Computers and Banking

order to offer more and better services and to increase labor
efficiency.

Employment in banks

Trends, Statistics from the Bureau of Labor Statistics Cur-
rent Employment Statistics program show that employment
in commercial banks currently is 1.5 million, a decline of
70,000 over the past 10 years. Employment rose in late 1988,
peaked in February 1990, then fell by 89,000 until a trough
was reached in October 1992, a period which included the
1990-91 recession. Employment grew slowly until a peak was
reached in August 1993, and has been on a downward trend
since. The number of employees now is 100,000 below the
all-time high reached in Februry 1990, (See chart 4.) The com-
mercial banking industry is one of the few private service-
producing industries that lost employment during the past 10
years. Most industries in the service-producing sector side of
the economy have been on a growth trend as the economy
has expanded. Only the savings institutions industry (a small
component within depository institutions) and the railroad
transportation industry shed more jobs than did commercial
banks during the 1986-96 period. The savings institutions
industry contains thrift institutions, which underwent numer-

ous failures and mergers in the late 1980s.

The decline in banking employment over the past 10 years
stands in sharp contrast to the continuing growth in ATM vol-
ume. There may be a strong correlation between the increased
use of ATM’s and the drop in the number of jobs in this indus-
try. ATM’s have contributed to a decline in the number of em-
ployees needed to process checks and a reduction in the num-
ber of customers that enter a bank to process transactions with
tellers. ATM’s, however, are not the only technological ad-
vances that resulted in the need for fewer bank employees.
The evolution of direct deposit of paychecks and benefit
checks has contributed to a decline in check-cashing transac-
tions at the teller window.

Estimates of employment in specific occupations are avail-
able from the Current Population Survey (CPS). These data
show that the number of bank tellers fell by 41,000 between
1985 and 1995, Most of the positions for tellers that remain
are being converted to part-time positions, which cost banks
less because part-time tellers generally receive fewer benefits
than full-time tellers. Shifting to part-time tellers also allows
banks more flexibility to extend business hours; tellers can be
scheduled to work only when customer traffic is high.

It is likely that the trend toward replacing full-time tellers
with part-time tellers has prevented employment in the bank-

Employment in commercial banks, seasonally adjusted, and number of ATM transactions, 1986-96

Employment
(in thousands)

1,580

ATM transactions:
{in billions)

1,560 |

Employment
1,540 iployr

1,520 |-

ole

ATM transactions

wT

n
1986 1987 1968 1989 1990 1991

NOTE: The shaded area denotes a recession, as identified by the National Bureau of Economic Research.
SOURCES: Unpublished data from the Bureau of Labor Statistics Current Employment Statistics program; and Bank Network News,

1992 1993 1994 1995 1996

34 > =Monthly Labor Review August 1996



Transactions at ATM terminals, 1986-95

Transactions Transactions
(in billions) (in billions)
10

1986 1987 1988 1989 1990 1991 1992 1993 1994 1995
SOURCE: Bank Network News (Chicago, Faulkner and Gray, 1995).
a and failures arnong FDIC-insured commercial banks, 1980-94
Number Number
700 700
600 + 600
500 }- -| 500
400 Mergers -} 400
300 +4 300
Failures
200 + 200
. oN
100 — oN 100
i nl i f nl L L A 1

‘SOURCE: U.S. Federal Deposit insurance Corporation (FDIC), Statistics on Banking annual.

t) 0
1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994

Monthly Labor Review August 1996 33



Average weekly hours worked by nonsupervisory workers In commercial banks, not seasonally

adjusted, 1986-96
Weekly hours. Weekly hours.
37.5 37.5
37 -+| 37
36.5 4 365
36 + 36
35.5 |- +] 36.5
35 + 35
34.5 7] 34.5
34 1 A i 1 1 Le 1 1 1 ut 34
86 87 88 89 90 91 92 93 94 95 96
SOURCE: Bureau of Labor Statistics Current Employment Statistics program.

