the benefit of the broaden the concept of financial institutions? recipients? Above all, how do we ensure that Does it have to be an insured institution; i.e., do recipients will have access to an account? we have to make sure that FDIC protection is The paper by Professor Caskey in your back­ available? Does it have to be regulated at all, or ground materials is well worth reading. He can uninsured, unregulated financial institu­ reports the results of a survey he conducted tions be eligible to be designated as recipients that indicates that 22 percent of the house­ of federal payments? holds surveyed [in several low- and moderate- What is meant by the term, “authorized income areas] did not have bank accounts. We agent”? Who can qualify as an authorized have had estimates that have ranged between agent? How is an authorized agent appointed? 10 percent and 20 percent of households. We An authorized agent is presumably something also have estimated that more than 10 million

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regular recipients of federal payments do not seeking out some of this 10 million or more have bank accounts. population? After all, when you divide it up So we start with a problem. We must deal geographically, the average bank will not be with a substantial universe, that portion of the able to identify much of a target market, unless unbanked who are recipients of federal pay­ it is a larger multistate organization. I submit ments. A study done several years ago indicat­ that profit and business expansion opportuni­ ed that probably one-third of the households ties are a fundamental reason for seeking this that currently do not have bank accounts are market, using the cost savings available in the minority-group families, generally with electronic environment to make money, and incomes of less than $25,000, so we are dealing still provide a service to the unbanked popula­ with a segment of the population that has dis­ tion that receives federal payments. tinct, identifiable characteristics. These 10 mil­ Financial institutions should be interested in lion or more people now get paper checks this market to protect their franchise. If they every month. They have to incur the cost of allow this population to be lured permanently cashing those checks. As Professor Caskey to nonbank intermediaries, they may lose the points out, 41 percent of the people whom he opportunity to create long-term relationships. surveyed who do not have bank accounts pay Check cashers, data processing companies, and check cashing fees each month for turning other innovators will find ways to serve this their checks into cash. population. They will be People who receive competing and trying to paper checks also run the find ways to attract this risk of loss or theft. They The electronic environment offers population away from are discouraged from sav­ … an account at a much lower cost banks and into other ing, because by not deal­ than the traditional paper-based forms of payment ser­ ing with a bank, they do checking account. vices. not have an easy way to Finally, it is in the preserve their funds. banking industry’s en­ There is a tremendous lightened self-interest to incentive to spend, particularly if they have meet EFT ‘99 requirements with a private solu­ turned their checks into cash that they carry tion to avoid imposition of government man­ around. They also do not have an easy means of dates. One does not have to look far back in making third-party payments, such as rent, util­ history to come up with quasi-public utility ity, and other recurring payments each month. models that could be brought to bear on the In the past, the problem with bringing for­ banking system if it ignores the need to provide mal banking products to this population has accounts for the millions of people who are been the cost of providing a paper-based going to need them. account. In recent years, most of the effort to It also seems inevitable that states and pri­ address the need for lifeline banking services vate employers will also make their regularly- has been based on the concept of a paper- recurring payments electronically as soon as based account. That experience, however suc­ the superstructure exists to allow them to do so. cessful or unsuccessful it may have been in the In existing electronic benefit transfer (EBT) past, is irrelevant when we are looking at the programs in various parts of the country, the environment of the future. states in many cases are already partners with The electronic environment offers an oppor­ the federal government. tunity for providing an account at a much lower What kinds of services should banks or other cost than the traditional paper-based checking financial institutions offer to this population? account. The electronic account also carries In the first instance, it has to be up to the mar­ substantial collateral benefits, such as the elim­ ketplace. Institutions need to determine, based ination of the risk of overdrafts, the potential on their knowledge of what their customers encouragement of savings, the use of other and potential customers want, what to offer, banking products, and the creation of float, all what is cost-justified, and what fee structure will of which will help offset some of the costs of work without it being a money-losing subsidy to providing the basic service in the first place. recipients of federal payments. But why should institutions be interested in While the government has an obligation to

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ensure access to an account at a reasonable of the account. For example, if only one free cost, we are reluctant at this stage to define withdrawal were allowed, people would be account specifications or to put out any kinds encouraged to pull out all their money at the of standards as to what constitutes a reasonable beginning of the month, which would re-create price. If we do that, it will dampen innovation some of the problems we are trying to avoid and competition. We would much prefer to see with electronic payments, as well as deprive the the marketplace come up with a range of solu­ institution of float opportunities. At the other tions to the problem. extreme, permitting unlimited withdrawals The role of the non-depositories is impor­ means that institutions will incur other kinds of tant. Customers may prefer dealing with inter­ costs. So striking the right balance will be mediaries that are not financial institutions. important. But when we start considering the role of non- It also seems to me that some third-party regulated, non-insured firms, to what extent payment options will have to be included in should we be concerned about safety and these accounts to realize the full benefits of soundness and accountability, and what kinds electronic funds transfer. We would hope that of standards should we promote in that regard? the private sector will address that issue. Moreover, there is nothing to prevent nonfi­ Furthermore, some of the early indications nancial intermediaries from partnering with from the EBT programs are that if recipients traditional financial institutions. One could do not have to turn their payments at the imagine, for example, major data processing beginning of each month into cash which they firms developing a standardized product that carry around, they will keep something in their could be offered to smaller depository institu­ accounts and have some savings at the end of tions around the country. That presents a large the month. This suggests that there are oppor­ range of technological problems, but also a tunities for financial institutions to offer vehi­ great opportunity to act as a kind of a franchis­ cles to encourage savings. er to attract participants in this market. At Treasury we spend a great deal of time on The government does not want to be in the this. Research is an important part: we have to business of specifying the attributes of these learn more about the characteristics of the accounts, as we did in the case of EBT, where unbanked population who are recipients of fed­ the federal government was procuring services eral payments. Public education is another in a contract setting. There we specified virtu­ aspect. Our initial estimate vastly understated ally every aspect of the relationship down to the the amount of investment in public education looks of the card, the pricing of the account, needed merely to make people aware of what is the number of transactions that could be car­ coming, let alone how they should seek out a ried out within certain parameters, and every service to meet their needs by January 1, 1999. aspect of the entire payment interchange A group is also working on the regulation and process. We do not want to have to do that for will issue a notice of proposed rulemaking that this program, but we may have no other alter­ addresses a number of the concerns that I have native as we watch what is happening in the identified in these remarks. In that process, we private sector. We do not have a great deal of will be looking for comments from all of you time to build up that experience because to and other knowledgeable people. launch something like an EBT project requires It will be important for us to proceed with a an enormous amount of lead time. realistic idea of what we are getting into. But it However, absent some sort of EBT contract will also be necessary for us to proceed rapidly, model, it will not be appropriate for us to spec­ because if we determine that a heavier hand of ify the account attributes. Certain attributes, government is needed to meet the statutory however, do suggest themselves. It seems to me requirement of access to an account at a rea­ that a debit card-based product would be a fun­ sonable cost, we will have to move quickly. But damental aspect of any account that serves our fondest hope is that a thousand flowers will recipients of federal payments. Also important bloom, and that when it comes time to deal will be a minimum number of withdrawals for a with those folks who have not told us where to modest charge, or no charge. There may well send their payments, we will be able to direct be an inverse relationship between the number them to the many offerings that private institu­ of withdrawals permitted and the profitability tions will be providing to this population.

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Reflections on Issues Related to those that have minimal numbers of supermar­ Mandatory EFT ‘99 kets with point-of-sale registers and other nec­ essary equipment. EDWARD FURASH, Furash Associates: When­ The Benefit Delivery Reform Act specified ever the government chooses to make a mas­ two important points. The first was that access sive investment in a given technology structure, to benefits should not be less than what was it creates the capacity for others to ride on it. available in prior delivery systems. Secondly, The banking community must realize that if the delivery system should maximize the use of the government is going to go to electronic small businesses currently involved in the deliv­ benefits transfer and erect the structure to do ery of benefits. Establishments now involved in so, the technology and financial base will be the delivery should be given every opportunity created on which the banking system will build to participate at a comparable compensatory and change. This has happened repeatedly in rate. That is very important: equal access and other forums when other technologies are allowing a fair rate of comparable return to introduced. So the government, by its spend­ those who now distribute. ing, could well drive the use of technology in financial services. JOHN P. CASKEY, Swarthmore College: There are many good arguments for permitting check MARTIN LIEBERMAN, Community Curren­ cashing outlets as delivery points for the cy Exchange Association of Illinois: A flurry of receipt of benefit payments. However, many activity has begun outside the banking world to check cashing outlets make loans on the basis involve people who are either ineligible for the of anticipated payments, or “payday loans.” banking system, or have chosen not to partici­ This is an old business; the salary purchase pate in it. This activity is intended to meet the business has been around as far back as 1900 to mandated electronic benefit delivery by 1999. advance people money on the basis of future It has also been designed to accommodate var­ income. ious states’ attempts to eliminate paper-based A payday loan works by the customer writing systems for the distribution of welfare benefits. a personal check for, say, $100 and post-dating The electronic benefits transfer (EBT) dis­ it for a week or two hence. The check cashing cussed here today has been portrayed as the outlet will give the customer $80 immediately. cheapest, fastest, and safest method; it defies The interest rate on these payday loans is quite description of how wonderful EBT should be, high on an annualized percentage basis — 150 at least, theoretically. However, the facts about percent is quite common. I am not comment­ EBT are not yet out on the table. Some of the ing on whether that is good or bad, since there programs have been implemented in a “vanil­ are good reasons for why interest rates are so la” marketplace, that is, in situations where suc­ high. But if one is a proponent of permitting cess is almost guaranteed. Areas where EBT check cashing outlets as a delivery point for the has not yet been tried include rust belt com­ receipt of benefit payments, one should be munities, inner cities on the East Coast, areas aware that many of the check cashing outlets that have no ATMs or banking facilities, and are also in the small loan business.

