Do technological advances in banking cut off the poor and the elderly from services? As banks seek to expand their offerings through ever-evolving technologies, some consumer advocates fear that the chasm between traditionally underserved populations and the banking industry may widen exponentially as the new "unwired" populations become increasingly unable to avail themselves of these technological strides.

Allen J. Fishbein, Esq., of the Center for Community Change (a not-for-profit organization that provides technical assistance to community-based organizations) in Washington, D.C., and Janet W. Thompson, Vice President for Global Community Relations at Citibank in Manhattan, present their positions below.

Fishbein: Bank Technology May Make Access Difficult for Some
Thompson: New Technology Helps Banks Serve Consumers Better

Banking industry consolidation is hastening the spread of electronic communications technologies as the largest institutions seek to cut costs and better position themselves to compete against non-bank financial services companies. Large banks can afford to invest in Automated Teller Machine (ATM) networks, computer-banking linkages, and bank-by-phone systems. Technologically proficient consumers may benefit from these new delivery systems, which offer the promise of greater convenience and, perhaps, lower transaction costs. But for low-income households and those who lack the technological and financial resources to utilize such innovations, these trends could limit their access to bank services.

The new electronic delivery systems are slated to replace the traditional bricks-and-mortar branch facilities as the central delivery point for banking services. Large banks maintain that these delivery systems provide a means to improve access for heretofore underserved segments of society. However, at least at the outset, these trends would seem to disadvantage low-income households, the less educated, and the elderly, who have less access to home computers, modems, or even telephones than do affluent families and young professionals.

A survey conducted by the National Telecommunications and Information Administration of the U.S. Department of Commerce revealed that electronic technologies "have-nots" are found in greatest numbers among low-income households, as well as in rural areas and central cities. The study also found that disparities exist by race, with much lower percentages of Latino and African American households owning home computers and modems than their white counterparts. Further, nearly 20 percent of very low-income families living in central cities do not own telephones.

These technological gaps must be bridged if modest-income consumers are to benefit from these changes. Banks must maintain, at least for the short term, bricks-and-mortar facilities in underserved areas, even as they proceed to restructure their retail operations. In addition, affirmative efforts will be needed by banks, government, and community groups to reduce the technological mismatch that exists for these consumers. For example, the new delivery systems can offer linguistically friendly menu screens and symbol-driven icons to reduce educational barriers that have prevented low-income consumers from fully utilizing financial products and services. Moreover, public–private partnerships can be developed to make computers available in low-income neighborhoods, as well as to provide the technical training and ongoing support necessary to enable residents there to make full use of these tools. Although perhaps the potential for increased access exists, it is far from clear whether large banks are truly committed to employing new technologies in these ways.

Consider this: The immediate goal for the restructuring of bank retail operations is to cut costs and halt the erosion of the customer base to non-bank competitors. Increasingly, large banks are profiling their customers to analyze their actual and potential value to them. In such an environment, small depositors are viewed as less attractive as these institutions fine-tune their search for the most profitable customers. Already, banks are experimenting with fee structures that are calculated to price small depositors out of their institutions or, at the very least, to discourage visits by less-profitable customers to teller windows and to encourage electronic self-service. This sorting process is likely to become more pronounced as the banking, securities, and insurance industries become increasingly intertwined and the new mega-institutions created by these affiliations step up their efforts to attract the types of customers most likely to avail themselves of the broader array of financial products these conglomerates wish to offer.

Thus, the technological innovations underway by large banks pose significant concerns for modest-income consumers. To the extent that large banks choose to ignore these individuals, credit unions and small banks presumably would be eager to handle their business. However, it is also likely that the less well-off and less educated would increasingly fall prey to "fringe" bankers (check cashers, pawnbrokers, and other predatory pricing outlets) to process their financial transactions. If these new delivery systems fail to deliver, it could well reinforce trends already underway toward a two-tiered banking system—one for the wealthy and another, more expensive one, for the poor.

The Community Reinvestment Act (CRA) is one safeguard that is available to help counteract these trends. The 1977 law requires banks to help meet the needs of their communities, including those of low- and moderate-income geographies. Newly adopted CRA regulations emphasize the importance of full-service bricks-and-mortar facilities to underserved communities. At the same time, these rules recognize the importance of technology and alternative delivery systems for banks seeking to provide financial services to needy populations.