ing industry from declining further than it has. Because the
Current Employment Statistics survey counts full-time and
part-time positions equally, if a bank eliminated full-time teller
positions and created part-time positions, the bank’s employ-
ment of tellers could remain the same or perhaps increase.
Data on average weekly hours for nonsupervisory workers in
commercial banks are available from the Current Employ-
ment Statistics program. These data show that since January
1986, average weekly hours worked by nonsuper-visory
workers in commercial banks have fallen from 36.3 hours to
34.7 hours. (See chart 5). The decline in hours would likely
be larger if there were not other types of banking positions
included in the nonsupervisory workers category. According
to the cps, employment of bank tellers accounts for about one-
quarter of employment within commercial banks. Clearly,
there are many other types of positions included in
nonsupervisory workers that would not be subject to increased
part-time schedules, such as customer service representatives
at telephone banking centers.

Outlook. _ BLS projections of employment trends for the bank-
ing industry show declines in employment, specifically among
bank tellers. Projections are not made separately for the com-
mercial banking industry, but are available for the broader

category, depository institutions (about three-fourths of the
industry's employment is in commercial banks). The projec-
tions show an expected decline of 0.9 percent annually in
employment within depository institutions between 1994 and
2005, for a total decline of 10.4 percent. During the same
period, the number of bank tellers is expected to decline 27
percent, as bank branches close, mergers continue, and non-
teller transactions increase.

BLS projections of real output also show an increase for
depository institutions; real output is projected to rise 2 per-
cent annually between 1994 and 2005. The increasing use
of technology will allow banks to continue to provide ser-
vices while shedding jobs.

COMPUTER TECHNOLOGY is used by commercial banks to re-
duce costs and survive the competition. Consumer acceptance
of ATM’s and touchtone telephones to make financial transac-
tions has allowed banks to reduce the number of costly trans-
actions made with human tellers. Subsequently, banks have
reduced the employment of tellers and have converted many
of the remaining teller positions into part-time jobs. In the
future, commercial banks are expected to achieve a rise in
real output, while providing more services with fewer em-
ployees, o

Monthly Labor Review August 1996 35



Computers and Ba

Teresa L. Morisi

Teresa L. Morisi is an
economist in the
Division of Monthly
Industry Employment
Statistics, Bureau of
Labor Statistics.

Commercial banking transformed
by computer technology

Banks increasingly use computers to reduce costs

and offer additional services to customers;

however, technology and the trend toward mergers
and consolidations have resulted in fewer banking jobs

C ommercial banking is evolving into a
highly competitive and technologically
innovative industry—and is managing
growing assets with fewer workers. This trans-
formation began in 1980, when interest rates
were deregulated. As competition for depositors
increased, so did the number of bank failures and
mergers. To better compete in a changing mar-
ket, banks use computer technology to provide
new services and attract customers. One of the
most significant technological investments made
by commercial banks is the automated teller ma-
chine (ATM). ATM’s introduced the power of com-
puter technology to the general public and made
banking convenient for consumers. Today, ATM’s
deliver banking services 24 hours a day, 7 days a
week to more than 22 million people in the
United States.

Bank failures and merger activity have con-
tributed to employment declines; however, com-
puter technology in the form of ATM's may have
contributed as well. This article discusses how
commercial banks cut costs and offer new ser-
vices through the use of ATM and other computer
technology. The role of technology in reducing
employment is analyzed, along with the trend to-
ward mergers and consolidations and competi-
tion from non-bank institutions.

Economic climate

Productivity increases, According to a recent
Bureau of Labor Statistics study of industry pro-
ductivity trends, productivity in commercial
banks increased 10.8 percent between 1992 and

30 =Monthly Labor Review August 1996

1993, the largest gain among all measured
nonmanufacturing industries. In fact, during the
1973-93 period, commercial banks had the high-
est long-term growth in productivity than any of
the measured finance and services industries.”
The long-term growth in productivity can be at-
tributed to some extent to the increased use of
technology, such as computerization of check
handling functions.*

Deregulation. Deregulation of interest rates
began in 1980, when Congress passed the De-
pository Institutions Deregulatory and Monetary
Control Act. The act gradually abolished restric-
tions on interest rates over the next 5 years, and
also permitted growth of ATM’s over State lines.*
Prior to the act, banks had been subject to a ceil-
ing on the level of interest they could pay deposi-
tors. With the elimination of the ceiling, interest
rates became a selling point, leading to fierce
competition among banks for depositors, which
in turn led banks to try to find ways to cut costs
and attract customers. The offering of new ser-
vices such as ATM’s was one way of achieving
these goals.