41

Expanding Access through Technology

What new products, retail delivery mechanisms, staff training and incentives, organizational structures, and other innovative approaches are helping to serve nonbanked households? New Technologies to Reach the Nonbanked Participants discussed new technologies that expand access to financial services.

PAMELA I would like to describe some of the things that Citicorp is FLAHERTY, doing to lower the cost of delivery of financial services and Citicorp to broaden access to them. Lowering costs and increasing convenience is not an issue that we are interested in for lower-income customers alone, but for all income segments. We are doing this in a variety of ways. One way that has been alluded to today is partnering with nonprofits that have knowledge and expertise as well as access to some customers with whom we do not currently work, and about whom we may not now have much knowledge. We do this both in this country and overseas. We have had a longstanding relationship with the Nation­ al Association of Community Development Loan Funds. We have given them performance-based grants that enable them to set professional standards for the community devel­ opment loan fund industry and training grants. We have shared technical expertise with them. We also provide loans to their member organizations around the country. We worked with the association last year to develop a near-equi­ ty product that they could use as leverage to borrow funds, which they used to lend to their local community develop­ ment loan funds. We have also provided performance-based grants to the National Federation of Community Development Credit Unions, working with them to involve the community deve­

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opment credit unions in the statewide EBT groups will be receptive to the conveniences of movement. We have a longstanding relation­ electronic delivery, if you take the time and the ship with ACCION International, a nonprofit effort to train people about how to use it. active in microfinance in the U.S. and Latin We have also expended a great effort on America. Here, too, we have been moving addressing the concerns of customer groups beyond grants into exploring ways in which we about electronic banking. For example, with can have a business relationship with that regard to ATMs, customers, particularly low- group, in which we and they make money, and income persons, are greatly concerned about we help them to achieve scale. security. In the last two years, we have tried to Most banks offer a basic banking account, improve lighting and access and installed cam­ but many of them are mandated by state legis­ eras inside the ATM, so that we can have two- lation and may not meet the needs of the tar­ way communications with people in the ATM geted lower-income customers; indeed, many lobby. We can see and listen to what is going of those who use basic banking accounts are not on, and customers can talk to us about their low-income customers. The industry should concerns. A byproduct of this effort has been, design something that satisfies the needs of not only a decrease in robberies, but also a low-income customers but that also fits the cost tremendous decrease in scams, which are an structure of banks. issue particularly for the elderly. Citicorp has a large EBT business around We improved our pricing to make our elec­ the country and we look at it as a business tronic delivery more attractive. In referring to opportunity in and of itself. Citibank is electronic delivery, I mean nonbranch delivery, involved in the Texas project that was referred everything from the telephone to the ATM to to earlier, and we also participate heavily in the personal computer. Customer usage of bidding for the state-level contracts. That is electronic and telephone service has increased giving us a great deal of experience in moving by 10 to 15 percent overall, and even more in benefit recipient customers to card-based deliv­ lower-income neighborhoods, where we had ery. less penetration. We have learned the power of We also partner with other organizations. educating our current and potential customers, The delivery mechanisms are not provided because by taking the time and the effort to solely by Citibank, since in many areas of the train them we have been able to achieve much country, Citibank does not have retail outlets. greater usage. We deliver EBT, not only through ATMs, but also through grocery stores, point-of-sale THOMAS SWIDARSKI, Diebold, Inc.: I would (POS), pharmacies, and check cashers. We also like to support my remarks on payments and have a pilot program, called “PayTM,” that delivery systems with some numbers. About 62 allows certain corporate customers to deliver billion checks are written annually in the Unit­ payroll to employees and that has embedded in ed States, a number that has doubled in the last it a savings account. It is provided through the 10 years. So although movement is occurring employer and is targeted to employees who do in electronic delivery, the infrastructure for not have bank accounts. We believe in electron­ checks and other existing payment systems is ic delivery through Citibank retail branches, still strong and in place. The existing delivery and we have established it for all of our cus­ system has about 82,000 branches, an increase tomers. of 25 percent over the same 10 years. The U.S. We believe strongly in consumer education. has about 140,000 ATMs, which process 890 In our New York branches, we have a full-time million transactions a month. Projections indi­ team of consumer educators who communicate cate that there may be as many as 200,000 with current customers and non-Citibank audi­ ATMs by the year 2000. ences. For example, we are a permanent part of The financial industry has the difficult task the curriculum at a community college. We of supporting the existing infrastructure along teach young adults about to enter the work­ with the movement to electronics. Banks still force basic banking, how to access credit, and have the traditional physical locations repre­ how to use electronic delivery. sented by branches, while at the same time they We have found exactly what our market are investing in the alternative electronic deliv­ research showed, which is that all customer ery system. The cost will have to be borne for

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both systems, because one does not replace the here the customer banks inside the branch. other. It is more an addition of transactions. The bank replaced the teller counter with free­ Diebold has worked with some institutions to standing kiosks in which the customer interacts develop unique ways to use technology to serve via video conferencing technology with a teller, the unbanked. For example, Standard Bank of who is remotely located in a secure location. A South Africa has created an electronic bank, vacuum tube sends the documents back and called E-Bank, in an attempt to align the deliv­ forth. Already, other banks have started a simi­ ery and the costs associated with delivery ser­ lar pilot or are thinking of doing so. vices to a specific customer segment. For cus­ Most customer reaction has been positive. tomers who choose to bank through the E- Customers are generally served faster. They Bank, Standard Bank will be able to offer a have the option of reading other messages lower minimum balance and a package of ser­ until they are ready to conduct their transac­ vices specifically designed for them. The key tions. Meanwhile, the teller can serve multiple component is use of an alternative delivery lanes, much as they do in a drive-up environ­ channel. This service has aligned itself nicely ment, and the bank’s costs are lower. with a segment of the population that basically A similar innovation is the use of video con­ has been underserved and underprivileged ferencing capabilities through ATMs, which are over the years. also used as sales kiosks, to carry out noncash In addition to improving access to banking, functions. The customer can press an icon that Standard Bank has dealt with illiteracy prob­ brings an expert, such as a mortgage lending lems by having a touchstone screen ATM devel­ expert, to the screen for a dialogue. Here, the oped that has biometrics built into the software customers can interact with an expert, whereas platform. People using the machine can swipe at a branch they probably would deal with gen­ their card and use their fingerprint for identi­ eralists. This approach provides an expert to fication without needing to enter a personal facilitate the more complicated, nonroutine identification number (PIN). In addition, we transactions. developed with the bank a method of leading Even now, we are seeing considerable exper­ the customer through a transaction using both imentation, and some successes, with technolo­ voice and graphics. The last I saw, the bank had gy expanding access. I think there will be more signed up about 500,000 people in the last year movement in that direction in the future. for this account, focusing basically on the unbanked market. MARTIN LIEBERMAN, Community Curren­ Duke Power provides another example of an cy Exchange Association of Illinois: As I have innovative use of technology to provide bank­ mentioned earlier, there are definite advan­ ing services. This utility company, which serves tages to a partnership between check cashers North Carolina, including some very rural and banks. Check cashers have lower operating areas, encountered many of the same infra­ costs; better hours, locations, and staff; and a structure issues that banks face in terms of the better understanding of the marketplace. high cost of delivering service to the unbanked Banks, however, can provide check cashers with market. It was estimated that about 40 percent access to the banking system. This points to the of their customers were unbanked. Many cus­ value of a partnership between banks and tomers paid their utility bills in cash, while check cashers. many others paid by presenting their income I would like to tell you about the new prod­ check at the payment window and receiving ucts or service delivery methods that are avail­ cash back. Duke Power wanted to extend rou­ able today or in the developmental stages. In tine transactions beyond normal business Illinois, my check cashing association and our hours, so Diebold developed an ATM-like ter­ banking partners, Corus Bankshares and minal that enables customers to pay their utili­ LaSalle National Bank, have created a delivery ty bills 24 hours a day, seven days a week, and method to provide federal benefits to recipi­ that also accepts cash for payment. ents, who sign up for the Direct Delivery pro­ For four or five months, Diebold has con­ gram, either with the bank or at the check cash­ ducted a “remote teller system” pilot with er’s store. The procedures to set up a direct Crestar Bank. This fairly low-tech approach is deposit account are identical at either the similar to a drive-up teller window, except that check casher or the bank.

