Marketing Financial

Services to All Levels

of Affluence
James A. Verbrugge
University of Georgia
David A. Whidbee
California State University, Sacramento
Roberto Friedmann
University of Georgia

ABSTRACT
This study examines efforts being made by commercial banks to
satisfy tbeir obligations under tbe Community Reinvestment Act
wbile at tbe same time responding to cbanges in tbeir economic and
competitive environments. Banks are being directly and indirectly
mandated by outside forces to find ways to serve all segfments of
tbeir markets. Wbat one could consider tbe banks' cboices or
prerogatives, sucb as served markets, selection and pursuit of
desired market nicbes, differentiation strategies, and positioning
alternatives, are all being affected by outside regulatory forces. In an
effort to identify tbe marketing-related factors tbat dil^erentiate tbe
two groups, tbis study compares tbe policies and cbaracteristics of
tbose institutions tbat are satisfying tbeir regulatory obligations to
tbose institutions tbat are not satisfying tbeir obligations. © 1995
Jobn Wiley & Sons, Inc.

The field of services marketing has exhibited a dramatic evolution

maturation in the last two decades, and has lately received a remark-
able degree of attention in the academic and trade press (see, for ex-
ample, the recent reviews hy Fisk, Brown, & Bitner, 1993; Swartz,
Bowen, & Brown, 1992).

Psychology & Marketing Vol. 12(8):703-719 (December 1995)

© 1995 John Wiley & Sons, Inc. CCC 0742-6046/95/080703-17
703
 Acknowledging, of course, other topics, most of the attention within
this body of work has heen placed on service quality (e.g., Cronin &
Taylor, 1992; Gronroos, 1983; Parasuraman, Berry, & Zeithaml, 1991;
Parasuraman, Zeithaml, & Berry, 1985, 1988; Teas, 1993, 1994), ser-
vice satisfaction (e.g., Bitner, 1990; Crosby, Evans, & Cowles, 1990;
Rust & Oliver, 1993), service design (e.g., Baum, 1990; George & Gib-
son, 1991; Shostack, 1984, 1987, 1992), customer retention and rela-
tionship marketing (e.g.. Berry, 1983; Berry & Parasuraman, 1991;
Gronroos, 1990) and internal marketing (e.g., Bowen & Lawler, 1992;
George, 1990; Gronruss, 1981).
This article contributes to the literature by focusing on several man-
agerial consequences in the area of financial services delivery
processes, resulting from external regulatory influences of a magni-
tude rarely seen in other business sectors. Specifically, this study ex-
amines efforts being made by commercial banks to satisfy their
community reinvestment obligations while at the same time respond-
ing to changes in their economic and competitive environments.
The world of financial services is undergoing rapid change. When
one mentions financial services, the term commercial bank is no
longer the automatic first response. Increasingly, financial services are
provided by nonbanks as well as banks. Credit cards are as likely to
be issued by auto companies and phone companies as banks. Mortgage
loans are increasingly originated and serviced by mortgage companies
that may be freestanding firms or may be owned by a nonbank. Loans
to business firms may originate via commercial paper issued by the
firm itself or by a loan arranged by an investment bank rather than
from a loan by a commercial bank.
As a result, consumers' decision-making processes—regardless of
whether they are individuals or industrial clients—have been sig-
nificantly muddled. The profusion of alternative sources of financial
services now active in the marketplace have altered consumers'
evaluative criteria, often to the point that their level of complexity is
seen as quite burdensome, or at least challenging to an individual's
decision-making skills.
The remarkable aspect is that although the internal composition of
the industry is undergoing significant changes, the commercial bank-
ing industry has never faced more intensive scrutiny and intervention
from regulators and legislators. Operating in what some have called a
guilty-until-proven-innocent environment, banks are routinely ac-
cused of not serving all levels of society adequately and of discriminat-
ing in the granting of credit. Thus, this industry, with considerable
and often turbulent internal evolution, is having to adapt and respond
to increasing pressures from the external (i.e., regulatory) environ-
ment in a manner rarely seen elsewhere. As an example, in August
1994, the Justice Department settled an unprecedented lending dis-
crimination case against Chevy Chase Federal Savings Bank, where

