Financial Update (First Quarter 2005)


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Adapting to Changing Payments: Opportunities for Community Bankers

Pat Barron

In recent years, a dramatic transition has been under way in the nation’s payment system as consumer and business preferences have moved away from traditional paper checks to more automated forms of payment, such as debit cards, credit cards, automated clearinghouse (ACH) transactions, and more automated check processing options. While larger financial institutions have effectively adopted many of these payment options for their customers’ use, there’s also still plenty of room for community banks to find a niche in the evolving payments landscape, according to Patrick K. Barron, first vice president of the Federal Reserve Bank of Atlanta.

Community bank advantages
Although community banks are smaller than the megabanks that operate regionally or nationally, the smaller institutions in some respects have advantages over their larger counterparts when it comes to payment issues, Barron said. The main advantages, according to him, are that community banks are more flexible and closer to their customer base, allowing community bankers to better tailor payment options to their customers’ interests.

Pat Barron speech
Story on payment system study (Financial Update Q1 2005)

In a speech to America’s Community Bankers National Operations, Security, and Technology Conference and Marketplace in late March, Barron emphasized that while large banks might be able to operate on a mass scale at a lower cost, community banks have the “edge of responsiveness, with less entrenched management silos and flatter organizational structures.”

Barron emphasized, however, that community bankers must be forward-looking, leveraging their customer insights and knowledge to find a niche in the payment system—perhaps utilizing new Check 21 products, the new FedACHSM International service, or check-to-ACH conversions—and then “take it as far as you can go.” At the same time, Barron cautioned community bankers to be disciplined and “willing to pull the plug on new initiatives that don’t work out as planned.”

Avoid status quo
In closing, Barron cautioned community bankers to resist the tendency to maintain the status quo. “If you step back and watch the unfolding revolution in financial services, you are no longer a player. You’re a spectator. If you do not adequately address the changing needs of your customers, your competitors will do so gladly.”