BayBanks unit cashes in with inner city strategy.

BAYBANK BOSTON IS A bank that takes its community seriously.

While bankers in many other parts of the country are shuttering inner city branches to meet cost-cutting objectives, executives at the flagship of $9.8 billion-asset BayBanks Inc. actually have increased their presence in the inner city neighborhoods of Boston. In the last three years, three new branches have been opened and 26 automated teller machines deployed in those communities.

And to prove that it means business, BayBank has positioned itself to compete head on with check cashing houses.

A new marketing campaign, targeted specifically at low-income and moderate-income Bostonians who heretofore have shunned banks, seeks to convince these so-called unbanked consumers that BayBank, with its ubiquitous ATMs and a low-cost checking account, is a much better deal than check cashing houses.

"We like to think of ourselves as the community bank that never left the community," said Grady Hedgespeth, regional president, Baybank Boston. "We've blended the best of the modern-day technology-driven bank with the best of the old main street bank."

So as BayBank ATMs pop up all over the city, staffers fluent in languages like Vietnamese and Spanish stand ready to help walk-in branch customers with everything from making deposits and completing credit applications to reconciling their checking accounts, Mr. Hedgespeth said.

"You have to have the educational component. It allows you to move the customer to less-expensive means of meeting their servicing needs," said Mr. Hedgespeth. "The idea is to make the investment up-front so that you'll have a lifelong customer who moves up the service stream."

The same strategy has worked well over the years with college students, noted Mr. Hedgespeth and Jane Morse, director of technology planning for BayBanks Systems Inc.

But with the inner city customers the bank is targeting now--many of them recent immigrants unused to banking--the strategy requires subtle modifications such as demystifying the technologies that support banking and providing 24-hour access to money. Toward that end, BayBank sends an ATM mascot to community events throughout Boston in hopes of breaking down barriers to ATM use.

"It adds that little bit of a light touch, but human touch, in helping these people overcome that fear" of technology, said Mr. Hedgespeth. "It helps promote the convenience of the distribution system that is best expressed by the ATM and the ATM card."

Although BayBank's basic checking customers are not required to use ATMs, there are obvious advantages to familiarizing these new customers with ATM technology.

"The future is to get people used to using ATMs; that's the one high-technology, low-cost solution to meeting the banking needs of low- and moderate-income Americans," observed Charles Grice, executive director of the Community Reinvestment Institute, a San Francisco-based group that helps banks and community groups come to terms with the Community Reinvestment Act. "We have to start teaching people to use ATMs because nobody can afford to put up bricks and mortar."

Mr. Grice says the fact that BayBank actually has built new branches in the inner city makes it an anomaly among commercial banks, which have been closing branches in droves.

With regulators and members of Congress threatening new mandates that would force banks to expand rather than contract branch operations, the fact that BayBank can expand operations, even in tough times, will certainly add to that pressure, Mr. Grice said.

"BayBank is going to set an embarrassingly high standard for a lot of banks," he said.

Yet, as Mr. Hedgespeth is quick to note, making a commitment to the community need not be a money-losing proposition. The estimated $5 million BayBank has spent on new branches and ATMs should be recouped in short order, he said.

Clearly, bank officials are depending, at least in part, on the ability to lure customers from cashing houses with a low-cost basic checking account. "If you open up new branches and you don't have the products the market needs, it's senseless," Mr. Hedgespeth explained.

Check cashing houses, he noted, assess fees based upon the face amount of each transaction handled, so customers conceivably could pay several dollars just to cash one check. BayBank's basic checking account allows customers to write up to eight checks and initiate four ATM transactions for a flat monthly fee of $2.50. If a customer receives employment or benefit payments by direct deposit, the service charge drops to $1.50. Additional transactions cost 75 cents, and there are no minimum-balance requirements.

Mr. Hedgespeth said BayBank's basic checking account already has attracted "tens of thousands" of customers. Its profitability, however, lies not only in the number of consumers who subscribe, but also in the fact that BayBank can attract and service these customers with minimal changes to its supporting technology.

The changes, Ms. Morse said, were no different than those associated with typical product refinements--some minor tweaking of the pricing structure, little else.

Profitability should increase over the long term, since the pervasiveness of X-Press 24, the BayBanks ATM network, helps wed customers to the bank. With more than 1,000 ATMs, it ranks as the seventh largest in the country, according to Bank Network News.

"The thing that drives all of our strategies is customer convenience," Ms. Morse says. "We try to make it convenient for them to do business with us." For some customers that convenience may translate as broad ATM access; for others it may be the BayBank Catalogue, which allows them to order products and services by phone 24 hours a day, seven days a week.

Although many of the inner city residents targeted by BayBank Boston today may not yet be in a position to want or need some of the more sophisticated product offerings featured in the bank's catalogue--such as mutual funds or credit lines--bank executives say they hope that if banking relationships are established and maintained with them their needs will mature and BayBank will profit from that maturation process.

Integrating the bank into the community also will help that cause, the executives reason. For example, when BayBank established a new branch in Boston's Dorchester section, a key feature was a state-of-the-art conference room for use by community groups and bank personnel alike.

"A lot of the community pressure on banks has simply been to try and show banks the critical role their services play in fulfilling the American dream," Mr. Hedgespeth says. "By having the kind of presence we have in the community today we're helping to fulfill the American dream."

For reprint and licensing requests for this article, click here.
MORE FROM AMERICAN BANKER