704 VERBRUGGE ET AL.

tbe latter agreed to invest $11 million in neigbborboods tbat tbe Jus-
tice Department contended tbey "refused to serve," as well as to invest
$140 million in subsidized mortgage loans to consumers living in
neigbborboods tbey were accused of "ignoring" (Seiberg, 1994a).
Tbus, banks face an unprecedented cballenge in 1990s. Wbile devis-
ing strategies to compete in an increasingly competitive market,
banks are being directly and indirectly mandated by outside forces to
find ways to serve all segments of tbeir markets. In otber words, wbat
one could consider tbe banks' cboices or prerogatives, sucb as served
markets, selection and pursuit of desired market nicbes, differentia-
tion strategies, and positioning alternatives, are all being affected by
outside regulatory forces. Clearly, tbe marketing cballenge for tbese
institutions is to serve tbe marketplace in ways tbat are fair, nondis-
criminatory, and bopefuUy profitable. As sucb, tbe rigbts of most all
otber marketers to purposefully discriminate in tbeir pursuit of a com-
petitive posture via specific positioning, segmentation, pricing, and or
location strategies are not equally present in tbis case.
Tbis article addresses tbree dimensions of tbis cballenge. Tbe fol-
lowing section provides background information, examines tbe cbang-
ing financial services environment from tbe bank's perspective, and
assesses tbe implications of tbose cbanges. Tbis is followed by tbe ex-
amination of a sample of banks for wbicb Community Reinvestment
Act (CRA) evaluations were made public between January 1994 and
June 1994. Tbis examination compares tbe policies and cbaracteristics
of tbose institutions tbat received an outstanding rating to tbose insti-
tutions tbat received a deficient rating. Finally, tbe article concludes
by discussing a marketing strategy for serving tbe market segment in
wbicb banks face tbe most severe regulatory pressure, namely, tbe
less affiuent.

THE COMMERCIAL BANKING INDUSTRY IN TRANSITION

By certain traditional measures, tbe role of commercial banks in tbe

financial system is declining. Bank assets as a percent of total assets
of all financial intermediaries is at an bistoric low of below 30%. Tbe
supposed bread-and-butter bank product, lending to business firms,
bas fallen dramatically as nonbank lenders and tbe commercial paper
market bave made steady inroads into tbe business.^
However, sucb an oversimplified analysis masks tbe vast structural
and regulatory cbanges tbat are sweeping tbrougb tbe financial ser-
vices industry in general and in tbe banking industry in particular.

'Detailed statistics on these issues are provided in several articles presented at a recent confer-
ence at the Federal Reserve Bank of Chicago, The (Declining?) Role of Banks. See, for exam-
ple, Boyd and Gertler (1994).

A 1990s CHALLENGE 705

From the banking industry perspective, banking is evolving rather
than dying. Commercial lending is still a basic banking product, but
the credit-granting mechanisms have changed dramatically. Instead of
simply lending money to a business firm, the bank may provide a cus-
tomized loan product to the business in which risks, such as interest
rate, foreign exchange, and commodity, are shifted from the firm to the
bank where they are subsequently hedged more efficiently than the
business firm itself could have hedged those risks. Also, the bank may
provide lending/credit services via an off-balance-sheet (OBS) product
instead of a loan that appears on the bank balance sheet. Among the
most useful OBS lending products are loan commitments, letters of
credit, standby letters of credit, assorted guarantees, and loan partic-
ipations sold.
Perhaps the most overwhelming change in banking has occurred as
a result of asset securization—the process whereby marketable secu-
rities are created from a pool of previously illiquid loans. As such, as-
set securitization provides an alternative way to meet credit needs of
various customers without the bank actually holding the loan itself in
the bank's portfolio. To some observers, securitization is often viewed
as a threat to banking. To others, it represents an opportunity to pro-
vide credit without expanding the balance sheet and, at the same
time, to enhance noninterest revenue.
At the consumer level, banks are offering mutual funds to their cus-
tomers, and in numerous cases, managing their own mutual funds. By
offering such products, banks are clearly meeting the investment and
liquidity needs of their customers, albeit with a product which would
have been anathema to a bank 20 years ago.
In addition, one of the most rapid growth (and controversial) areas
in banking is the use of derivative instruments. Despite the impres-
sion left by media and certain regulators/legislators, derivatives are
not some exotic new instrument. Rather, they represent the continu-
ing development and evolution of risk-management products and an
unbundling of products, which make the overall system more efficient.
Banks use derivatives (off balance sheet) for one of three basic rea-
sons: (a) as an efficient tool to execute basic interest rate risk-manage-
ment objectives, essentially for hedging purposes for the bank itself;
(b) as dealers to provide risk-management services to their end-user
customers; and (c) as a way of taking a controlled risk position. Al-
though some concern has been raised regarding the latter use, the de-
rivative instruments are one of the most efficient and effective
risk-management tools currently available in financial markets.
Banks happen to be among the most sophisticated users of those prod-
ucts for hedging their own positions and for providing risk-manage-
ment services for customers.
Finally, banks increasingly provide a variety of fee-based services
and products, including corporate/business cash management and

