The other week, during the S&P downgrade market chaos, JPMorgan Chase (NYSE:JPM) chief executive Jamie Dimon donned his Captain America cape and did a live interview segment with CNBC. He was directly in front of one of the photogenic Chase branches in California, and he noted that the bank “will open 200 branches here in a two and a half year period.” (Admittedly, a lot of these are probably re-branded WaMu branches, but still. Why not close them down altogether? Let customers use an existing Chase branch.)
Considering every American suburban town is already littered with Chase branches, is adding hundreds more of them the best path to growth? Hearing this reminded me of Tower Records and Blockbuster, right before the sudden rise of download culture. Let’s open new stores everywhere, in every market! Growth opportunity!
Just as with music and film, the banking industry faces a digital revolution of its own.
And hiring more expensive tellers, building new branches, etc might not be definitely is not the best way to adapt.
Before I go on, it’s worth noting — full disclosure and all that — that I have a minor personal axe to grind with Chase. I don’t need to waste your time with the boring details, but here’s the Cliffs Notes version: my site was not being paid on time, so I emailed the executive there who had suggested I sign up with them in the first place. I brought the payment issue to his attention, and he took the rather peculiar approach of terminating our agreement without notice and banning our site for life from ever promoting Chase products again. (It’s like a lifetime ban from the Playboy Mansion, only worse, because Chase is a very big player in the card space.)
It was absurdly draconian and reminded me of something from an Upton Sinclair novel about exploitative mine owners in the early 20th century: If you don’t like workin’ conditions in these parts, you’re banned from the mine! And put on the blacklist! We don’t need no union agitators!
I think Chase’s corporate culture on the front lines kicks arse, by the way. Their tellers are smart, friendly, and seem to have enough autonomy to fix whatever your problem may be. But if all of their marketing execs routinely act with that level of arrogance, that’s not a good sign. Arrogance stifles innovation.
The obvious play for the big banks is to move customers away from boring deposit accounts — not terribly profitable, high support costs — and into shiny new high-interest credit cards and other lines of credit.
This is something that can be done without expensive branches all over the place. With the Chase mobile app, you can already scan in checks and deposit them directly from your phone. You can check balances, transfer funds, pay your cards, etc.
There is really no reason for customers like me to ever set foot in a branch. If you beefed up your phone support, you could do away with most of these branches altogether and spend the money on marketing. More customers, less brick and mortar.
You could also spend a significant amount on innovating — new online banking features that no other bank has, faster deposits, cool P2P payment options to get teens and college kids locked into the Chase brand, etc.
Additionally, they could spend a lot more time developing “social” products that plug into networks like Facebook, Twitter, and Google+. American Express seems to have already dipped its toe into this pool, and the water’s fine.
At some point, and I don’t know when, there will be a major shift in consumer behaviour: why should I use a bank that pays almost no interest and fees me, when perfectly safe online banks like ING DIRECT pay comparatively “high” yields, have simple fee disclosures, offer great support, etc.
For small business account owners, this shift makes even more sense.
Now, you could argue that the older generation still likes the feel of walking into a bank and dealing with their “personal banker.”
OK, sure. But I would argue that if there is one thing I know about my parents’ generation, it is that they are greedy — and not dumb. Once they see that their deposits earn something online, they won’t stay with brick and mortar banks. Furthermore, the younger generation has already made the enthusiastic shift over to something I call self-serve banking. With sites like Mint.com and BillGuard, customers act as their own fraud departments and support reps. They rarely need to walk into a branch to ask questions.
Assuming customers five years from now will want or need physical branches everywhere is about as foolish as assuming people will always buy plastic discs for $16.99, when they can download the same album online for free.
Maybe I’m missing some huge competitive advantage here that having branches in every single strip mall offers. But I don’t think a re-run of the 1990’s branch expansion is the best way for big banks to make money in 2011.