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When the bank receives the electronic bene­ be 400 new branches of Chase distributed fits on the specified delivery date, it deducts a throughout New York City and, to a certain small fee for account maintenance and sweeps extent, the state. the remainder into a trust account. The bene­ Another company, Travelers Express, is fits are downloaded electronically, and a check developing a method for creating an employee is prepared and delivered to the recipient payroll. An employee can go into any Travelers together with the disclosure statement required Express location and present a card and PIN by Regulation E. Recipients wishing to cash the number. The system produces a paycheck for benefit check pay the current check casher’s the employee, who can either cash it there or rate, or otherwise take the check to wherever it somewhere else. This system also could be will be cashed. The check casher provides a ser­ designed to handle the federal mandate for vice to the community in that it imposes no EFT. A person could sign up to have their ben­ charge on checks that are not cashed. efits sent to Travelers Express’ bank, and Trav­ Any check casher in the country could sign elers Express could download the benefits. up and run this Direct Delivery program by One must keep in mind that someone must using a modem and simple software. Our pay for the cost of delivering the electronic intent was to develop a low-cost, quick, efficient benefits to the community. Change costs program that is applicable anywhere. Cus­ money. If the government, in mandating these tomers would continue their present relation­ changes, does not pay for the necessary infra­ ship with the neighborhood merchant and still structure to deliver these benefits, the business be in full compliance with the federally-man­ community must be allowed to recoup its dated EFT by 1999. Customers are not being investment. For years, the people in the com­ forced into the banking system. munities have chosen to pay a small fee for ser­ Banc One has a program on the market vices rather than travel a long distance for free today that is similar in concept to the Illinois services. This small fee would support the program. Here, the customer establishes a rela­ infrastructure needed to provide the electronic tionship with Banc One and technology is used benefit services. to distribute the check locally. The technology Today, many banks seem to be thinking of is based upon a system of “rapid anticipation” trying to fill the void on their own, but the tax refund loans. A system such as this could banking world must become comfortable with grow because this platform could support pri­ the check casher as a part of the distribution vate or governmental payroll checks, as well as network. A check casher is similar to a 7­ state welfare benefits. Eleven-style grocery store. Customers know Western Union’s parent, First Data, is they will pay a premium for their groceries, but designing a system that would create a nation­ the 7-Eleven stores are open late, have small al network for the delivery of benefits. This lines, and have become a part of today’s urban approach would allow recipients to sign onto landscape. the network and pick up their benefits at any Banks today do not seem to want to build location that provides Western Union services. brick-and-mortar branches. Our check cashing Other similar programs are in their infancy. facilities are there, so partnership between the A partnership between Chase Manhattan two seems to be a logical extension. My indus­ Bank and the New York Check Cashers Asso­ try has always been partners with banks, which ciation, which has 400 members, has evolved have provided us with our services. Banks cash into the checks-to-cash club, a point-of-bank­ our checks for us, clear items, and provide us ing system. This system is now in test mode with our currency and coin and with technolo­ and is due to roll out this summer. While the gy. It is a logical progression that this relation­ Illinois system is check-based, the New York ship continue and expand. program is based on a plastic card. The checks-to-cash club offers a complete menu to DAVID JOHNSON, Corus Bankshares: I am the customer to access payroll or welfare ben­ with Corus Bank and working with Martin efits, pay bills, transfer between accounts, and Lieberman’s group. Corus Bank is a niche obtain balance information. They can do any­ bank, with only 12 locations. We are a low-cost thing that Chase can do, and, in reality, have provider — our efficiency ratio is a little less become an arm of Chase. In effect, there will than 40 percent. Our bank does more business

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with check cashers than any other bank in Illi­ nois. KATHARINE MCKEE, Self-Help: I have been We consider each market segment that we do working in the Community Redevelopment Act not yet reach, as if it were any other goal or tar­ (CRA) area for many years. Community get. We ask: Is it worth going after? What is the activists repeatedly note that an ATM is not the competition like? In Chicago, the check cashers same as a brick-and-mortar branch and ask dominate the unbanked section. We would why their communities should not get full ser­ rather cooperate with the check cashers than vice banking. move in on their territory and lag behind We have reached the point where we must them. Rather than create another option, we embrace those aspects of the technology that prefer to expand upon an existing option, one can really help communities — particularly that has led to partnering. with accumulating savings — and continue to Under Secretary Hawke commented on raise challenges to those aspects of the tech­ corollary objectives, such as a more secure sys­ nology that might harm them. I feel very dif­ tem than the one presently in ferently about the use of ATMs or place. Our approach is secure only kiosks as a strategy to increase sav­ as far as receipt of the check. If ings than I do about their substitu­ recipients decide to cash it or tion for bank staff with whom one carry the check, it is no more or We would might discuss a credit request. less secure than the existing sys- rather cooperate Perhaps we should unlink the tem. Second, our approach is not with the two and pursue technology to the likely to encourage savings. Mr. extent that it lowers costs and Hawke mentioned that we lose the check cashers helps capture an increased per- opportunity to have deposited than move in centage of the unbanked into the funds if a paycheck is cashed all at on their territory savings structure, while also look- once. This is an economic deci- and lag behind ing for ways to meet their face-to­ sion and we must weigh whether it them. face lending needs. For the fore- is worth it to us or not. If we say it seeable future, the alternative is not worth it and we are wrong, financial services providers, both we face the market consequences. for-profit and nonprofit, may fill I do not think that it is our those needs. responsibility to encourage people to save. People have a free choice of whether DOUGLAS FERRIS, National Commercial they want to save or not. Bank Services, Inc.: I work for a firm that has We do not have a problem with people using financial branches in supermarkets. When we checks or with money orders as a payment started in-store bank branches about 10 or 11 mechanism. We believe that it is acceptable for years ago, nobody thought that they would the unbanked to pay a check cashing fee. Even work. We relied on training and customer edu­ though we are not quite advancing to the 21st cation to help consumers understand the in- century, we are taking a practical, pragmatic store banking concept. As a result, we have been step. able to lend a lot of money in supermarkets, and today are able to sell a variety of other services. HAL NIERNBERGER, HALsystem, Inc.: By Some interesting and creative ventures are the end of the century, the paycheck will be occurring around the world, not necessarily replaced mostly by electronic deposit. We are only with the unbanked. In Peru, for example, marketing the HALcard to payroll companies, in-store branches are going into one of the employers, staffing companies, and employee large retail chains there. In Portugal, banking leasing companies to provide direct deposit. kiosks are being launched through a joint ven­ We furnish the card and enroll each employee. ture between Commercial de Portuguese and a When I worked in the check cashing business, I retail partner. It is a 50/50 partnership in which determined that the one need that paycheck together they offer a telephone system and cashing could not fulfill was the capability to direct electronic transfer. In the U.K., the leave one’s money somewhere. We provide that Sainsbury Bank has been chartered recently as capability with the HALcard. a joint venture of the Bank of Scotland and

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Sainsbury, and another in-store branch is being and the alternate financial services, including formed by Abbey National and Safeway (not check cashers. I would like to describe briefly the U.S. Safeway). You realize that this is a an experiment that Beneficial is conducting. global development. Beneficial is known primarily for the 1,000 In order for banks to reach and serve the consumer finance offices it has around the unbanked, I believe that the unbanked must country. Ironically, the company entered that have the kind of confidence in banks that they business in 1914 in circumstances similar to have in check cashers today. I do not know if today’s, in that banks did not lend to wage banks will be able to build this credibility on earners. Unsecured loans did not exist in 1914. their own as quickly as they can acquire it After legislation passed that permitted unse­ through partnerships with retailers offering cured lending in a tightly regulated way, Bene­ financial services. I also think that we are dis­ ficial entered that business and broke new cussing basically a fee-based business as ground. opposed to a deposit business. It is hard to Since then, we have added other businesses, make the kinds of fees on a $150, $200, or including a private label credit card operation $500 savings account that would be required to with major retailers, such as Kmart and Best offset the cost of cashing checks or performing Buy Superstores. And, through our partnership ATM transactions. ATM deposits are not free: with H & R Block, we are a dominant player in the tax refund market and we service about 3.5 million customers a year, about 40 percent to We must embrace those aspects of 45 percent of whom are unbanked. So we think the technology that can really help we have gotten to know that customer. communities — particularly with While we are not a traditional bank, we are a accumulating savings — and raise bank holding company and have three char­ challenges to those aspects of the ters. One is a charter for a single-purpose cred­ it card bank and another is a commercial bank. technology that might harm them. As a result of carrying out a treasury function for our 1,000 branch offices and the seasonal tax refund business, Beneficial National Bank someone has to pick them up and service the performs a lot of transaction processing. ATMs. As a result of our experience and the 1999 I expect that we may see more joint ventures EFT mandate, we began discussions with In- in the U.S. between banks, check cashers, and Person Payments (IPP) about other services we retailers where you take the same concept, but might provide. We expect to launch this pro­ perhaps in different packages. gram in the first few locations in March. Cus­ tomers will have an FDIC-insured bank STEVEN RATHGABER, NYCE Corporation: account and receive monthly statements. They We are working with Chase in New York and can accept direct deposit or other monies into Connecticut to install in check cashers point­ the account. The difference is that they can of-banking terminals for manned electronic open an account at locations other than bank access to EBT accounts. This basically lets the branches. The paper check will be eliminated, unbanked become pseudo-banked. By having thereby avoiding overdrafts and cutting an EBT account available at Citibank, for account maintenance expenses. The customer example, customers will be able to access their can access money through a debit card at funds from the NYCE network of about 17,000 NYCE, MAC, Honor, Plus and other debit net­ ATMs and 70,000 to 90,000 point-of-sale loca­ works, at retail point-of-sales, and at any IPP tions. That is a dramatic, practically overnight location. transition into the 21st century, because of the mandated EBT account. MARVIN MORRIS, In-Person Payments Today: IPP has almost 800 locations in Con­ ROSS LONGFIELD, Beneficial Management necticut, New York, New Jersey, Pennsylvania, Corporation: I agree with much of what Martin Maryland, and Washington, D.C. They are Lieberman said, in terms of the opportunity small mom-and-pop retail operations, food for partnerships between the banking industry markets, check cashers, pharmacies, conve­