706 VERBRUGGE ET AL.

risk-management services, other capital market services, and a host of
consumer products. These fee-based services/products add to one of
the oldest and most important off-balance-sheet banking activities,
namely, providing trust services.
In short, when one looks only at the traditional bank share of total
intermediary assets, the evidence appears to suggest that banking is
declining. However, when one considers the host of off-balance-sheet
and fee-based banking products and services currently offered by
banks, the conclusion is quite different.

Changes in the Financial Services Environment in the 1990s

The environment in which banks and other providers offer financial ser-
vices is also experiencing rapid changes. One factor producing such
rapid change is the impact of technology. The increasingly available and
shrinking cost of computing power and technology have made it possible
for a dramatic rate of financial innovation. Inexpensive computing
power makes it possible to create complex securities today that could
not have been created as efficiently even as recently as 10 years ago.
On a more elementary level, customers can now access via telephone
all the accounts in a mutual fund family, obtain quotes on the current
market value, and effectuate a transfer of funds without communicat-
ing directly with another person. At the same time, technology has en-
abled banks to operate a system of branches and addresses with an
ever-widening geographic spread whereby customers can access their
accounts at any location. It is a political, not a technological barrier,
that has prevented the market from having truly nationwide banking.
Another factor producing rapid change in the financial services in-
dustry has been a dramatic reduction in the barriers to entry into
financial services. Whereas commercial banks once enjoyed a quasimo-
nopoly in the production of many products and services, barriers to en-
try have fallen to virtual nonexistence. Mutual funds offer investment
opportunities that are virtually identical to bank deposits. Credit
cards are available from a variety of nonbanks and come with an ar-
ray of services such as, for example, long-distance calling service.
Checking account services can be obtained from a brokerage account.
Commercial business loans are available from commercial finance
companies and investment banks as well as commercial banks. And
the list goes on. Because creating and preserving barriers to entry is
one way of creating value in a firm, it is not surprising to find that the
value of the bank charter has fallen. This is evidenced not only by aca-
demic work (Keely, 1990) but also by the standard pricing ratios, such
as price-to-earnings (P/E) and market-to-book (M/^), in equity mar-
kets. Both P/E and M/B measures for commercial banks have experi-
enced substantial declines relative to the equity market as a whole
since the late 1970s.

A 199bs CHALLENGE 707

The Regulatory Environment of the 1990s
Although these market and technology pressures have produced un-
precedented change in the financial services industry, the commercial
banking industry component of the financial industry has come under
increasing regulatory and legislative scrutiny and pressure. One of the
primary reasons for the increased regulatory interest is, of course, the
presence of federal deposit insurance. Because commercial banks,
along with savings and loans and credit unions, offer deposits that are
backed by the federal government and the U.S. taxpayer, federal regu-
lators and Congress pay special attention to what banks do. Also, be-
cause the savings and loan mess of the 1980s precipitated a taxpayer
outlay of some $150 billion to bail out depositors of failed savings and
loans. Congress and the regulators are particularly sensitive about the
issue of insured institutions and their activities. The bottom line is
quite simple. As long as banks offer federally insured deposits, federal
regulators and legislators will observe bank activities with great in-
tensity and will also have a tendency to view insured institutions as a
vehicle whereby various social objectives can be achieved. In other
words, banks are deemed to have a greater level of social responsibil-
ity than institutions that do not offer deposits insured by the federal
government and ultimately backed by the U.S. taxpayer.
Over the past 20 years. Congress and federal regulators have passed
and implemented a number of laws and regulations designed to "pro-
tect consumers in their transactions with financial institutions." These
laws and regulations generally fall into three areas. First, a number of
these regulations/laws fall into the disclosure area. That is, legislation
such as Truth in Lending and Truth in Savings requires banks to dis-
close their interest rates on loans and deposits in very specific and con-
sistent ways. The Home Mortgage Disclosure Act requires detailed
reporting of geographic, racial, and gender characteristics of mortgage
loan applicants. Second, some of the laws and regulations fall into the
equity or fairness area. The Equal Credit Opportunity Act and the Fair
Housing Act were passed to prohibit discrimination against borrowers
based on race, gender, age, marital status, et cetera. Third, other regu-
lations and laws were passed to ensure that credit is available to all
potential borrowers in all segments of a bank's market. The primary
law here is the Community Reinvestment Act (CRA). Originally passed
in 1977 to forbid the arbitrary consideration of geographic areas in
lending decisions (i.e., redlining certain areas as undesirable for lend-
ing purposes), the CRA has been expanded to encourage and require
lenders to extend credit to all segments of their primary trade area and
in all markets where they also gather deposits.
The CRA received additional rigor with the passage of the Financial
Institutions Reform Recovery and Enforcement Act (FIRREA) of 1989.
In fact, banks now undergo a compliance examination as well as an
examination for safety and soundness. The CRA component of the

