Five Questions for Bank Boards

Analysts and commentators often describe what’s going on in the financial services industry as a revolution that will change banking as we know it. That may be true. But what’s also true is that this isn’t the first time banks have stared disruption in the face and lived to tell about it.

One banker who knows a thing or two about disruption is John B. McCoy, the former chairman and CEO of Bank One Corp., who led the bank from 1984 to 1999. McCoy witnessed Bank One’s growth from the third largest bank in Columbus, Ohio-when it was still owned by the McCoy family and run by his father, John G. McCoy-to the sixth biggest bank in the country. Along the way, he was on the leading edge of many of the most significant innovations in banking over the past half century, from the activation of the first ATM to the introduction of drive-through windows to the proliferation of debit cards.

McCoy reflected on some of these changes in a conversation with Bank Director magazine, and his remarks provide some perspective on what bankers face today. His comments were edited for clarity and flow.

1. Bank One had a reputation for being innovative, going back to when it was one of the first banks in Ohio to focus on consumer banking. Where did Bank One’s culture of innovation come from?

It was born of necessity. Early on, my father used to kiddingly say that we were the 283rd largest bank in the country, the 28th largest bank in Ohio and the third largest bank in Columbus-and there were only three banks in Columbus.

That meant we had to carefully pick where we went, and the retail side of the business was a lot more interesting because the gas and electric companies were already tied up with the other two banks in town. So we always had a sense that we needed to go in new directions.

In my book, “Here’s the Deal”, I wrote about all the great things that happened at Bank One, but we also had a lot of failures. That’s how you learn. Our belief was that we wanted to make small mistakes, not one great big mistake. That was key to how we ran our business.?

2. Is there a key to establishing an innovative culture?

It’s the type of people you hire. It’s also about how you deal with problems. We used to say: “If you have a problem, and share that problem, we’ll solve it. But if you have a problem, and don’t share it, then you’re out of the company.”
We tried to have an open atmosphere where people were willing to take risk. We encouraged people to do new things. We awarded those things. Failure wasn’t important. We didn’t fire you if you failed, so long as you were sharing all the information with us.

3. One of your most important innovations was the “uncommon partnership.” Many other banks have since adopted it. What was it?

It was the name we gave to the decentralized system we used to run the banks we acquired. When we bought a bank, we took all the backroom operations and centralized them. But all the lending functions and customer-facing activities were kept with the local banks.

We didn’t even change the name of our banks for the first 15 years. So, the local customers thought they were dealing with their local bank. The branch employees were the same. The managers were the same. The bank presidents were the same. The board members were the big people in town. We just improved the processes, added new products and increased the profits of each one of those banks.

This made us an attractive acquirer. A bank we bought in Arizona, for instance, was deciding whether to sell to us or Wells Fargo. If they sold to Wells Fargo, they’d all lose their jobs. But if they sold to us, they’d all have their jobs the next day. So, they chose us.?

4. Is there anything unique about banking when it comes to innovation?

The thing about banking is that there are really no revolutionary innovations that change things overnight. It always takes time for things to happen. Whether it was the ATM or debit card or drive-through banking, it was slow adoption.

5. What would you say to people today that think banking is on the verge of a major inflection point?

The internet and internet banking didn’t change the world when they started back in 2000, but they’re making a huge difference now. I’m not on Facebook or any of that stuff, but if I was in business today, I’d have to be. I’d have to understand all that stuff.

The digital thing is happening. It’s changing things. But it’s not going at warp speed. Maybe one reason is that banks are still highly regulated. It’s hard for an outsider to come in and disrupt the whole system. But it’s absolutely going to make a difference. Ten years from now, things will look totally different than they look today.