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nience stores — a wide variety of stores. IPP orders instead of cash. 7-Eleven and others manages those stores, equips them with PC- have even approached Diebold to turn the compatible machines with modems, and pro­ ATM into a vending machine. So in the future, vides instructions on how to take payments. you will be able to dispense any item of value, Today, these stores are taking cash payments not only cash. from customers. They are paying about 180 Customer acceptance will drive the evolution different types of billers, ranging from phone, of this technology. The technology can support gas and electric, catalogues, department store the service once there is a business case for it. credit cards, virtually any kind of bill. We aim But it is important for firms not to be too far to put in swipe machines to be able to go out in front. through NYCE and MAC to Beneficial Bank to handle the debit card transactions. With that Consumer Attitudes Toward card, the customer will be able to access the Technology benefits deposited into the account, buy goods Participants also discussed attitudes toward new and services, and pay bills. technology by people in general, and the nonbanked population in particular. ROSS LONGFIELD, Beneficial Management Corporation: This product has a payment PAUL HAMMOND, Yankelovich Partners: mechanism, the essential feature of an ideal Information on consumer attitudes toward product, and also satisfies Regulation E. In the technology is available from the Yankelovich Monitor survey, which has been conducted since 1971. We interview customers for two Customer acceptance will drive hours about their attitudes, values, lifestyles, the evolution and behaviors. The data base has responses of this technology. from about 4,000 Americans. Our survey results revealed, first, that con­ sumers are ambivalent toward technology. They believe that technology is useful only so far as it fits their needs. Consumers like tech­ pilot the payment mechanism will not be tight­ nology if they find its benefits useful, but they ly integrated; we have not found all the answers do not like technology for itself. We term this — we are in the learning stage. The transaction response the “microwave test.” The microwave pricing issues that were discussed earlier are is very simple and yet it has immediate and sig­ relevant, and we are going to have to fine-tune nificant benefits. Consumers want technology and learn during this process. We also hope to that works for them, is easy to understand, and find out about the materiality — can this be does not complicate their life. They believe done on a scale large enough to make it prof­ that their life is already too complicated. itable? Although this product is not without Second, privacy is an overwhelmingly risk, we think it will be an exciting experiment. important issue for consumers, one on which they will not compromise. They are afraid that THOMAS SWIDARSKI, Diebold, Inc.: New if they give someone else information about applications of technology include American their finances, their privacy will be invaded, Express ATMs that dispense travelers checks and this fear constitutes an absolutely funda­ and, as the checks are dispensed, read the mental issue. MICR-encoded line. This means that American Thirdly, consumers are feeling stressed and Express knows which travelers checks you are trying to streamline their lives. They blame received, as if you completed the same transac­ their excessive stress on overload: too many “to tion at a typical branch. do’s.” They implement control in one of three Other new applications of technology ways. If something is important, they will keep include companies that are dispensing money it. If they can live without it, they will jettison it. orders. The machines are capable of printing a And they look for strategic partners to help unique money order. Alternatively, the them manage their lives. Their confidence in machine could dispense money orders if the financial planners has increased in recent machine’s cassette were loaded with money

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years. Consumers want partners who will help tonight at midnight, maybe one o’clock.” give them control and whose advice and infor­ “They’re not going to shut me off, right?” It is mation resonates with them as accurate and that risk aversion/control element that costs us useful. systemwide money every day. I would love to The risk of technology is the risk of invasion find a machine that would get me past that. of privacy. Providers must assemble safeguards and explain to consumers that their privacy is JIM MEADOWS, Citizens National Bank: As I inviolate if they use technology to carry out mentioned earlier, we are a one-unit bank and their finances. Also, consumers, in seeking con­ our customer base is primarily ethnic and low- trol and reassurance, still need a human being to moderate-income. One of the most difficult with whom to discuss their finances. They can­ things we have had to do, and we still have not not do this solely through an ATM or over the phone. Manned ATMs are an example of technolo­ Increasingly, consumers will select gy that provides easy access and still enables banks on the basis of user-friendly consumers to talk about finances with a human being. That is not possible with an automated technology and the option for response on the phone, a computerized sys­ personal contact. tem, or an unmanned ATM. Although we want to shift as rapidly as possible into a technolog­ ically-advanced era, the consumers are holding got it right, is to teach people how to use a the industry back, because they still want con­ checking account. We take for granted being tact with human beings. Increasingly, con­ able to fill out the check and write out the sumers will select banks on the basis of user- numbers in English, and being able to balance friendly technology and the option for person­ a bank statement, but our customers have a al contact. hard time with this. We have had some success in moving people THOMAS NORTON, Western Union North into certain types of technology. We have had America: As a provider that spends a lot of people latch onto the ATM and telephone time and effort in this area of technology, I am access system, once they figure it out. Through dubious about cost reduction through technol­ pricing, we have induced people to use the ogy. Our experiences in the marketplace con­ telephone, allowing us to successfully off-load tinue to support the Yankelovich findings about some costs. For a small bank, we have an enor­ the consumer’s ambivalence about technology mous number of transactions by telephone: and the need for a partner. some 20,000 a month for a $50 million bank. We have an incredible amount of money invested in a voice response unit (VRU) that NANCY BARRY, Women’s World Banking: We allows people to call us up and check on the work with low-income women entrepreneurs in status of their transactions. Significantly, to over 50 countries of Africa, Asia, Latin Ameri­ find that telephone number, you have to be ca, Europe, and North America. Commercial able to read the Yellow Pages, so these cus­ banks often fulfill a wholesale function for our tomers are not illiterate. They immediately affiliates, who are the specialized retailers. We bang their way past the VRU. They want to also actively encourage commercial banks to hear a voice tell them what they were already become directly involved in retailing savings told at the retail level. They need that assur­ and lending services to those in the lowest 30 ance. percent of the population. In the last few years, we have built an The only way to prevent the 14 percent of the extremely large, in-person utility bill payment unbanked population from becoming the 30 business, which accepts both checks and cash. percent is through technology. The large banks We see people with checking accounts who will say that essentially they do not make any money walk into a retail location and hand over a on the low end of banking: It costs them $150 check because they want to hear the response per year per account and they are certainly not to their questions, “I’m paid, right?” “Yes.” “So getting that in revenue. So those of us who care when does this money get there?” “It gets there about that bottom 30 percent have to work with

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the banks to figure out ways to extend technol­ could have a very low-touch technology, but it ogy with innovations and outreach. could be located where a person can answer the The overseas microfinance industry is mov­ customer’s questions, or it could enable the ing toward what the management literature customer to make a phone call. For example, terms “operational excellence,” meaning low­ video-conferencing may provide the customer est cost, standardized producer. They keep it with a surrogate rather than having a person quick, and they keep it simple. For example, in present, but it provides access to expertise that South Africa, banks and some nonprofit orga­ otherwise would not be available at the branch. nizations have become highly automated, Similarly, in a high-touch environment, we where one staff member can make thousands of should think of whether there are low-touch loans. They do not care about the purpose for elements that could add services, increase cost- which the money is borrowed. The customer effectiveness, or improve things for the con­ borrows $100; if it is repaid, the customer can sumer. It is not merely a case of either/or, or of borrow $200; if that is repaid, the customer can high-tech or high-touch. borrow $400. But, on the other hand, there is the view that the customer relationship is STEPHEN BROBECK, Consumer Federation important. It is important to the customer and of America: Just a brief comment on the poten­ for the microfinance lender, which earns its tial of technology for serving the unbanked. My money with repeat clients. recollection from the literature on illiteracy is The approach to banking with the poor in that it ranges in our society from 10 percent to the United States will be different than it is 20 percent, and it is highly correlated with the overseas. I am sure that we underestimate this unbanked. Most of the people who are func­ population’s capacity and propensity to save, tionally illiterate have low and moderate and it will be important to redress that issue. incomes, and a disproportionate number of We will also need a lower-cost solution to lend­ them are minorities. Except for the age distrib­ ing if the banks are going to become involved. ution, this is also the population that is dispro­ Otherwise, I think that the growth segment of portionately represented among the unbanked. this business will be the pawn brokers, check This raises the question: How does new tech­ cashers, and other institutions that have the nology serve that population? If it is print high-touch approach. It is clear that the screen-based as opposed to voice-based, it will unbanked are willing to pay high fees for the not meet their needs effectively, unless some kinds of services that they do not receive from kind of assistance is rendered, which introduces the commercial banks. a lot of cost.

JOE BELEW, Consumer Bankers Association: PAMELA FLAHERTY, Citicorp: There is a I have one observation on adapting and tech­ tendency to think of non-branch delivery as nological literacy. There are all kinds of tech­ being fancy electronics, but the phone is also a nology, and it strikes me that many of the pop­ relevant part of all this. Even in an EBT envi­ ulations that we are talking about may be the ronment, which is not a full relationship, cus­ earliest adapters of technology, not the latest. tomers always have the opportunity to talk. All You do not have to know the computer lan­ of our EBT customers have access to a toll-free guage, DOS, to buy a farecard on Washington 800 customer service telephone number, and D.C.’s Metro system. Some immigrant popula­ all training (including ways of reaching people tions are the ones that most often use phone to train them) is done through a combination cards and stored value cards. of media. We run a danger when we think of technolo­ gy as a big, intimidating, complex creature, STEPHEN BROBECK, Consumer Federation rather than as variants that are user-friendly, of America: Although this solves much of the simple, and expeditious. I think we tend to problem, I recollect from a different set of sta­ expect an aspect of intimidation that some­ tistics that 7 percent of all households do not times might not be there. have phones. In certain areas, up to 20 percent, 25 percent, or 30 percent of low-income house­ KATHARINE MCKEE, Self-Help: Technology holds do not have phones. I see this as a gen­ must always be looked at in its context. You erational problem, a transitional problem,