708 VERBRUGGE ET AL.

compliance examination receives especially intense scrutiny. Banks
are not only reviewed to ensure nondiscriminatory lending practices,
but are also rated with respect to "how well they are serving all seg-
ments of their primary market." Banks can receive ratings ranging
from Outstanding to Substantial Noncompliance. These ratings are
also publicly disclosed. For obvious reasons, banks desire and strive
for ratings of satisfactory or better on the CRA examination. Failure to
do so may not only trigger certain regulatory penalties, but it may
generate adverse publicity and may also be used by regulators to pre-
vent or delay bank mergers and acquisitions.
As a result of this unique combination of increasing competition in
the market for financial products and services and increasing regula-
tory scrutiny of how and where banks provide their products and ser-
vices, banks face a unique marketing challenge in the 1990s. While
dealing with a host of hungry, aggressive competitors in both the con-
sumer and the commercial financial service areas, banks must also de-
velop and implement programs of products/services that ensure that
all segments of their primary trade areas are adequately served.

ANALYSIS OF COMMERCIAL BANKS WITH DIFFERENT

CRA RATINGS

Because the ratings banks receive are publicly disclosed, it is possible

to compare the policies and characteristics of those institutions that re-
ceive the highest ratings in meeting their community reinvestment re-
quirements to the policies and characteristics of those institutions that
receive the lowest ratings. Examination of these policies and character-
istics yields insights into the specific reasons behind individual institu-
tion's ratings and provides some information about successful
strategies for serving all elements of a bank's service area. In addition,
this section examines the financial characteristics of institutions in an
effort to determine whether differences in CRA ratings are refiected in
the types of loans shown on institution's financial statements.

Sample of Banks
The Office of the Comptroller of the Currency (OCC) assigns CRA rat-
ings to national banks based on five performance categories.^ These
five performance categories are further subdivided into 12 assessment

^Bank regulators recently proposed several changes to the CRA that could significantly affect the
way in which banks are evaluated. According to Seiberg (1994b), these changes will require
greater disclosure of the geographic location of lending activities, increase the weight attached
to lending activities in determining CRA ratings, and create separate rating criteria for small
institutions. In short, the reforms of the CRA are designed to make CRA ratings more results
oriented and to reduce the regulatory burden imposed by the CRA on smaller institutions.

