I have two grown children, 25 and 28 years old, who have checking accounts, but have never been in a bank office. Yet, despite all the evidence that branch usage is in decline over the past decade, the industry continues to build new offices. As a director of 10 different FDIC-insured banks during my 25 years as a consultant/investor for the financial services industry, I do not envy the job of current bank directors preparing for the future. With a large amount of capital tied up in single-purpose real estate and fees on accounts restricted by regulators, where can bank management and directors turn to make the branch profitable again? The answer to this problem may lie in the historical study of how we got where we are today.
In the first 10 years of my banking career at Trust Company of Georgia (now SunTrust), I held responsibilities in both management and internal consulting of operations and technology. I remember going to our Fulton Industrial Boulevard branch on a payday Friday and hearing the branch manager ask, “What can we do to get all these people out of our branches?” Well, mission accomplished! These days the long lines on payday are more frequent at a Walmart financial center than at a bank branch. What will draw these people away from Walmart, check cashers, payday lenders and title pawn shops and turn them back into profitable bank customers? Evolutions in technology, social media and product offerings now provide the solution.
Asset quality disasters, regulatory concerns and other survival issues have consumed the lives of many bankers as of late, leaving little time to pursue the five-year plan. Banks now must begin to reshape business plans to reflect the evolution in technology and consumer behavior or become the next victim of obsolescence, much like such industries as home entertainment, photography, telecommunications and specialty retail. Can a full function ATM machine replace a branch the way that a Blockbuster Express self-service movie rental kiosk replaces a store? Never has the role of a bank director been more important than today; financial institutions must proactively chart a new course for retail banking. Personal interaction with successful retailers in other industries can provide directors with the needed experience to guide their own companies. Think of the experience of renting a movie from a kiosk instead of going into a store and compare it with using a full-function ATM instead of visiting a branch.
Now is the time to begin the evaluation of which branches are crucial to the customers in an area, provided all of the other ways that are now available to meet their banking needs. Given the unlikely event that margins will grow, replacing fee income lost as a result of regulatory changes for most banks is critical to future earnings growth. Directors need to be proactive in encouraging management to recruit customers that the bank lost to alternative financial services providers, such as check cashers and payday lenders. To get these customers back, banks must offer a new suite of products and services, which includes cashing checks, money transfer, money orders, prepaid cards, reloadable cards, and fees to guarantee funds. In the future, perhaps a cash advance fee at a bank can replace payday lending. These services can be highly profitable, as evidence by the large number of alternative financial services providers in the market place.
An argument usually brought up by bankers is that no other bank is doing this. That’s not true. Regions Bank recently announced Regions Now Banking in all 1,700 branches. The products mentioned earlier are all included in this offering. Early results are extremely pleasing to Regions’ management team, which expects the new fee income will replace revenue lost as a result of regulatory changes.
When an industry must react to changes in technology and consumer behavior, the first thing to ponder is if the consumer still needs the product. Does the public still need financial services? The answer is yes. So, how can banks use new technology? The answer is still evolving, but every bank director who has purchased something on Amazon, rented a movie from a kiosk, or used the self-service checkout at the grocery store has a personal experience that can be valuable in shaping the future retail bank customer experience.