Banking technologies

The use of computers in banking first began in
the early 1950s, when the first large commercial
computer was built for Bank of America.5 Ini-
tially, computers were used to process check
transactions through magnetic ink character rec-
ognition. With the introduction of the first auto-
mated clearinghouse in the early 1970s, elec-



Computers and Banking

Footnotes

‘James B, Shanahan, “ATM Revolution Keeps Marching On,” The Ameri-
can Banker, Nov. 27, 1995, p. 2A.

2 Productivity By Industry, 1993 and 1994, usp1. 96-15 (Bureau of Labor
Statistics, Jan. 30, 1996). The latest year available for commercial banks is
1993.

? Productivity Measures for Selected Industries and Government Ser-
vices, Bulletin 2461 (Bureau of Labor Statistics, May 1995), p. 7.

“ Stephen Koepp, “Banking Takes a Beating,” Time, Dec. 3, 1984, p. 48.

5 Martin Mayer, “The Humbling of BankAmerica,” The New York Times,
May 3, 1987, p. 27.

® For further reading on computerization in the banking industry, see
Technology and Labor in Oil and Gas Extraction and Commercial Banking,
Bulletin 2432 (Bureau of Labor Statistics, October 1993).

7 Bureau of the Census, Computer Use in the United States: October
1993, Table 7.

*Input/Ourput Matrix, Bureau of Labor Statistics, Office of Employment
Projections,

° Harry Waddell, “C&S Retires its First Tm After 233,000 Transactions,”
ABA Banking Journal, June 1981, p. 14.

1 Bank Network News (Chicago, Faulkner and Gray, 1995).

" Jonathan D. Glater and Frank Swoboda, “Taking a Bite Out of Bank
Jobs; In the Quest for Convenience and Lower Costs, ATMs Eat Into Services
Provided by Tellers,” The Washington Post, July 10, 1995, p. Fl.

TM Bank Network News.

" Ibid.

TM Valerie Lilley, “Latest Deal: Debit Cards; Consumers Who Hold Them
Shop in Stores Where They Can Play Them,” The Sun-Sentinel, Aug. 13,
1995, p. IF.

"5 Consumer Trends and Opportunities in Financial Services Distribu-

3% Monthly Labor Review August 1996

tion Systems (Payment Systems Inc., Fall 1995), p. 124. Payment Systems
Inc. is an automated clearinghouse association in Tampa, Florida, that con-
ducts research on EFT issues and assists banks and corporations in the south-
eastern United States with educational and marketing initiatives.

© Diane Mastrull, “There is a Growing Interest in Banking Over the
Phone,” Philadelphia Business Journal, May 5, 1995, p. 3.

"7 Jeanne Brokaw, “Some Banks Are Ringing Up Fees For Heavy Use of
Phone Services,” The American Banker, Dec. 4, 1995, p. 1.

TM Tracy Tucker, “Screen Phones are Seen as an Easier Sell for Home
Banking than More Complex Pc’s,” The American Banker, Dec. 27, 1994, p.
1

"Data are from the Federal Deposit Insurance Corporation, Statistics on
Banking.

® Ibid.

2 Banks are subject to laws concerning equal lending and community
development that do not apply to non-bank financial entities. Banks also are
subject to the regulations of the Glass-Steagall Act, which prohibits banks
from engaging in insurance or investment banking activities that are not
necessary to carry out the business of banking.

Karen Kahler Holliday, “It’s Time to Take Action, Commercial Banks,”
Bank Marketing, Sune 1995, p. 41.

23 The Current Population Survey is a monthly survey of about 50,000
households, conducted by the Bureau of Census for the Bureau of Labor
Statistics.