A 1990s CHALLENGE 709

factors. Based on a review of these assessment factors, the OCC as-
signs an overall rating that is designed to reflect how well the institu-
tion is meeting the credit needs of its community. Institutions are
classified as Outstanding, Satisfactory, Needs to Improve, or Substan-
tial Noncompliance.
None of the institutions for which CRA ratings were made public by
the OCC between January and June 1994 received a Substantial Non-
compliance rating. Of the 458 institutions for which CRA ratings were
made public during this period, 70 were rated as having an Outstand-
ing record of meeting the credit needs of their communities, 369 re-
ceived a Satisfactory rating, and 19 were rated as needing to improve
their record.
The financial profiles of the banks receiving an Outstanding rating
and those receiving a Needs-to-Improve rating are shown in Table 1
along with Wilcoxon Rank Sum tests for differences in the medians of
the two groups.^ For the January 1994 to June 1994 OCC ratings, the
Needs-to-Improve institutions are smaller, on average, than those in-
stitutions that received an Outstanding rating. The median total as-
sets for the Needs-to-Improve group is $77.4 million. This is
significantly less than the $171.1 million median total assets for the
Outstanding group. The median number of branches at the Needs-to-
Improve institutions is one. At the Outstanding institutions, on the
other hand, the median number of branches is three. These smaller in-
stitutions that received a Needs-to-Improve CRA rating may lack the
resources necessary to implement aggressive strategies for meeting
the credit needs of their entire community.
Regarding overall performance measures, there is no significant
difference in the return on average assets (ROA) between the two
groups. At the same time, the median return on equity (ROE)
of 16.95% for the Outstanding CRA rating group is significantly higher
than the 12.28% ROE for the Needs-to-Improve group. The difference
is the direct result of differences in the leverage of the two groups.
The Needs-to-Improve group has significantly higher capital (lower
leverage) than the group receiving the outstanding rating. Again,
much of this difference may be due to size differences. Smaller
banks tend to have higher capital ratios and less leverage than larger
banks.
There are at least two significant differences in portfolio composi-
tion between the two groups. The Outstanding group has a median
loan-to-asset ratio of 57.80%, which is significantly higher than the
49.54% ratio for the lower-ranked group. Of course, because smaller
banks tend to have lower overall loan ratios than large banks for legit-

'The Wilcoxon rank sum test is a nonparametric test of the null hypothesis that the medians of
the two samples are the same. Because many of the variables shown in Table 1 are not nor-
mally distributed, a standard t test would not be appropriate.

710 VERBRUGGE ET AL.

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A 1990s CHALLENGE 711

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712 VERBRUGGE ET AL.

imate business risk-management reasons, one cannot attribute this
difference to CRA lending. "*
There are also several significant differences in loan composition be-
tween the two groups. For example, banks with the highest CRA rat-
ing have significantly greater proportions of both consumer loans and
agricultural loans in their loan portfolio. At the same time, Needs-to-
Improve institutions have significantly higher holdings of real estate
loans, which include 1-4-family mortgages. The share of commercial
and industrial loans in the loan portfolio does not differ significantly
between groups. One cannot say, however, that these differences re-
fiect CRA effects. Rather, these differences are the result of differences
in size, location, and business strategy.^
There are no significant differences between the two groups in ade-
quacy of loan loss reserves, loan delinquencies, net interest margin, or
operating efficiency (noninterest expense/average assets). At the same
time, high-rated banks have a higher fee-generating (noninterest in-
come) capacity, reflecting perhaps the various fees and charges associ-
ated with activities normally associated with larger banks.
In sum, the financial profiles of the two groups of institutions sug-
gest differences that are, in large part, attributable to size and location
differences. Unfortunately, data are not available on the characteristics
of borrowers at individual banks, so it is not possible to conclude
whether or not those banks that received an Outstanding CRA rating
are making more loans to low- and moderate-income households. How-
ever, based on the analysis presented here, it does not appear that
CRA ratings reflect dramatic differences in loan portfolios.
The next section examines the CRA performance evaluations re-
leased by the OCC in an effort to determine the reasons behind the de-
ficient ratings received by the Needs-to-Improve institutions.

CRA Performance Categories

As mentioned above, CRA ratings are based on an evaluation of five
performance categories, which are further subdivided into 12 assess-
ment factors. This section defines these performance categories and

••Short-term funding is less readily available to small banks; thus they tend to hold a greater pro-
portion of liquid assets than larger banks. It is not unexpected, therefore, to see loans making
up a smaller proportion of assets at these institutions. In addition, smaller banks tend to rely
on deposits as sources of funding more than large banks. Larger banks have greater access to
nondeposit sources of financing. As a result of holding more liquid assets and relying more on
deposits as a source of financing, smaller banks tend to have a lower loans-to-deposits ratio.
^Loan portfolio composition represents the output from a bank's loan offer function. That is,
banks determine the size and composition of their loan portfolio based on their business strat-
egy, location, market, customer needs, and relative interest rates. Any attempt to fully explain
differences in loan composition would necessitate estimation of a loan supply function contain-
ing the information suggested above.

