Pump Your Own Bank

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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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