Pump Your Own Bank

Did I mention that my summer job in 1979 was pumping gas in a gas station? It was a stroke of luck to have that job. That was the summer of gas shortages.

By working in a gas station, I: 1) Never had to worry about waiting in line or having gas in the tank for either of my parents’ cars, and 2) Got more “bribes” from folks who wanted to leave their car with me to fill up, or to exceed the limits on sales that were set (what kind of bribes? use your imagination).

It’s nearly impossible for today’s 19 year olds to get this kind of summer job, because there are so few gas stations that employ anybody to do this kind of work (unless you live in New Jersey or Oregon). Nope, these days, the majority of gas stations are self-serve. The days of the guys with the white jumpsuits at Hess stations are long gone.

Ever wonder why there are so few full-serve gas stations? I’ll tell you why.

The gas companies did market research. Consumers overwhelmingly said that they’d prefer to get out of their cars, even if it was freezing or raining, get their hands dirty by opening their gas caps, and then fumble around with this gas hose thing that they had never touched or used before.

It was market research that led to the adoption and proliferation of self-serve gas stations.

And if you believe that, you need to have your head examined.

In reality, gas companies came to a not-so-startling realization: With the increase in oil prices that was happening in the late 70s/early 80s, they couldn’t continue to profitably run gas stations with the then-current business model. They did the only thing they could do: They fired the attendants, and forced consumers to pump their own gas.

Oh sure, there was some bitching and moaning, but over time, technology developments like pay-at-the-pump made the experience even faster, and today we pretty much accept the fact that most gas stations are self-service.

Why tell you this? Because 2010 is to banks what 1980 was to gas companies. The point at which some difficult business model decisions must be made.

With the current regulatory environment — specifically the  overdraft regulations — banks are facing a profitability crisis.

One of my colleagues recently completed a study in which he found that, on average, banks expect a 26% drop in overdraft fee income. Meanwhile, only 21% believe that they have an overdraft strategy that will largely compensate for the income shortfall, and just 32% think that their overdraft strategy will even partially compensate for the shortfall.

How are banks going to maintain any semblance of profitability in this environment? The answer is simple, but painful.

With a nod to the greatest president we’ve had in the past 50 years (and at the rate we’re going, for the next 50 as well):

“Mr. Bank President, tear down those branches!”*

The so-called research that shows that branch location is such an important part of a consumer’s choice of banks is more the result of the survey construct than it is a reflection of the underlying preferences and needs of consumers.

There are plenty of industries and companies where we, as consumers, have no face to face interaction with the firm, and are quite satisfied, and even loyal. Hell, USAA is one of the most successful firms in the financial services industry, and it doesn’t have any branches.

Bankers love to say “We’ll do business in the channels our customers want to do business in.”

Here’s the lesson learned from the gas companies: Customers will do business in the channels you tell them to do business in, let them do business in, and incent them to do business in.

It’s time for consumers to pump their own bank.

p.s.: I often start writing a blog post and let it sit unfinished for a while. I had started this one a while back, and when I saw Brett King’s post Branch Networks: Where Do We Go From Here?, I decided it was time to finish this. Check out Brett’s post. It’s excellent.

*Yes, I know that there are plenty of female bank presidents. But to maintain consistency with the original statement, I used the “Mr.” form. Don’t get on my case.

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11 thoughts on “Pump Your Own Bank

  1. I’m a big believer in ethnographic research. Lot’s of CU’s could do surveys and their members will tell them they want branches. But look at their actual transactions and see what % of your members really use branches. If members actually use branches, keep them. If they don’t, axe them. If you can’t afford to keep them, your business plan is broken.

    Oddly enough, I’ve lived in two states in my life and both of them are not self service: New Jersey and Oregon. In fact, it is illegal to pump your own gas in Oregon. Go figure.

  2. “so few gas stations that employ anybody to do this kind of work (unless you live in New Jersey)” — or Oregon, by the way. Any time we head south I have that moment at the gas station of “oh yeah, Oregon, can’t pump gas.”

  3. Branches are still one of the best ways to build awareness and exude convenience. That said, I agree with you…for MOST financial institutions, breaking away from and overabundance of high cost, high touch physical locations is a necessity. But how does a fledgling or mid-sized financial institution make this happen? I can see how a Bank of America or Wells-Fargo could pull it off, but what about the folks that still need to establish themselves? Radiohead and Nine Inch Nails can self publish their music and sell millions of albums…but they wouldn’t have been able to (even with modern technology) 15 years ago.

    My take? The bigs can go smaller, upstarts can go branchless, and the mids will still have to use a large branch network approach.

  4. MD: I can’t … I repeat, I CAN NOT… believe you, of all people, are asking this. You.. of WhatAreYouSavingFor.com fame. Does the Seattle area know of Verity CU more because of its branch presence or because of Verity Mom?