However, CRA alone may not be sufficient to ward off the potentially crippling effects of these new technological trends. Other forms of government intervention may be necessary to ensure that low-income households have sufficient access to essential banking and financial services. Requirements for banks to offer "lifeline" accounts and expanded support for community development financial institutions that meet the needs of low-income customers are an important part of the solution.

Allen J. Fishbein is General Counsel for the Center for Community Change in Washington, D.C.

What do the automobile, light bulb, and telephone have in common? They are the top three inventions without which people think they cannot live! These late-nineteenth-century inventions allowed us to move greater quantities of information faster. That is what the electronic movement of information allows us to do today.

Today, community advocates and activists are concerned that electronic delivery of services could exclude low-income and elderly people from the financial services market. This concern assumes that branches are the only way low-income and elderly households can access financial services, and it assumes that these households cannot learn new ways of doing things.

The most compelling argument that we can and do serve low-income households and communities via new technology is in our results. Branches will continue to be one point of access, but the role of the branch has changed dramatically since branching began some 40 years ago. (The first drive-in bank branches are only 35 years old!) Twenty years ago you could do business only at the branch in which your account was opened—it was your bank. You went there to get account balances, cash your check, make a deposit—and you could do it only between 9 A.M. and 3 P.M. on weekdays. Today, you can do all of these things at any branch in the local market Citibank network, by telephone, by ATM, by computer—any time of the day or night and any day of the week. So what technology has done for consumers is expand options, not restrict them.

The telephone could well be described as the branch of the future! You can pay a bill, transfer money, get balance information, and apply and be approved for a loan. Our retail customers conduct telephone banking transactions, on average, eighteen times a year.

ATMs provide another access point. Our customer base in New York, the U.S. market in which we have served the public the longest, has gravitated to ATMs with speed and gusto. About 80 percent of all transactions in the branch take place on our ATMs. Nationally, about 22 percent of the households that do business with us live in low- and moderate-income (LMI) census tracts, and they account for about 20 percent of our ATM transactions. Our research on customer satisfaction with ATMs finds that more than two-thirds of customers living in LMI census tracts say they can do all the functions they desire on ATMs and find them "easy to use."

Finally, we are encouraging our customers to try our PC banking offering. We recognize that not all households own or have access to computers, but as the price of PCs drops, we anticipate that there will be a time in the not-too-distant future when every family in the country will have access to, and the knowledge and skills to use, a computer. Our research tells us that about one-third of LMI households currently have PCs.

All of this technology is allowing us to deliver financial services faster and less expensively to customers. And we are using the lower costs of technology-based distribution to lower our pricing. We have expanded our education and outreach efforts to teach people to use the new access systems through in-branch training; we also offer formal seminars on access to a variety of financial services in community centers, senior centers, and churches. Citibank presents about 600 seminars a year in its New York marketplace.

Technology has enabled us to develop new products, not simply deliver traditional products in new ways. We are the leading provider of Electronic Benefits Transfer (EBT) payments in the United States today. Citibank has contracts with about twenty-six states to deliver state-based welfare supports to low-income households, including AFDC and food stamps. The state transfers the monthly benefit to us, and we provide access to the receiving family through ATMs and Point of Sale terminals located in areas in which the families reside.

The EBT program is a much less-expensive vehicle by which a low-income family receives its monthly benefit, with greatly increased points of access. We are just starting up the EBT program in New York, but it provides a dramatic example of how access will increase for families. Today, in one zip code in northern Manhattan, there are about 5,000 families receiving state benefits. This population currently receives its benefits in the form of a check, which most cash at one of three check cashers in the area. When EBT goes live, benefit recipients will be able to access their cash and pay for goods with the EBT cash card at the Post Office, at two dozen authorized food stamp retailers, and at countless Point of Sale terminals installed by merchants, retailers, and housing authorities.

Citibank is committed to educating consumers in the use of electronic technology. New ways of delivering services allow us to serve consumers by a variety of vehicles and at lower cost to everyone.

We are also committed to listening to the concerns of community advocates and, where possible, we seek to respond affirmatively to their ideas for improving banking access and offerings to underserved communities.

Janet W. Thompson is Vice President for Global Community Relations at Citibank, NA, in Manhattan.

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