+ James C. Franklin, “Industry Output and Employment Projections to
2005,” Monthly Labor Review, November 1995, p. 55.

25 George TT. Silvestri, “Occupational Employment to 2005,” Monthly
Labor Review, November 1995, p. 82.

% Franklin, “Industry Output and Employment Projections to 2005,” p.
52.



tronic funds transfer (EFT) was made possible, and the ATM
was introduced.® Current statistics show that workers in the
finance industry use computers more than any other industry.
In October 1993, 84.5 percent of all workers in finance (a
larger category that includes banking) used a computer.’ (See
chart 1.) Statistics on computer equipment sales show that in
1993, the depository institutions industry (which mainly con-
sists of commercial banks) supplied the 19th largest amount
of sales out of 77 industries to computer equipment manufac-
turers. Banks increasingly have turned toward ATM and other
computer technology to reduce the high costs associated with
maintaining traditional “brick and mortar” branches staffed
by tellers. ATM transactions, along with transactions made by
telephone, have replaced transactions formerly made with
human tellers.

ATM’s. With the introduction of EFT in the early 1970s came
the use of ATM’s to process financial transactions. The first
ATM was installed at a bank in Valdosta, Georgia, in 1971.9
Initially, ATM’s served as cash dispensers, but as customer ac-
ceptance increased, EFT networks expanded, and as barriers
to interstate installation fell, ATM usage rose. ATM's appeared
not only at bank locations but in shopping centers, stadiums,
airports, and other locations where people gather. By 1995,
9.7 billion transactions were processed at 123,000 ATM termi-
nals."° (See chart 2.) Cash withdrawals remain the most widely
used ATM transactions; however, many banks are adding a
collection of services to help encourage use of ATM’s, because
ATM transactions cost less than teller transactions. According
the the American Bankers Association, an industry trade group,
a teller transaction costs a bank about $1.07, while the same
transaction conducted at an ATM would cost 27 cents." In ad-
dition, banks receive revenue from ATM transactions, as most
charge customers a fee for using an ATM outside their bank’s
system. As of April 1, 1996, banks have the authority to charge
ATM fees to noncustomers who use the bank’s ATM. Therefore,
customers who access an ATM outside their own bank’s sys-
tem could be subject to ATM fees levied by their own bank as
well as by the bank that owns the ATM. Other sources of ATM
fees include charges for replacing PIN’s (personal identifica-
tion numbers) and ATM cards.

Banks are adding ATM functions such as on-line loan ap-
plications, distribution of mini-statements, dispensing of fos-
eign currency, purchase of traveler’s checks, and check cash-
ing to attract customers. They also encourage customers to
use ATM’s by making other types of transactions more expen-
sive; for example, a Chicago bank charges for transactions
involving a human teller if that transaction could have been
conducted at an AYM. Some banks offer discounts on services
such as checking account fees to customers who agree to use
AYM’s. All of these incentives are intended to lead customers
away from transactions with a human teller.

Point-of-sale transactions. Point-of-sale (POS) transactions
at retailers are another use of ATM technology. These transac-
tions are made by swiping an ATM or debit card through a
terminal, commonly located in grocery stores, gasoline sta-
tions, and convenience stores. In 1995, there were about
554,000 POs terminals located in retail establishments,'? and
POS transactions accounted for just 8 percent of total EFT trans-
actions. In terms of percentage change, however, POS trans-
actions are growing at a much higher rate than ATM transac-
tions, as shown in the following tabulation of over-the-year
Percentage increases in ATM and POS transactions:'

Percentage increase

AT POS
2 157
12 67
I 67
14 ST
12 22
12 10
12 38
7 49
10 45
15 37

POS transactions can be either on-line or off-line. With an
on-line transaction, the customer uses an ATM card and enters
a PIN into a keypad, and his or her account is debited immedi-
ately. An off-line debit card is associated with a major credit
card company and carries the company’s logo. Instead of en-
tering a PIN, the customer signs for the purchase, and the sales
amount is debited from the customer's account within a few
days. Some off-line debit cards also can be used to conduct
ATM transactions. Off-line debit cards provide revenue to
banks, because some banks charge consumers $10-$15 for a
card, and interchange fees paid by retailers are higher than
for on-line debit cards.'*

