Would You Prefer A Relationship With A Ton Of Bricks?

Vernon Hill, former CEO of Commerce Bank, recently joined Tom Brown as co-chairman of bankstocks.com. Mr. Hill has wasted no time, and has already contributed content to the site. He recently wrote:

BANK BRANCHES OBSOLETE? NONSENSE: My colleague Matt Stichnoth posted a comment about the upcoming death of bank branches — this time due to the rise of remote capture deposit devices. Sadly, Matt, like so many others, is wrong again. The bank branch is the cornerstone, not the millstone, of retail banking. The point of a bank branch is to reflect your brand and to open new relationships. How do you build a relationship with a machine?”

My take: Respectfully, while Mr. Hill is right that remote capture devices don’t spell the death of the branch, he is wrong about the power of machines like the Internet to build relationships, and misinterprets the nature of what contributes to building a customer relationship.

I realize that I’m merely a David shooting my slingshot at Goliath here. After all, Mr. Hill founded and grew Commerce Bank into one of the leading banks, and, more importantly, a bank renowned for its superior customer service.

But truth be told, I’ve long believed that Commerce’s branch-centric strategy has a short half-life to it. The future of retail banking isn’t represented by aging boomers and seniors looking for mid-morning chats with the assistant manager of their local bank branch.

The future of retail banking lies in the provision of good, objective advice and guidance on managing one’s finances, and the fast and flawless delivery of transactions and services.

The reality is that a “machine” — i.e., the Internet or a remote capture device — can often do this as well, if not better, than somebody in a branch or a call center (increasingly located in some far away land).

If it weren’t possible to develop a relationship with a “machine”, then how would you account for the success of Amazon.com? Don’t tell me, “oh, that’s different — it isn’t financial services.” That argument doesn’t fly. Consumers don’t care — to them it’s just another type of product or service in which they’re looking for help in making the right decision, and a fast and painless way to get that product or service.

So how can Amazon succeed at building relationships using only a machine as a contact point? Interestingly, the answer lies in one of Mr. Hill’s own statements.

Mr. Hill says that “the point of a bank branch is to reflect your brand.” But what really is a bank branch? Answer: Nothing but a ton of bricks. The people within that branch come and go over time, and many customers never learn the names of those people anyway. But it’s the nature of how interactions are handled within that branch that lead customers to form an opinion about the bank.

In other words, the branch becomes the “face” of the bank in the eyes of the customer. And please listen, Mr. Hill, because increasingly, the Internet is the face of banks for many customers, especially those under the age of 40.

This doesn’t mean, as I’ve said before, that branches go away. Until banks build out all the service functionality that’s available in the branch on their Web sites, that won’t happen. Bank branches are security blankets.

Mr. Hill is right that customers don’t want a relationship with a machine. But they don’t want a relationship with a ton of bricks either. It’s what that machine or ton of bricks represents in the mind of the customer that matters. And that perception is formed more by the quality of the interactions that occur.

Bottom line: Relationship value is assigned to the quality of the interaction, not the location where that interaction took place.

In an earlier post, I quoted psychologist John Gottman who said that relationships are about the small moments of attachment and intimacy. It doesn’t matter where those moments occur.

If a bank customer who considers convenience to be an important driver of their bank relationship uses a remote capture device and consciously thinks about the convenience that the device provides — then a step towards strengthening that relationship has occurred.

I don’t believe that a lot of senior executives in the banking industry get this.

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11 thoughts on “Would You Prefer A Relationship With A Ton Of Bricks?

  1. Amazing how many in banking don’t understand this. What’s holding the change back? 1) denial (a lot has been invested in branches and branching strategies) some people could be wrong and held accountable; 2) online channels have been underfunded in comparison to the other channels. I’ve been demonstrating a relationship between the number of interactions between the various channels as a way to champion a change of direction but even my own CU spends more on a branch than they ever do annually online.

  2. Great posting, Ron. I have made it somewhat of a hobby at networking functions to ask bankers what makes their bank different from their competition. Invariably they say something like “we provide excellent service,” or “we have more face time with our clients.”
    They all say the same thing, so how does that make them different? Nevermind that they really don’t even do what they say.
    I see an opportunity for an innovative financial institution to create the Amazon.com of the banking industry.

  3. @Scott: I think that for at least a few more years, your efforts to champion a change of direction will face an uphill battle. The attitudes of many execs like Mr. Hill will be extremely hard to change. There beliefs have been formed by YEARS of experience (and brain washing).

    @Lori: Thanks for your comment. Try this at the next networking function: Say to the bankers “Since I’m sure you’re going to tell me that your bank is different from the competition because of your excellent service, can you tell me exactly what it is about your service that’s better?”

    But DON’T ask that question if long periods of silence make you uncomfortable.

  4. Ron,

    I hope you don’t mind that I plan to borrow your “Can you tell me exactly what it is about your service that’s better?” question to use at some upcoming credit union functions.


  5. Speaking of “relationships” and the web… check out Esther Dysons commentary in today’s WSJ called The Coming Ad Revlolution. (Subscription required)

  6. Ron: You raised an intriguing point: “Commerce’s branch-centric strategy has a short half-life to it.” The New Jersey-based maverick has now been acquired by Toronto-Dominion, which in recent years has heavily expanded branch operating hours at TD Canada Trust. The new TD owners appear to have maintained a similar branch-centric strategy with their TD BankNorth operation as well.

    Having said that, your article is provocative.

    – “That other Ron from Seattle”

  7. I DID ask one of our VPs how our level of service was different. I can still hear the crickets…

  8. Like I wrote before in reaction to one of your earlier posts on an ‘Amazon’ banking model I would like once again underline my believe in an banking model like that. And I might have another question to ask the banking senior executives: How many times are you going to the branch yourself? Probably they will tell you ‘never, since my wife is doing things like that’. Then ask them to ask her ‘how many times does she go’ and they will come back to you and the answer will be ‘hardly ever or never because she is an online banker’.
    The same with their kids, neighbours etcetera. So end of the story is, they keep on believing that customers do like and need branches and they don’t seem to realize that a lot of the customers can happily live without the bricks and with online banking.

  9. I’d like to add this bit of tid to the discussion:
    Ask a bank executive about their turn-around time (cycle time) on renewing lines of credit or their error rate in account opening. You may hear the crickets get even louder!
    Honestly, this sector has been data poor for a very long time but management is SLOWLY beginning to realize that the only true differentiator is ‘quantifiable’ service excellence..the kind that needs no silly ad gimmick.

  10. One interesting question to ask is;
    – why do people choose a Bank?

    Far and away the reason remains branch location. The Bank that makes it easy, seamless and trusting to open an account online will win this battle. I remain convinced this is just not an age thing (I am slightly older than Mr Cranky) but a confidence thing.

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