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because it is the older people who are most Using these consumer risk management resistant to new technology and who are most dimensions demonstrates that all activities comfortable with having that face-to-face con- have different levels of perceived risk. Buying a tact at a branch. tube of toothpaste is a very low perceived risk on the part of the consumers. You spend two MARTIN LIEBERMAN, Community Curren- dollars and you are counting on the FDA to cy Exchange Association of Illi­ make sure that the toothpaste will nois: I do not believe that there is not remove the enamel from your a direct correlation between the teeth. You do not have to confess nonbanked and the illiterate. The history of to your brother-in-law that you While I do not have statistics and technology used a bad brand of toothpaste; studies, I do have 40 years of adoption… you just throw it away. This is an experience dealing daily with peo­ demonstrates that example of a decision that is per­ ple who do not use banks. I can toys become tools; ceived to be low risk. assure you that they are neither the Financial behavior is probably illiterate nor dysfunctional. They one of the highest perceived risk have merely chosen, for a myriad novelty activities that consumers under­ of reasons, not to use a bank. becomes the take. For example, you do not necessity. want to tell your brother-in-law EDWARD FURASH, Furash Asso­ that you overpaid for a loan. You ciates: I suggest that our conversa­ do not want to tell somebody that tion may need a framework. We you went to a pawn shop. There should keep three key points in mind when we are many dimensions on which financial ser­ discuss the migration of financial services to vices are perceived to be high risk. broaden access through technology. Consumers develop personal strategies for First, consumer financial services are, in managing perceived risk. One of the reasons their essence, a form of retailing. Although it for the need for a “high-touch” approach in the may wax and wane, no retailing function ever adoption of technology is not because people disappears. So, for example, when all the love high-touch per se, but because consumers mom-and-pop grocery stores disappeared, see it as a method for managing risk — it pro- because they were uneconomical, they were vides reassurance to consumers. How many of merely replaced with more-economical 7- you, when you call a business on the telephone, Elevens, which carried out the functions of are gratified that someone will give you their long hours and convenience. Similarly, the name so that you can get back to them? These financial functions that people need to live are all consumer risk management devices. So their lives are not going to disappear. Who per- the management of perceived risk is the second forms them will change. We must recognize factor in inducing people to adopt financial that we are dealing with essentially a form of technology. retailing and marketing. Thirdly, we should also be aware of the his- Second, in the financial services sector, con- tory of technology adoption, which demon­ sumer behavior is driven fundamentally by the strates that toys become tools; the novelty management of unanticipated consequences. becomes the necessity. The telephone was a Consumers tend to manage risk according to toy; it is now a tool. The microwave was a toy; it what they perceive to be the risk of the activity is now ubiquitous. So toys become tools. The they are going to undertake. They manage this secret in technology adoption is to create for risk on five or six dimensions. The functional the customer the sense that he or she is using a risk of the activity is whether the product or toy. The toy makes it simple and turns the tech- service performs as expected. Financial risk nology into a tool. relates to whether the service is worth its cost, In financial services, we have yet to create or whether it will damage me financially. Phys- the right toys. Banking by personal computer is ical risk is whether it will harm me. Psycholog- still too complex. We are asking people to do ical risk is whether it fits my self-image or gives too much with these new services. But as soon me dignity. And another is social risk; that is, is as these services become toys, let me assure it socially acceptable to do it this way? you, they will become tools. As they become

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tools, they will become familiar. And when they run these types of classes and they worked very are familiar, a consumer will understand how to well, especially for senior populations and for manage risk and will require less and less per­ monolingual people. Perhaps Bank of America sonal interaction. We went through this same should have run their own classes and devel­ cycle with ATMs. People would not use them oped that relationship with their customers, unless someone taught them how. rather than giving us that grant, but it was a New York Air experienced a similar situation positive experience for us. when it put in automatic ticketing machines that were a wonder of science. You put your KATHARINE MCKEE, Self-Help: Perhaps card in, punched in a couple of items, and training is too formal a word to use, but we within about 60 seconds out came a ticket. The CDFIs manage risk through the nonfinancial problem was that these machines were services we offer. These services help gain cus­ absolutely silent, and so no one thought that tomer acceptance for new ways of doing things, they were working. So New York Air hired psy­ and they build relationships. I would say that chologists to stand beside the machines to tell those services are key: they are the value that people that they worked. After that, the com­ we add. pany merely installed in each machine an arti­ ficial noise that whirred, clicked, and made you DONALD NEUSTADT, Ace Check Cash think that the machines were operating. Express, Inc.: In my check cashing business we We should always remember that we are put our technology “behind the window.” We dealing with basic human behavior and emo­ focus our training on our employees, making it tions. If we want to do things for people or their responsibility to share the training with have them do what we want, the systems we dis­ consumers, so that they can get the satisfaction play must be fun. When they are fun, access out of the product or services that they are pur­ broadens quickly. As we look into this new cen­ chasing. tury, we must recognize that this technology is When we first installed some of our POS going to cut costs, but it is also going to enable equipment, we also tried to make it fun. the unbanked to become more complete mem­ Employees could call in and get their horo­ bers of our society. To do so, we have to make it scope in the morning. We were trying to make fun for them and cost-effective to bankers. it fun so that people would stop being intimi­ dated and work with the technology. We found The Role of Consumer Education it effective to focus our training dollars on our Several participants discussed the importance of employees, rather than going out and training consumer education to consumer acceptance of consumers, as Citicorp does. technology. PAMELA FLAHERTY, Citicorp: We believe EUGENE LUDWIG, Office of the Comptroller that training has been important, but that two of the Currency: I am curious about consumer issues should be recognized. First, our training education. I visited a halfway house for drug is not exclusively oriented toward lower-income rehabilitation in New York where Citicorp pro­ people. We have discovered that people in vided training in financial services. The classes some high-traffic, upper-income areas also teach people who are re-entering society how to need training, particularly in the new kinds of manage their financial needs. The clients asked banking. some pretty sophisticated questions, and many Second, not everyone wants or desires this seemed to benefit from the training. What kind hands-on kind of training. In some of the of hands-on training do you see as useful, valu­ statewide EBT programs, some people will opt able, or necessary for low- and moderate- to save time by getting their personal identifi­ income people generally, and specifically as we cation code and card through the mail, rather move into a more technological environment? than obtaining them in person. Still, there is a tremendous need for consumer education on RICHARD JUAREZ, MAAC Project: We had a electronics, credit, and the basics of conducting grant for two years from Bank of America to financial affairs.

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Closing Remarks

EUGENE Richard Hartnack and I will summarize a few of the basic LUDWIG, themes from today’s conference. It will be a collaborative Comptroller of the Currency effort as it was in developing this conference. In the first ses­ sion of the forum, Robert Townsend provided an interesting combination of the economics and statistical analysis of a particular community in Chicago, the results of some fasci­ nating research. His research revealed that although we have learned some things from studying this community, we are only beginning to understand this population. From the subsequent discussion, we learned that house­ holds value personal contact and privacy, and that they have some ambiguity about their openness to new technology. In trying to determine the private sector’s response, one theme that emerged again and again throughout the day was the need for a balancing act between the personal touch and new technologies. It will probably take continuing efforts, debate, and study to find that right balance. A number of participants raised the issue of a savings gap, or a gap in the savings vehicles available to low- and moder­ ate-income people, and the costs that arise from that gap in terms of individual opportunity and economic development.

RICHARD In summing up the barriers to service that were addressed in HARTNACK, the second session of the day, two overriding themes Union Bank of California emerge. One is rapid change in the banking and financial services industry, as institutions have had to manage their costs and their delivery channels better. The tremendous pressure on costs is changing the way banking services are delivered. Indeed, many of the approaches that we accepted only a few short years ago as routine and accepted, are no longer routine. The second theme, which John Hawke described at lunch

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and which dominates the conversation, are the and may continue to challenge us in developing government’s mandatory electronic payments partnerships and alliances with nonbank insti­ initiatives. In the not-too-distant future, tens of tutions. David Johnson and Martin Lieberman millions of people who are currently unbanked described how a bank and a check casher can must have somewhere to put their money. work together. Other opportunities include sav­ Against that backdrop, we discussed the bar­ ings alliances that will require flexibility by reg­ riers to getting people into the banking system. ulators. Certainly, the OCC has indicated an One of the first things that we discussed was interest in understanding those barriers and working with us to see how they might be effec­ tively addressed. There is a need for Finally, Edward Furash described very capa­ a balancing act bly that technology has to be taken seriously. It is one part of the industry that is moving quick­ between the personal touch ly, so it is important to understand how we and new technologies. bring customers along, and what technologies are going to be useful to them, and what will be easily accepted. We will try to achieve good whether, in fact, there even is a problem. That social policy and good economic policy, and yet question was not answered today; clearly, there respect the free market in which people choose are thoughtful people around this table who the way they want to do business. would say that this population is not really underserved, it is merely served differently. EUGENE LUDWIG, Comptroller of the Cur­ Even the term “barriers” connotes that peo­ rency: In the forum’s third session, there ple are stuck in some dysfunctional segment of seemed to be a general view around the room the economy; that may not be true at all. Points that we are going to see a very changed tech­ were made about savings and the fact that sav­ nological environment for banking as we move ings accounts can be opened at banks, but not into the next century. at some of the alternative institutions. This Although some may differ as to the degree to makes it worthwhile to keep looking at the issue which that is a good thing, there seems to be a of savings and whether there are barriers. very little disagreement that change is coming. The first barrier is the people themselves, Participants seemed to believe generally that it those who have chosen not to be bank cus­ is incumbent upon us to make technology our tomers. This barrier will require substantial friend, even though there may be different change, but it is not yet clear who is going to views as to how to do that. One common view pay for educating, training, or influencing peo­ was that it need not be off-putting but should ple to want to change — if, indeed, changing be, in fact, simple. Edward Furash’s notion that them is good for social policy. The second barrier clearly is the perception by some banks that this population may pre­ sent a serious profit challenge. Seamus McMa­ …the costs that arise hon threw some light on that, saying that it is from a savings gap probably more a matter of how we price and in terms of individual opportunity the way the client behaves than the absolute economics of the circumstance. and economic development. Another barrier identified is the corporate culture of banks. Banks already have the 88 percent of the population who are their cus­ if technology can be looked on as a toy, it soon tomers to worry about, and most of them prob­ becomes a tool, was insightful. ably believe that they have their hands full Despite considerable discussion about con­ merely staying ahead of the competition. There sumer education, I do not think we ever entire­ are probably certain barriers in trying to bring ly agreed about how much education will be along the 12 percent who are still outside the needed, either with respect to the new technol­ banking system. ogy or with respect to the unserved or under- Regulatory barriers have existed historically served population. Some believe that we need