Telephone transactions. Banking by touchtone telephone
has been boosted in recent years by the availability of ad-
vanced computer technology. According to the research firm
Payment Systems Inc., about one-third of U.S. households
conduct a banking transaction over the telephone at least once
a month.'* Telephone technology is an attractive investment
for banks, because telephone transactions are a lower cost
alternative to transactions with a human teller (the American
Bankers Association estimates the cost of a telephone trans-
action to be 35 cents).'* Many banks offer an audio response
system, in which the customer calls the bank and is able to
inquire about balances, transfer funds between accounts, or
pay bills.

Several major banks have taken telephone banking a step

Monthly Labor Review August 1996 31



Computers and Banking

Top five private sector industries ranked by percentage of
workers who use a computer at work, October 1993

Percent

100

major institutions offer screen phones,
but many analysts believe that the price
of the phone, which ranges between $99
and $600, is prohibitive to its widespread

60

40

20

use.

Mergers and failures

While technology has had an impact on
employment in the banking industry, it
is not the only cause for the job declines.
The numerous mergers and failures that
have occurred in the industry also have
taken their toll on employment. Merg-
ers among commercial banks rose from
126 in 1980 to 549 in 1994, a fourfold
increase.” Bank failures also rose dur-
ing the period, peaking at 203 in 1988;
since then, the number of failures has
fallen each year.” (See chart 3.)
Mergers and consolidations are ex-
pected to continue, due to a relaxation

Finance Communications Aircraft
and parts
manufacturing

Insurance,
real estate

SOURCE: U.S. Bureau of the Census.

in interstate banking Jaws. The Riegle-
Neal Interstate Banking and Branching
Act, enacted in 1995, gives national
banks authority to branch interstate by
merging with existing banks or opening

Petroleum and
coal products
manufacturing

further, and have established telephone calling centers which
are staffed 24 hours a day by bank personnel. Routine requests,
such as account balances, are handled by an audio response
system, but requests such as opening a credit card account or
loan approval are handled by the staff. Some banks charge
customers for certain calls to telephone banking centers, typi-
cally customers who exceed a monthly quota of calls. Calls
handled by personnel at banking centers are estimated to cost
$1.82 per transaction, according to the American Bankers As-
sociation. Therefore, banks want to minimize the number of
calls handled in person and have the staff free for handling
complex, and presumably more profitable, interactions.'’ The
telephone banking center appears to be quite a growth area, as
many major banks have announced plans to open centers or
increase their operations of centers, while at the same time
closing branches.

A recent innovation in telephone financial transactions in-
volves the use of a screen phone that allows customers to ob-
serve transactions. The most recent screen phone models also
have advanced features such as e-mail and online shopping. A
1994 American Banker/Gallup Survey found that 47 percent
of respondents preferred a screen phone over a regular phone
for making banking transactions.'* Given this interest, several

32 Monthly Labor Review August 1996

new (de novo) branches in other States,
Mergers lead to fewer jobs because as
banks are merged, duplicate jobs are eliminated and like op-
erations are consolidated. The 1995 merger of Chemical Bank
with Chase Manhattan is an example of the continuing merger
trend.

Competition with ‘non-banks’

Besides reductions due to technology and mergers, growth in
the banking industry has been restrained by competition from
non-bank institutions, such as Merrill Lynch, a brokerage firm.
The reduction in the cost of providing banking services due to
improvements in technology served as an impetus for non-
banks to enter the banking services market. The non-banks
offer financial services such as money market accounts, cash
management accounts, investment funds, credit cards, and in-
surance. These institutions offer more financial services than
banks are allowed to offer, and are subject to less regulation
than are banks.”' Competition from non-bank companies has
resulted in less of the Nation’s wealth being held by banks.
The share of the Nation's assets held by commercial banks
declined to 23 percent in 1994, down from 37 percent 15 years
earlier.” The loss of funds to non-bank entities is yet another
reason why commercial banks have invested in technology in