Banking Relationships of Lower-Income Families and the Governmental Trend toward Electronic Payment

In the past three years, the federal government and many states have lowered their costs of administering welfare and benefits programs by expanding the use of electronic payment. These initiatives promise to have their greatest significance, and meet their greatest challenge, among lower-income families, the demographic group with the lowest rate of bank account ownership and the least familiarity with electronic transactions. Although the payment programs do not require a banking relationship, the move to electronic transfer may change the financial practices of many recipients without a deposit account or with no banking relationship at all. For example, they may continue to obtain cash from check cashing outlets and grocery stores, but the attraction of a bank account may become heightened by a federal plan to make special accounts available at depository institutions primarily for the electronic transfer of federal payments. Moreover, the greater use of the banking system by lower-income families could harmonize with the emphasis that welfare reform has placed on asset-building, a goal that may be harder to achieve without the use of a bank account. This article examines the ways in which lower-income families obtain checking and credit services, the effects that the government move to electronic payment may have on these families and on depository institutions, and the promotional and educational efforts that may be needed to facilitate the move of the unbanked to electronic services.