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a considerable amount of education, while oth­ parts of the country. ers seem to believe that the unbanked are mak­ In terms of our next steps, the OCC will give ing rational judgments, given the economics of some serious thought to the kind of study we their situation. might carry out to follow up on the many Surprisingly, we heard common views on themes that have been discussed here. Joe partnerships. In this changing world, a patch­ Belew and I also plan to convene a group next work quilt of arrangements and partnerships year to see where these developments have will probably evolve that will serve different taken us, particularly as the mandatory EFT ’99 populations somewhat differently in various approaches.

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Participant Biographies and is the nation’s largest consumer advocacy organization. Brobeck has served as visiting Nancy M. Barry professor of consumer economics at Cornell Nancy M. Barry is president of Women’s World University and as adjunct professor of con­ Banking (WWB), which serves low-income sumer economics at the University of Mary­ women entrepreneurs. She is responsible for land. Brobeck graduated from Wheaton Col­ managing effective operations of WWB and for lege and earned a Ph.D. from the University of maintaining its fiduciary integrity. She has Pennsylvania. been a member of WWB’s board of trustees since 1981 and was vice chairwoman from 1988 Richard S. Carnell to 1990, before being appointed president. Richard S. Carnell was sworn in as assistant sec­ Before joining WWB, Barry spent 15 years with retary of the Treasury for financial institutions the World Bank, where she pioneered its in 1993. In that position, he advises the secre­ involvement in small enterprises and designed tary, the deputy secretary, and the under secre­ operations in Asia, Latin America, and Africa. tary for domestic finance on all matters relating Until September 1990, she led the Industry to financial institutions. He directs policy on Development Division, and from 1988 to 1990, proposed legislation and regulation of private she chaired the Donor’s Committee on Small financial intermediaries and Treasury activities and Medium Enterprises. Barry has a B.A. relating to other federal regulatory agencies. degree in economics from Stanford and a mas­ Before joining the Treasury Department he was ter’s of business administration from Harvard senior counsel with the Senate Banking Com­ University. mittee from 1989. Carnell graduated from Harvard Law School and earned a B.A. magna Joe Belew cum laude from Yale University. Joe Belew is president of Consumer Bankers Association, a national financial trade associa­ John P. Caskey tion specializing in retail banking issues. As the John P. Caskey is an associate professor of eco­ chief executive officer of the association, Belew nomics at Swarthmore College. He received a directs all activities of the organization, speaks B.A. from Harvard University and a Ph.D. from frequently to national audiences on current Stanford University. His research focuses on financial issues, and has appeared on national financial institutions serving low-income television shows. He also testifies before Con­ households and on topics in community eco­ gress on banking issues. He served on the staff nomic development. He is the author of Fringe of the U.S. Congress for 10 years and on the Banking: Check-Cashing Outlets, Pawnshops, and U.S. Senate staff for three years. He has been a the Poor. Caskey is a member of the Family member of the Society of International Busi­ Selection Committee of the Chester Communi­ ness Fellows since 1984 and is a member of the ty Improvement Project, a not-for-profit low- Key Industry Advisory Committee of the Amer­ income housing development agency in ican Society of Association Executives. He also Chester, Pennsylvania. He is also a member of serves on the board of directors of the Social the board of directors of the Franklin Mint Fed­ Compact. Belew holds a bachelor’s degree in eral Credit Union and is a visiting scholar at public relations and journalism from the Uni­ the Federal Reserve Bank of Philadelphia. versity of Georgia in Athens. Kevin M. Colosia Stephen Brobeck Kevin M. Colosia, director of strategic market­ Stephen Brobeck has served as executive direc­ ing, has been with Motorola for 24 years. He tor of the Consumer Federation of America has held various positions of progressive (CFA) since 1980. CFA is a federation of 250 responsibility in technical, marketing, and busi­ groups with more than 50 million members ness development activities for telecommunica­ tions products and services. His primary

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emphasis is on cellular communications systems corp, is responsible for global community activ­ and services, with additional experience in ities in the 98 countries in which the corpora­ mobile data, telepoint, wireless local loop, and tion operates. She is the senior CRA officer in personal communications networks. Colosia has the United States and the corporate state offi­ a B.S. and a graduate degree in electrical engi­ cer for Citicorp’s businesses in New York. She neering from the University of Illinois and a has held a variety of management positions at graduate degree in business administration Citicorp, including head of the New York con­ from Northern Illinois University. sumer business, and head of human resources for Citicorp. A cum laude graduate of Smith Constance R. Dunham College, Flaherty received a master’s degree in Constance R. Dunham is a senior financial international relations from the Johns Hopkins economist at the Office of the Comptroller of School of Advanced International Studies. She the Currency, where she currently heads the is a board member of the American Women’s agency’s “Expanding the Financial Frontiers” Economic Development Corporation, Organi­ project on nonbanked households. Previously, zation Resource Counselors, Rockefeller and she was senior economist for domestic finance Company, World Lending, the Consumer and overseas development issues at the Presi­ Bankers Association, Community Preservation dent’s Council of Economic Advisers. At the Corporation, and the Local Initiatives Support U.S. Agency for International Development, Corporation. She also serves on the Neighbor­ she managed the agency’s principal project on hood Housing Services New York Advisory microenterprise and small business finance Board. and development. Previously, at the Urban Institute and the Federal Reserve Bank of Robert E. Friedman Boston, Dr. Dunham carried out policy Robert E. Friedman is founder and chairman research and wrote numerous articles on U.S. of the board of the Corporation for Enterprise and overseas banking and methods of expand­ Development (CFED), a Washington, D.C.­ ing access to finance. She holds a Ph.D. in eco­ based not-for-profit economic development nomics from Stanford University and B.A. in research, technical assistance, and demonstra­ economics from Yale University. tion company. For 16 years, Friedman and CFED have worked extensively with public and Douglas W. Ferris, Jr. private policy makers in state and local govern­ Douglas W. Ferris, Jr. serves as president of ments, corporations, private foundations, labor National Commerce Bank Service (NCBS) Inc., unions, and community groups to design and the supermarket banking affiliate of National implement innovative and effective economic Commerce Bancorporation (NCBC), a $4.2 bil­ development strategies. CFED’s work empha­ lion institution headquartered in Memphis, sizes job creation through enterprise develop­ Tennessee. NCBS provides comprehensive in- ment. Currently, Friedman is director of CFED store banking consulting services to other West in San Francisco. He was founding chair­ financial institutions and supermarkets in the man of the Association for Enterprise Oppor­ U.S. He has spent nearly 30 years with NCBC tunity and a director of the Levi Strauss Foun­ and has led the NCBS consulting group since dation. He is a graduate of Harvard College 1987. As president of NCBS, he is a member of and Yale Law School. the bank’s executive committee and is respon­ sible for the strategic direction of the group. Philip J. Friedrich Ferris is a graduate of the University of Alaba­ Philip J. Friedrich is a senior consultant with a ma and of the Stonier School of Banking at primary focus on strategic issues, management Rutgers University. problem solving and decision making, and pro­ ject management at Kepner-Tregoe. Previously, Pamela P. Flaherty he was director of human resources and orga­ Pamela P. Flaherty, senior vice president of Citi­ nizational development for a large govern­

