A Plumbing Project, Home Depot, and Banking

I spent this past Sunday working on a typical plumbing project; lots of self-inflicted issues (like cutting a pipe that I shouldn't have) resulting in multiple trips to Home Depot, and lots of purchases and returns.

It was on my third trip to Home Depot (and to be honest, I went to a different one then my first two visits to avoid additional embarrassment) that I talked to Frank, the plumbing guy who finally helped me to get to a solution and end the madness. So what does this have to do with banking?

As I discussed in my previous post, community banks struggle with the balance of technology and people. Home Depot, like many other retailers, seems to understand the balance. I used the self service checkout to make my purchases each time. But when I had a question or, by the end, a major problem, it was Frank's help that added value in the interaction.

To me, that highlights the inherent synergy between self and full service. In addition to Home Depot, I've gotten used to pumping my own gas, purchasing items at Ikea, or making purchases online. However, when I have a problem or a more complex transaction, I want to work with a person. either by phone or in person.

Banking is really no different. With all the self service tools available, many customers never have to deal directly with a bank employee. How can bank employees add value in this era of self service? What about helping out the consumers who are struggling to get out of debt or recover from financial issues by partnering with a credit counseling service? Being problem solvers will add value and create some loyalty from your customers. This should, in turn, provide the opportunity to offer more products and services.

Banking has become an industry of scale, much like the "big box" retailers. For community banks to survive and thrive, they truly need to re-invent themselves. Sticking with the status quo by competing with the big banks just won't cut it.

Some observations as I leave community banking

It's been almost two months since I last posted anything. Since then, I've left my previous employer and joined a financial services consulting firm and have just completed my first month. I'm going to focus this post on some final thoughts as I leave the community banking space. So here goes:

- The regulatory environment is making it almost impossible for community banks to survive. In a recent article in The Baltimore Sun, Anita Newcomb, a noted community bank consultant, notes that regulatory changes may make it impossible for banks of less than $500 million in assets to survive. In my opinion, this is too low. I think banks need to be of a sufficient size, at least $1 billion in assets, to have the scale to compete and comply with the requirements.
- The primary competitors for many community banks, credit unions, have an unfair advantage. It used to be that credit unions served very specific groups of constituents, like a single employer for example, providing savings and loan products exclusively to them and enjoying the status of non-profits. Now, many CU's have no such restrictions and yet continue to pay no taxes and a much less stringent regulatory environment.
- I believe one of the biggest challenges they face is one of identity. What does a community bank mean, anyway? For customers, their local branch is their community bank. Just like the local Home Depot. Sure, the name over the door has changed a number of times, but many of the people who've waited on you are still there. And now, with all the electronic delivery options, how many people really need a local branch at all? Open your account, get your direct deposit set up and you are good to go.

With all that said, I do think there is a need for community banks. They need to focus on the value they bring to the community. During the recent financial crisis, many small businesses found themselves scrambling for financing when the large banks abruptly pulled their credit lines. A local banker, with roots in the community, is more inclined to work with these customers because they understand the market and know their customer. It's where having local decision makers can really make a big difference. So let's not write the obituary for the community bank just yet.