A 1990s CHALLENGE 713

identifies the manner in which the Needs-to-Improve banks failed, ac-
cording to the CRA performance evaluations released by the OCC.
The first performance category is concerned with how well an in-
stitution assesses the credit needs of its delineated community. Within
this category, institutions ae evaluated on the extent to which they
assess the credit needs of the community and the extent to which
senior management is involved in this process. Banks that are defi-
cient in this area are often cited for failing to communicate with
community groups and failing to analyze changes in the demo-
graphic characteristics of the local community. In addition, many
banks that are deficient in this area have failed to develop a formal
CRA program and do not sufficiently oversee the disposition of loan
applications.
The second performance category assesses the marketing efforts of
the institution and the types of credit-related products offered by the
institution. Most of the institutions that received deficient ratings in
this category do not actively market their products and services. Many
of these institutions rely on word of mouth to communicate the prod-
ucts and services offered. In addition, many of these institutions use
advertising to promote the bank's image rather than to inform the
community about specific products and services.
The third performance category concerns the geographic location of
branches and examines whether low- and moderate-income areas have
been specifically excluded from the area served by the institution.
Only a few institutions have received deficient ratings in this category.
These institutions were primarily criticized for geographic delin-
eations that were too broad. Also, some institutions have been cited for
failing to systematically analyze the geographic distribution of its
credit extensions.
The fourth category concerns discrimination and specifically ad-
dresses the issue of whether the institution engages in discriminatory
credit practices. Instances of institutions receiving a deficient mark in
this category are rare. A few institutions were cited for not having ade-
quate policies, procedures, and training programs to address potential
discrimination. One institution was cited for potential discriminatory
practices in its loan application process. Some of this bank's loan offi-
cers were engaging in prescreening practices (although not on a dis-
criminatory basis). Another institution was criticized for its image as a
Chinese bank. Most of this bank's employees and customers are Chi-
nese, whereas the community is only about 30% Chinese. And finally,
one bank was found in violation of the Equal Credit Opportunity Act
and the Fair Housing Act.
The fifth, and final, performance category assesses institution's par-
ticipation in community development. Most of the banks that were
criticized for being deficient in this performance category were cited
for not actively participating in community development activities.

714 VERBRUGGE ET AL,

 Clearly, banks in the Need-to-Improve category were cited by the
OCC for acts of omission as much, or more, than they were for acts
of commission. In other words, the Needs-to-Improve banks, according
to the OCC, have failed to devote enough effort to satisfy the require-
ments of the Community Reinvestment Act. Many of these institutions
have not established practices and procedures to determine the credit-
related needs of their community. According to the OCC, they have
not sought opportunities to participate in community development
activities; they have not developed formal training programs to edu-
cate their employees about preventing discriminatory lending prac-
tices; and finally, they have not involved senior management in their
CRA-related activities. Clearly many of these institutions have
devoted little or no effort toward fulfilling their obligations under
the CRA. However, there is little direct evidence that these institu-
tions are not meeting the credit-related needs of their community, only
that they are not complying with the CRA in the manner described
above.

SUCCESSFUL CRA MARKETING STRATEGIES

This section focuses on the strategies employed by those institutions
that received an Outstanding rating on their CRA evaluations. Accord-
ing to the Community Reinvestment Act Performance Evaluations,
those institutions receiving an Outstanding rating tend to aggres-
sively market their credit-related product to all segments of their com-
munity, especially low- and moderate-income households. Most of
these institutions are characterized by their use of a variety of media
to communicate the availability of their credit-related products. In ad-
dition to television, radio, and newspaper advertising, most of the in-
stitutions receiving an Outstanding rating use one or more of the
following to promote their credit-related products to low- and moder-
ate-income neighborhoods: direct mail, door hangers, telemarketing,
product brochures, outdoor billboards, advertisements in minority
publications, and bus advertising. These efforts tend to be directed to-
ward informing the targeted groups about specific credit-related prod-
ucts. Most of the institutions that received a Needs-to-Improve rating,
on the other hand, rely on word of mouth to inform potential cus-
tomers about their products and services.
Many of the institutions that received an Outstanding rating have
developed products and services that are specifically targeted at what
are considered underserved segments of their communities. For exam-
ple, some institutions offer commercial loans that are specifically de-
signed for minority- and female-owned businesses. In addition, some
banks offer mortgage loans that are designed to make buying a home
easier in low- and moderate-income neighborhoods. For example.