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ment organization. Friedrich’s primary work is and a bachelor’s in chemistry and economics in the service industry, where he works with from Duke University. commercial banks, and life, health, and prop­ erty/casualty insurance companies. He did his Paul F. Hammond undergraduate work at Villanova University Paul F. Hammond directs all product develop­ and graduate work at Pennsylvania State Uni­ ment, marketing, and sales activities for versity. Yankelovich Partners’ multi-sponsored studies. He has had overall responsibility for syndicat­ Edward E. Furash ed tracking studies of building and design Edward E. Furash founded Furash & Company products, retail products, environmental ser­ in 1980. He has advised major financial trade vices, commercial office, kitchen and bath, res­ associations, including the American Bankers idential remodeling, home mortgage and con­ Association, Robert Morris Associates, the sumer credit markets, as well as numerous oth­ Bank Marketing Association, the Consumer ers. Hammond graduated with a B.A. from Bankers Association, The Bankers Roundtable, Brown University and a M.A. from New York and many state banking associations. Before University. forming his practice, Furash served nearly 12 years as a senior vice president at the Shawmut Richard C. Hartnack Corporation, and subsequently was managing Richard C. Hartnack is vice chairman, a mem­ associate and member of the board of directors ber of the board of directors, and head of the of Golembe Associates. Furash graduated community banking group at Union Bank of magna cum laude from Harvard College and California, which has $27 billion in assets. He received his master’s of business administration joined the bank in June 1991 from the First from The Wharton School, University of Penn­ National Bank of Chicago, where he served as sylvania. He was on the faculty of The Wharton an executive vice president and head of the School and the Harvard Business School, an community banking group. Hartnack began assistant editor of the Harvard Business Review, his banking career in 1971. He received an eco­ and worked as a senior staff associate and busi­ nomics degree from UCLA and a master’s ness manager with Arthur D. Little Inc. degree in business administration from Stan­ ford University. Hartnack serves on the boards Donald V. Hammond of the Bank Administration Institute and Inde­ Donald V. Hammond was appointed deputy pendent Colleges of Southern California, is fiscal assistant secretary in 1996 and is respon­ chairman of the Pacific Coast Banking School sible for policy oversight for activities in the board of directors, chairman of the California Financial Management Service and the Bureau Community Reinvestment Corporation’s Board of the Public Debt. The office also serves as the of Directors, and chairman of the Consumer Treasury Department’s liaison with the Federal Bankers Association. He also serves on the U.S. Reserve System. The scope of the office’s region board of directors for MasterCard Inter­ responsibilities includes managing the govern­ national and is a member of the California ment’s cash flow, accounting for the govern­ Club and the Economic Club of Chicago. He is ment’s borrowing, and maintaining centralized also a founding director of California Econom­ reporting systems for the government’s finan­ ic Development Lending Initiative. cial activity. Hammond leads the Treasury working group, which is implementing the John D. Hawke, Jr. requirement to make all federal payments elec­ John D. Hawke, Jr., the Under Secretary of the tronically by January 1999. Previously, he was Treasury for Domestic Finance, oversees the the assistant director of the Treasury Depart­ development of policy and guides Treasury ment’s government securities relations staff. activities in the domestic finance area. He is the Hammond has a master’s degree in finance department’s chief operating officer and is a and accounting from Northwestern University member of the President’s Management Coun­

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cil, which coordinates programs initiated by the nization. Juarez serves on the board of direc­ National Performance Review that improve the tors of the Southeastern Economic Develop­ efficiency and customer service of the govern­ ment Corporation and the city’s Redevelop­ ment. He graduated from Yale University in ment Agency. He also serves on the board of 1954 with a Bachelor of Arts and in 1960 from the California Community Economic Develop­ Columbia University School of Law, where he ment Association, the board of the New Cali­ was editor of the Columbia Law Review. fornia Economic Development Lending Initia­ tive Bank, the senior advisory board of the San David H. Johnson, III Diego Neighborhood Development Associa­ David H. Johnson has been with Corus Bank- tion, and the board of the Environmental shares (formerly River Forest Bancorp) for more Health Coalition. He was a founding member than five years. He is the executive vice presi­ and first president of the San Diego Nonprofit dent of the holding company, executive vice Federation for Housing and Community president and chief operation officer of Corus Development. Bank (the banking subsidiary), and chairman of Corus Financial. He previously had 12 years Martin A. Lieberman with Ernst & Young, most recently as partner in Martin A. Lieberman is a director of the Com­ charge of bank consulting in the Midwest munity Currency Exchange Association region. He has co-authored several books and (CCEA) of Illinois Inc., which represents an given numerous speeches on the banking estimated 700 check cashers. He has been a industry. Johnson graduated from the Universi­ director since 1975 and is responsible for cre­ ty of Kansas with an undergraduate business ating new products and management tech­ degree and a master’s of business administra­ niques for CCEA members. Lieberman has tion. been a director of the National Check Cashers Association, which represents more than 3,000 Julia F. Johnson members in 35 states, since its inception in Senior Vice President Julia F. Johnson joined 1986. He is also president and general manag­ Bank One Columbus 12 years ago. Johnson er of Central Clearing Company, a chain of was named to her current position as Commu­ nine currency exchange stores in the Chicago nity Reinvestment Act (CRA) officer of Banc area. The company also operates 14 locations One Corporation in 1986 and oversees imple­ in Michigan, with a special emphasis on welfare mentation of all affiliate bank CRA programs. benefits. Lieberman has a B.S. in accounting, Johnson is also a director of the Banc One with special emphasis on management systems, Community Development Corporation and from DePaul University. Finance One Corporation. She serves as a member of the Community Reinvestment Ross N. Longfield Committee of the Consumer Bankers Associa­ As senior vice president of Beneficial Manage­ tion and the Riverfront Commons Corporation ment Corporation, Ross N. Longfield is presi­ and serves as a director of the W.B. Marvin dent of two subsidiaries: Beneficial Tax Masters Mfg. Company of Urbana, Ohio. She is also a Inc. and Beneficial National Bank USA. He member of the board of trustees of Kenyon also leads Beneficial International Card Ser­ College. vices, a management group formed in 1996 to oversee Beneficial’s international credit card Richard Juarez business. Longfield began his career with Ben­ Richard Juarez has been involved in inner-city eficial while attending Fairleigh Dickerson Uni­ community development in San Diego for versity in 1960. In 1982 he was named presi­ more than 25 years. He is director of the Com­ dent of Beneficial Tax Masters Inc.; in 1990 he munity Development Department of the Met­ became president of Beneficial National Bank ropolitan Area Advisory Committee (MAAC), a USA; and two years later was named to his cur­ multiservice community-based nonprofit orga­ rent position.

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Eugene A. Ludwig to existing and start-up community develop­ Eugene A. Ludwig took the oath of office on ment financial institutions nationwide. Before April 5, 1993, as the 27th Comptroller of the joining Self-Help, she spent eight years as a Currency. By statute, the Comptroller serves a program officer with the Ford Foundation. concurrent term as a director of the Federal McKee has just completed a three-year term on Deposit Insurance Corporation and is chair­ the Consumer Advisory Council of the Board man of the Neighborhood Reinvestment Cor­ of Governors of the Federal Reserve. She is a poration. The Comptroller also serves as a graduate of Bowdoin College and has a mas­ member of the Federal Financial Institutions ter’s degree in public and international affairs Examination Council. Ludwig joined the OCC from Princeton University. from the law firm of Covington and Burling in Washington, D.C., where he was a partner Seamus McMahon beginning in 1981. He specialized in intellec­ Managing Vice President of First Manhattan tual property law, banking, and international Consulting Group, Seamus McMahon has trade. He earned a B.A. magna cum laude spent the last 17 years as a consultant to man­ from Haverford College. He also received a agement in the financial services industry. Keasbey scholarship to attend Oxford Univer­ McMahon has worked primarily in consumer, sity, where he studied politics, philosophy, and small business, and middle market segments economics, and earned a B.A. and M.A. He where he focuses on revenue generation and also holds an L.L.B. from Yale University, restructuring distribution. He has a bachelor’s where he served as editor of the Yale Law Jour­ degree in economics and a masters of arts nal and chairman of Yale Legislative Services. degree from Trinity College, Dublin. James M. McCormick Jim P. Meadows James M. McCormick is president and a Jim P. Meadows is chairman and chief execu­ founder of First Manhattan Consulting Group tive officer of Citizens National Bank in Hous­ (FMCG), a financial industry consulting firm. ton, Texas. He has 20 years of experience as a He is also president of FMCG Capital Strate­ community bank chief executive officer (CEO) gies. McCormick has 18 years of experience in Texas. Meadows earned a degree in eco­ consulting to financial industries in a variety of nomics from Texas Christian University and subjects and has been called to testify before received a law degree from the University of the Senate Banking Committee. He holds mas­ Georgia Law School. ter’s and bachelor’s degrees from Cornell Uni­ versity. Lisa Mensah Lisa Mensah is deputy director of the Econom­ Katharine W. McKee ic Development Unit in the Asset Building and Katharine W. McKee has been a senior manag­ Community Program at the Ford Foundation. er since 1986 with the Self-Help development In this capacity, she is responsible for negotiat­ banking group, one of the most successful com­ ing grants totaling over $2 million annually to munity development financial institutions. community development financial institutions Self-Help was created in 1980 to provide eco­ that help create small enterprises and other nomic opportunities to low-income, rural, employment opportunities in the United States female, and minority North Carolinians. In and in developing countries. Prior to joining 1994, McKee was appointed by the Clinton the Ford Foundation in 1989, Mensah worked Administration to the position of transition in corporate finance for Citibank in New York. director for the newly created Community She holds a M.A. in international studies from Development Financial Institutions Fund, Johns Hopkins University and a B.A. in gov­ which was established to provide capital, tech­ ernment from Harvard University. nical assistance, training, and related support

