American Banker ran an excellent editorial (subscription req.) yesterday written by Steve Johnson and Joe Depa, claiming that it’s a good time to time to start a bank. The authors argue that now is a good time because:
1. Banks are pushing out customers because of liquidity issues.
2. Displace bankers are on the street.
3. Opportunities to bring in deposits at a low cost.
4. Capital availability.
My take: Couldn’t agree more.
In addition to the authors arguments, though, I think there are at least two additional factors that make it a good time to start a bank:
1) Broken business model. When a primary source of revenue for your business is levying fees for situations (transactions or interactions) that add little or no value to your customers, you know you have a problem.
2) Tenuous customer relationships. Few banks have systematically strong (i.e., loyal, long-lasting) relationships with a significant percentage of their customer base (USAA comes to mind). Sure, every bank can find a handful of customers who love the bank to death, but these customers tend to be unrepresentative of the broader customer base.
But, for me, the question isn’t whether or not this is a good time to start a bank, but who should start one? Someone with 30 years experience in the industry, who’s caught the entrepreneurial bug? No offense to those people, but when you grow up in an industry — and succeed within it for 30 years — it’s awfully tough to see a completely different way of doing business?
So it got me thinking: If an executive from another industry started a bank, what kind of bank would it be, and what would they name it?
Fast food: This bank would be the model of operational efficiency — it would get people in and out the door efficiently. Product quality wouldn’t be that good (of course, that would be no different from today’s banks). And it would be great at trying to up-sell you something at the point of transaction (of course, that would be no different from today’s banks). Bank names: Savings King, In-and-out Bank, and Whatabank.
Internet: Every product offered by this bank would be in perpetual beta release (Checking Account ver 1.3.4b). Customer service would be non-existent (of course, that would be no different from today’s banks), and the bank’s Web site would be very colorful, with lots of cool graphics. Bank names: Knab, Yemon.
Automotive: This bank would publish a list of exhorbitant fees that it would discount based on each customer’s ability to negotiate (of course, that would be no different from today’s banks). Bank names: LeBank, Bankeville.
Come to think of it, maybe it would be better if some ex-banker started a new bank.
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Don’t forget:
*Airline:* This bank would increasingly charge fees for things it used to give away for free. Commodity pricing abounds. Customers grumble, but still shop for the best price. Don’t call customer service unless you have at least 100,000 -miles- dollars on deposit. Bank names: US Bank, Northwest Savings Bank, oh wait.
@Ben: Right on. Please allow me this slight edit to your entry:
*Airline:* This bank would increasingly charge fees for things it used to give away for free (of course, that would be no different from today’s banks)…..
Now that we know banks have major service problems (most bank customers understand the problem), what does a well run bank look like from the customer’s perspective?
What’s more. How can a bank build a large base of happy customers and still make a decent profit?
I’m not smart enough about the industry to write such a post. But I bet you could.
Thanks for another true and funny post. I love your writing style.
Factory: develop “offshore” products that can be sold through other Banks and networks.
Awesome post btw!