A 1990s CHALLENGE 715

Bank of America recently developed and test marketed a commercial
loan product speciflcally aimed at minority- and female-owned busi-
nesses. Bank of America's Minority Business Enterprise/Women Busi-
ness Enterprise (MBE/WBE) program has been successfully test
marketed and is now being fully implemented.
In addition to developing products and services that are aimed at
underserved segments of their communities, some of the banks that
received an Outstanding rating are active participants in government-
insured or -subsidized loan programs. For example. Factory Point Na-
tional Bank was praised for holding the largest dollar amount of
Small Business Administration loans in their peer group within the
community.
In sum, those institutions that received an outstanding CRA rating
tend to seek out opportunities to serve those segments of their commu-
nity that are viewed as having been underserved in the past. In addi-
tion to establishing policies and procedures designed to satisfy the
requirement of the CRA, these institutions aggressively market their
products and services to low- and moderate-income households. Ac-
cording to the OCC, these institutions are active participants in com-
munity development activities, they involve senior management in
their internal CRA review process, and they make signiflcant efforts to
determine the credit-related needs of the community.

IMPLICATIONS

The interesting aspects of this status quo are the implications of the
marketing strategies for which these service providers are being pun-
ished or rewarded by governmental regulatory bodies. If one considers
the criteria used by the OCC in assigning CRA evaluations and their
operational dimensions, it is clear that these financial service pro-
viders are being evaluated in terms of
• Assessing the needs of a delineated community
• Types of products and services offered
• Discrimination
• Geographic location
• Participation in community development
• Serving all segments
• Usage of full media mix
• Products and services specifically targeted at underserved seg-
ments
• Active participation in government-subsidized programs
• Aggressive marketing

716 VERBRUGGE ET AL.

 This list depicts nothing short of fundamental marketing functions,
at the forefront of how delivery processes of financial service providers
are being judged by the regulatory environment.
The banking functions relevant to the CRA cover a remarkable
amount of marketing ground. The above summary list encompasses
various aspects of marketing research, product design, served mar-
kets, target markets, market segments, media strategy, and the soci-
etal responsibilities of marketers. As such, all of the above are
elementary variables that significantly impact the processes through
which services are delivered.
Two comments are relevant. First, the assessment process regard-
ing banks' compliance with the CRA represents an intrusion by regu-
latory hodies into the marketing efforts of banks, in a manner much
more aggressive, prescriptive, and encompassing than those in other
industries within the service sector—including health care, utilities,
and other nonbank providers of financial services. Although perhaps
very well intended, this intrusion ought to be interpreted as a note of
caution, and even as advance warning of potential things to come to
service providers in those and other industries.
Second, and from a more positive perspective, the delivery process
of these particular financial services can be seen as being dependent
not on overly complex issues but rather on the very basic marketing
functions identified on the list above. What appears to be the secret,
as judged by this compliance with CRA requirements? Nothing but ag-
gressive execution of fundamental marketing functions, and maybe
more proactivity than these marketers would have chosen, if they had
a choice. Thus, the key to distinguish oneself from competition, in this
instance, lies in being very thorough in implementing the basics. Re-
calling the argument that the degree of competitive turbulence has
muddled consumers' decision-making processes and evaluative crite-
ria, the aggressive and thorough execution of basic marketing func-
tions, such as the ones identified in the article, appears then to be a
good solution.
By focusing on a very unique aspect of the financial services in-
dustry, and analyzing the marketing responses and activities that
service providers need to undertake so as to be able to not only reach
their own marketing objectives, but also satisfy regulatory inter-
vention, this article illustrates the importance and relevance of stress-
ing marketing fundamentals in the delivery process of services.
Acknowledging that the delivery services indeed requires specific ad-
justments, vis-a-vis, for example, the marketing of consumer goods,
the contribution of this article is the highlighting of the power of good
execution of basic marketing functions, under conditions that could
have otherwise suggested far more complicated and cumbersome solu-
tions.

A 1990s CHALLENGE 717

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James Verbrugge is Georgia Banker's Association Chair of Banking, Terry
College of Business, University of Georgia. David Whidbee is Associate Pro-
fessor, School of Business Administration, California State University, Sacra-
mento. Roberto Friedmann is Associate Professor, Terry College of Business,
University of Georgia. Correspondence should be addressed to David Whid-
bee, School of Business Administration, California State University, Sacra-
mento, Sacramento, CA 95819-6088.

A 1990s CHALLENGE 719