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Marvin A. Morris ing on First Data Corporation (FDC) compe­ Marvin A. Morris is the president and founder tencies and Western Union market strengths. of In-Person Payments, which is a three-year­ Norton has also worked as the eastern region old electronic payment services company. vice president where he managed a field team Before founding IPP, Morris was the regional selling the Western Union portfolio. Previously, vice president for National Payments Network, he worked for Citicorp and Maxwell House which processed in-person payments for sever­ Coffee Company in corporate level sales, mar­ al utilities and was eventually sold to Western keting, and general management positions. Union. Morris is a graduate of City College of New York in computer science. He is also an Roger W. Raina associate member of the New Jersey Check Roger W. Raina is a co-founder of National Cashers Association. Item Processing Inc., which was established in 1992 to give companies a cost-effective method Donald H. Neustadt for clearing checks, drafts, or money orders. Donald H. Neustadt has served as president Raina has more than 30 years experience in and chief executive officer of Ace Cash Express banking, including operations management, Inc. (ACE) since November 1994 and previous­ correspondent banking, cash management, ly served as a director beginning in January and consulting as well as courier service man­ 1987. ACE, the largest chain of retail financial agement. In 1984 he founded, and remains service stores in the U.S., was founded in 1968. president of, Roger W. Raina & Associates Inc., From 1984 to 1985, Neustadt served as presi­ which provides cash management and opera­ dent of Associates Financial Express, Inc., tions consulting to financial institutions and where he was one of three people to negotiate financial services companies. Before that, the purchase of ACE in 1984. Neustadt Raina purchased and operated a small com­ received a B.A. in economics from the Univer­ mercial printer that specialized in printing for sity of Illinois and an MBA from Loyola Uni­ financial institutions. The company was sold in versity, Chicago. 1993, however he continued to assist with man­ agement until 1996. He has also been vice Hal Niernberger president and manager of bank operations for Hal Niernberger, is the founder, chairman, Midwest Federal Savings & Loan Association, chief executive officer, and president of HAL- was part owner of an air transportation busi­ system Inc. Prior to founding HALsystem, ness that provided air and ground courier ser­ Niernberger founded Money Mart Check vices to financial institutions, Check Flight Inc., Cashing Centers in 1968. Money Mart was one and spent 22 years with First Bank Minneapo­ of the first check cashing companies to serve lis in various positions. the market in a dignified and system-based manner. The company was acquired in 1984 by Steven A. Rathgaber The Associates. At the time, the company was a Steven A. Rathgaber is executive vice president multimarket system of 75 retail financial cen­ for NYCE Corp., operator of the NYCE Net­ ters. The company is now Ace Cash Express, work, which was formed in 1994 when the New the nation’s largest check cashing company York Switch Corporation and New England with more than 600 stores. Network Inc. merged. As executive vice presi­ dent, Rathgaber is responsible for sales plan­ Thomas P. Norton ning and management, client services, technol­ Thomas P. Norton is the vice president and ogy research and planning, and data center business manager of Consumer Products for and remote service operations. Before the Western Union North America. He develops merger, Rathgaber was senior vice president of card-based products, manages the customer systems and operations for the NYCE Network. data base, and starts other businesses capitaliz­ Before joining NYCE, he spent two years at

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Veritas Venture Inc., where he served as prod­ Brookings Institution. She is adjunct professor uct/project manager and was a founding prin­ at the Johns Hopkins University School of cipal of the company. Rathgaber has also Advanced International Studies and the author served in various positions in the EFT industry. of numerous articles and books, including The He earned his B.S. in accounting from St. New World of Microenterprise Finance; Banks, John’s University and has pursued a master’s Small Business and the SBA Loan Guarantee Pro­ degree in financial management at Pace Uni­ gram; and The Economics of Federal Credit Policy. versity. Dr. Rhyne holds a Ph.D. in public policy from Harvard University and a B.A. in history and Kenneth Rosenblum humanities from Stanford University. Kenneth Rosenblum is a senior vice president and manager of retail distribution planning for Michael Sherraden Chase Manhattan Bank. His responsibilities Michael Sherraden is the Benjamin E. Young­ include managing the branch network portfo­ dahl Professor of Social Development and lio management, overseeing market area analy­ director of the Center for Social Develoment sis for branch and other channel deployment (CSD) at Washington University in St. Louis. decisions, developing strategy and information He is author of Assets and the Poor: A New Ame­ resources for the spectrum of distribution ican Welfare Policy and co-editor of Alternatives to channels, and planning the tactical migration Social Security: An International Inquiry. Profes­ of customers to alternative delivery channels. sor Sherraden has proposed individual devel­ Rosenblum’s previous experience includes key opment accounts (IDAs), which are matched roles in two major mergers: formulating savings accounts for the poor, as an asset build­ branch network action plans for the Chase ing strategy. IDAs are being adopted in a num­ Manhattan Bank—Chemical Bank merger in ber of states and community organizations. 1996, and managing the development and implementation of the branch network consol­ Larry D. Stout idation process for the Chemical and Manufac­ Assistant Commissioner Larry D. Stout has turers Hanover Trust merger in 1992. He has a worked for the Financial Management Service, master’s degree in finance from Carnegie Mel­ Department of the Treasury, since 1992. The lon University and a bachelor’s degree in elec­ agency manages all federal cash and credit trical engineering and urban studies from the activities, and Stout is responsible for the cash University of Rochester. flow management of more than $2 trillion annually. He began his federal career in 1966 Elisabeth Rhyne with the U.S. General Accounting Office and Elisabeth Rhyne is director of the Office of has held various jobs in the financial manage­ Microenterprise Development at the U.S. ment arena for the past 29 years. He has Agency for International Development worked for the Treasury Department, Depart­ (USAID) and leads the agency’s implementa­ ment of Agriculture, and the National Bureau tion of its Microenterprise Initiative. Dr. Rhyne of Standards. He was also selected for a fellow­ has worked for 15 years on economic develop­ ship and spent a year as a staff member for the ment, especially in the area of small enterprise U.S. Senate Committee on Appropriations. He and finance, both domestically and interna­ has a B.S. in accounting, a M.S. in administra­ tionally. She has consulted on microenterprise tion, and is a graduate of the Federal Executive development and financial sector reform in Institute and Harvard University’s Program for countries around the world and designed and Senior Managers in Government. Stout is an managed major USAID projects and initiatives adjunct faculty member at Northern Virginia for promoting microenterprise development. Community College and has taught financial Dr. Rhyne has also worked on domestic policy management in several of the former Soviet issues at the Office of Management and Bud­ republics. He is an active member of the Wash­ get, the Congressional Budget Office, and the ington chapter of the Association of Govern­

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ment Accountants (AGA) from which he He also oversees the evaluation, selection, and received the 1990 AGA Washington Chapter monitoring of the company’s community Achievement of the Year Award. He also development investments in its various mar­ received a Presidential Rank Award in 1995 for kets. Previously, Woodruff was chief operation his leadership in improving financial manage­ officer of Boatmen’s Community Development ment in the federal government. Corporation and was vice president and man­ ager of government and community relations Thomas W. Swidarski for the Boatmen’s National Bank of St. Louis. Thomas W. Swidarski is director of financial The bank has been recognized as one of the industry worldwide marketing for Diebold Inc., country’s leading institutions in community which provides card-based transaction systems, development, having instituted numerous security, and service solutions to the financial, products and programs designed to benefit education, and health care industries. He is low-income areas of the community. Woodruff responsible for analyzing financial industry is also a member of the board of directors of trends and leveraging Diebold’s core compe­ the National Association of Affordable Housing tencies to ensure proper positions for future Lenders and serves on the Consumer Bankers growth. Swidarski has held various positions in Association’s community reinvestment commit­ the financial industry, focusing on marketing, tee. He is the current chairman of the St. Louis product management, profitability, branding, equity fund investment committee, the former and retail distribution. He is a former senior chairman of the St. Louis Regional Housing vice president at PNC Bank Kentucky and Alliance, and a commissioner for the St. Louis more recently was responsible for consumer County Housing Resource Commission. He is a marketing for the entire corporation. He graduate of Miami University, Oxford, Ohio, received a degree in marketing and manage­ and the Stonier Graduate School of Banking. ment at the University of Dayton, Ohio, and a master’s degree in business management from Brenda Yost Cleveland State University. Brenda Yost is senior vice president of Con­ sumer Electronic Banking Product and Deliv­ Robert M. Townsend ery Support for Bank of America. She is Robert M. Townsend is currently Charles E. responsible for project management of the Merriam Professor of Economics in the Depart­ bank’s Electronic Benefits Transfer and related ment of Economics and a research associate at services. She also supports the bank’s Asia the National Opinion Research Center Retail Division on strategy and implementation (NORC) at the University of Chicago. He of electronic banking and call centers. Previ­ began to teach and research at Carnegie-Mel­ ously Ms. Yost managed risk policies for retail lon University. He is a member of the Econo­ electronic and liability products and directed metric Society, the American Academy of Arts marketing and product managment for the and Sciences, and has served as editor of the Consumer Electronic Banking Division. Addi­ Journal of Political Economy and panel member tionally, she worked for VISA International, the in economics for the National Science Founda­ Office of the Comptroller of the Currency, and tion. Townsend received a B.A. from Duke Uni­ the National Automated Clearinghouse Associ­ versity and a Ph.D. from the Unversity of Min­ ation. Ms. Yost has a master’s degree in con­ nesota. sumer economics from Ohio State University. Douglas B. Woodruff As president of Boatmen’s Community Devel­ opment Corporation, Douglas B. Woodruff is responsible for directing and implementing Community Reinvestment Act policy through the nine states in which the company operates.

65 Forum Background Readings

Philip Bond and Robert Townsend, “Formal and Informal Financing in a Chicago Ethnic Neighborhood,” Federal Reserve Bank of Chicago Economic Perspectives, July/August 1996.

John P. Caskey, “Consumer Financial Services and the Poor,” Swarthmore College, Working Paper, October 1996. Final version published as John P. Caskey, Lower Income Americans, Higher Cost Financial Services. 1977. Filene Research Institute: Madison, Wisconsin.

“Hispanics Tell of Armed Robberies,” The Durham Herald-Sun, January 8, 1997, p. C1.

Lawrence J. Radecki, John Wenninger, and Daniel K. Orlow, “Bank Branch­ es in Supermarkets,” Federal Reserve Bank of New York, Current Issues in Eco­ nomics and Finance, Volume 2, Number 13, December 1996.

Marguerite S. Robinson, “Savings Mobilization and Microenterprise Finance: The Indonesian Experience,” in Maria Otero and Elisabeth Rhyne eds., The New World of Microenterprise Finance: Building Healthy Financial Institutions for the Poor. 1994. Kumarian Press: West Hartford, Connecticut.

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