    If “awareness” is a bank’s/CU’s business goal/objective, than I’d argue that building a branch is an absolutely terrible investment. The cost of achieving incremental awareness by building a branch is huge, and that cost continues on for quite a while.

    Remember, I’d not arguing here that all branches should go away. And so, it may be true for a small or mid-sized institution, that it does have the right number of branches in the right locations.

    But if a mid-sized institution, feeling squeezed by the big banks on one side and branchless upstarts on the other, thinks that building out more branches is their ticket to profitable growth, they’re stuck in 1980. Physical presence does NOT mean full-service branches with lots of tellers and branch managers.

    Gas companies didn’t shut down gas stations, they made them more profitable by making them self-service.

  5. Bricks and mortar aren’t the ONLY path to awareness. I do think, however, that it is the most predictable path. Back to the music analogy, it’s extremely rare that an act can make it big with an online only strategy (even a convenience only strategy). Not impossible, by any stretch. Just rare.

    Verity’s success came well before VerityMom, Our Voices, etc. Those programs, I’d imagine, have simply made what they do offline even more successful. Their kickass marketing team and visionary leadership has more to do with Verity’s visibility in the marketplace than anything else.

    That, said you’re exactly right. Gas companies didn’t shut down gas stations, they made them more self-service. But they also made their stations bigger and more visible. Why? They ended up finding out that there is more money to be made on overpriced milk, soda, cigarettes and candy, than there is on gasoline and that location means everything.

    This type of model has made its way to financial services as well, no doubt. My point is only to suggest that it’s not for all people.

    (also, the purpose of my comments was not to pick away at your post. Your point is 100% well made and 99% great guidance.)

  6. Yep – walk right up to the vault and take out the cash you need – sounds great. In all seriousness the ATM and now online banking have signaled the possibility of reducing the overhead for FI’s. You are still going to need business bankers though to hold the hands of the SMB’s. Your point that banks are similar to a 1970’s gas station is a good analogy and helped to explain your perspective well.

    I met with a CFO recently that was nervous about the elimination of free checking because of the interchange reform on it’s way. Reduce headcount? Close branches? The community banks and CU’s see this as a cardinal sin.

  7. Here’s where there’s a value clash, I think, in transitioning to a “self-pump” model… “Reduce headcount?” — that means FIRING people, to put it in plain English. And yes, many small organizations (financial or otherwise) understand that their employees are real people, and don’t want to put them out of work.

    It points to a bigger problem in the economy, of course, that increased efficiency often means that the humans (for whom society exists) are “redundant.”

    My hope would be that making the easy tasks self-serve frees up time for people to help with the complicated bits. (Not just SMB, but anything where someone is trying to make a decision that’s beyond their personal understanding.) When I have my programmer hat on, my philosophy is to let the computers do the stuff they do well, and the humans do what they do well.

  8. As a native Oregonian I can say that we love our gas stations because we DON’T have to self-serve in the rain. Some Californian will inevitably move up, get in office and propose legislation to change the law (oh yes, it’s against the LAW to pump your own gas). But Oregonians consistently vote it down. Why?

    1. It creates jobs – for slacker kids like you…LOL.
    2. Nobody wants to pump their own gas.
    3. Inertia.
    4. It rains- a ton.

    There was also no market research that showed that “I hate talking to people – annoys the hell out of me when someone ANSWERS the phone on the first ring and gets me answers. I’d rather listen to a bunch of recorded options to select which hold queue I’m going to sit in.” And yet it’s cheaper and more consistent to ignore customers on the phone. Most businesses today – and the phone company ironically is the worst – invest in these horrible machines and reduced head count.

    Herein lies the opportunity. This is why Umpqua Bank’s model is so successful. Because they did just the opposite of the trend. They created a branch experience that encourages loitering! It’s not for everyone – to be sure – but it works and it makes money.

  9. As the manager of the non-branch contact areas of the bank, I fully understand and agree with your perspective. That said, I would suggest there might be a better analogy in the retail space. The “Big Box” store. Perhaps, rather than having a lot of little “stores” around, we consolidate to a few major, full service locations with longer hours and more product specialists to address the full array of financial service products. The day of having a branch on every corner is gone.

  10. KL: THAT’S what I’m talking about. I’m NOT saying the branch is dead (did you hear that, JP?), I’m simply saying we need fewer branches — A LOT fewer.Forcing someone to drive an extra mile or two to get to a branch — that is more likely to have the right people staffed at it, and more likely to be a good place to go (because the bank doesn’t have to spread upgrade funds around too many branches) — is OK. Customers won’t revolt.

  11. Damn right! Completely agree with Kevin/Ron… Branches should/will be much more service oriented with product specialists. Go to a branch for to explore mortgage, savings options, financial plan checkup, learn more about HSA products, etc, or learn how to set up and manage a budget (of course, I had to give a PFM plug)….

    BTW: love the gas analogy

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