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Publication Date

March 2001


Michael A. Stegman

The federal transition to electronic funds transfer (EFT) of government benefits through direct deposit presents new opportunities for financial institutions in North Carolina to better serve unbanked and marginally banked populations.

In the new economy, it is as important to have access to a basic bank account and financial services as it is to have access to electricity, running water, and a telephone. This is why
policymakers, bankers, and their counsel should be concerned that, despite the longest economic expansion on record and the lowest unemployment rates in a generation, 10% of all American families—including 25% of African-Americans and Hispanics, a quarter of all families with incomes under $20,000, and nearly half of all families moving from welfare to work—have no bank account. Assuming this same one-of-ten ratio also applies to North Carolina, more than 300,000 Tar Heel families are unbanked.

Doing a better job of bringing the unbanked into the financial mainstream is important because one’s banking status has profound implications for long-term family self-sufficiency.

Michael Stegman, in his recent book, Savings for the Poor, suggests how a cluster of new public policies—most importantly, the federal transition to electronic funds transfer (EFT) or the delivery of government benefits through direct deposit—present new opportunities for financial institutions to better serve unbanked and marginally banked populations.

This article apply the arguments of that book specifically to North Carolina and start a conversation with the local banking community about the challenges and opportunities posed by EFT.

This five-part article begins with a discussion of North Carolina financial services: the decline in the number of commercial banks and thrifts along with significant market concentration by a handful of institutions, the explosive growth in the number of “fringe banks”—most notably check
cashing outlets and payday lenders, and the scale of their volume.

Next, it links the national policies that are supporting new banking initiatives for the poor to North Carolina, providing, where possible, data and statistics that might be useful to bankers in their business formulations. Next, it summarizes banking innovations that are useful models for North Carolina financial institutions to consider, emulate, or build upon. In the final section, the author calls for certain refinements in the Community Reinvestment Act (CRA) that provide incentives for banks to expand services to unbanked and under-served populations.

Topics(s): Financial Inclusion, Financial Services Industry, Savings & Asset-Building