Are branches obsolescent?

AnvilTRUE STORY: A local business owner recently pulled up to an ATM only to be greeted by an out-of-order sign. Cursing his luck, he was about to speed off in search of another ATM when at the last minute a solution occurred to him. On other side of the wall holding up the ATM was a branch of his bank. He had all but forgotten that he could conduct transactions inside.

Victim of our own success

For years banks did their best to move clients away from the teller line. Bank-by-mail, telephone banking, ATMs, and now digital banking—all were great ways for banks to cut costs of personnel and bricks.

The good news is that it seems to have worked. The services people are comfortable handling on their portable devices boggles the mind. They check balances, view transactions, make intra- and inter-bank transfers, make loan payments, pay bills, make purchases, open accounts, deposit checks, apply for loans, download statements, view check images, search transactions, view statements, invest, apply credit cards, make credit card payments, download data to the likes of Quicken and Quickbooks, text money, split checks at restaurants, and more.

By contrast, the list of transactions you can’t do online is short. You can’t deposit currency online, tuck a digital dollar into a birthday card, or print currency. (Not legally, anyway.) And there will always be certain high-level commercial transactions that demand face-to-face meetings.

The bad news is also that it seems to have worked. Now that it’s possible to conduct the majority of financial transactions via portable devices, it’s equally possible to forget how to do things the old-fashioned way. This has led to a good deal of speculation about the eventual fate of buildings known as “banks.”

Fueling the speculation fire are reports that over the next two years Wells Fargo plans to close 900 branches. Earlier today Finextra reported:

As it books a $3.25 billion fourth quarter pre-tax charge related to the misselling scandal, Wells Fargo says it plans to make savings by closing around 900 branches by 2020.

That’s inflation for you. Ten days ago, CNN Money had it at just 800 branches.

Kodak or Blockbuster moment

As early as 2013, Forbes contributor Tom Groenfeldt questioned the continued need for banks. Reporting on Money2020 in Las Vegas and SWIFT’s Sibos international banking conference in Dubai, Groenfeldt bluntly observed:

I concluded that like the dog that didn’t bark, the absence of persuasive arguments for banks was in itself interesting.

I’ve listened to banks proposing to act as trusted intermediaries between individual buyers and sellers … and wondered if they had ever heard of Craigslist or eBay. Why would buyers and sellers register with a bank to accomplish transactions they can do fairly well through existing platforms?  Others have talked about providing guidance in purchasing consumer goods—something Amazon, for one, already does well.

Last summer, Bloomberg Businessweek quoted former Barclays Chief Executive Officer Antony Jenkins’s prediction that banks …

… could face a “Kodak moment” where they approach obsolescence in five to 15 years at the hands of new financial-technology companies.

Jenkins followed up with another analogy in an interview with CNBC:

Bank branches will be “as common as a Blockbuster video store in a few years’ time,” former Barclays CEO Antony Jenkins told CNBC on Monday, adding that his prediction about mass closures of physical banks is happening faster than he thought.

Jenkins, who now runs a fintech (financial technology) firm called 10X, warned banks of the impact of not keeping up with technological innovation. The ex-Barclays boss, who left the bank in July 2015, said artificial intelligence (AI) will have a profound impact on banking that could mean branches become obsolete.

The first item in’s article “6 Banking Services That Will Be Obsolete in 10 Years” happens to be “bank branches and bank tellers.” And in 2015 ZeroHedge all but gleefully cheered, “And The Good News: Banks Will Be Obsolete Within 10 Years.”

Too soon to despair, not too soon to take heed

But hang on. A building is a feature. The benefit banks deliver is the ability to manage funds.

True, the more people use their portables, the greater the risk they’ll credit their portables rather than the financial institutions underlying their apps. It’s imperative not to let that happen.

Yet the move to digital banking presents an opportunity. People check in with their banks far more often on their portables than they ever did with their feet. Every check-in is a contact, and every contact is an opportunity to build the relationship.

Just as other online businesses pull off solid brands and relationships—like Amazon, iTunes, or or now Bebe, which last year threw in the physical plant towel to become an online-only merchant—so can banks.* If a bank slips into utility status, it will not have been inevitable but the result of failure to seize those frequent contact opportunities.

Relationships have always distinguished banks from parity products and, worse, mere utilities. The move to digital banking may threaten the distinction—but threaten needn’t mean obliterate.


* For insights on how banks can build strong digital brands, see my posts hereherehere, here, and here.

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Is not accepting
cash legal?

Magnified dollar bigger

It had to happen sooner or later. “No cash accepted” signs are popping up.

Not long ago, CBS News Moneywatch reported that …

… increasing numbers of restaurants and retailers are now snubbing the lowly dollar bill.

Some merchants such as SweetGreen, a salad chain, refuse to open their registers for cash, telling customers they can pay only with mobile payments or cards. With some newer vending machines, only a card or mobile wallet will get that cold Coca-Cola to roll down the chute.

For many merchants, the benefits of accepting only plastics and digital payment more than compensate for interchange fees. No cash on hand means no worries about holdups, short change artists, pilfering employees, or opportunists grabbing cash from an open till. It makes tracking inventory a snap. It speeds transactions, since cashiers needn’t take time to count out change. It also alleviates the problem of employees who can’t figure out how to count out change, a solid merchant benefit even if it doesn’t speak well for the rising generation’s math skills.

But … is not accepting cash legal?

Since every U.S. bill says, “This note is legal tender for all debts, private and public,” one might ask if it’s legal for an establishment not to accept cash. Apparently many indeed do ask, as evidenced by the fact that no less than the U.S. Department of the Treasury felt it necessary to weigh in on the matter:

… the Coinage Act of 1965 … states: “United States coins and currency (including Federal reserve notes and circulating notes of Federal reserve banks and national banks) are legal tender for all debts, public charges, taxes, and dues.”

This statute means that all United States money as identified above are a valid and legal offer of payment for debts when tendered to a creditor. There is, however, no Federal statute mandating that a private business, a person or an organization must accept currency or coins as for payment for goods and/or services.  [Italics added.]

As to the distinction between debt and not-debt, The Fiscal Times explained,

Let us say it is very late at night and you need gasoline for your car … until the customer has put gas into the car, the customer does not owe the station owner anything. However, if the customer is allowed to pump gasoline into the car first and then pay, the owner must accept all types of U.S. bills because the customer has a debt to pay.

The same issue arises on an airplane. If you want to buy a drink for $5, the airline doesn’t have to accept your cash as long as it requires you to pay for the drink first.

The Department of the Treasury statement further explains:

Private businesses are free to develop their own policies on whether or not to accept cash unless there is a State law which says otherwise.

One state, Massachusetts, does say otherwise. Returning to The Fiscal Times article:

Massachusetts … actually does have a law on the books that requires all retail establishments to accept cash payments. However, at the present moment this law appears relatively unknown, the exact definition of a retail establishment is unclear, but most importantly the law specifies no penalties for breaking the law.

Don’t expect such a law on the national level, not least because even the United States government would stand to gain considerably from going cashless. According to “The Cost of Cash in the United States” by Bhaskar Chakravoti and Benjamin D. Mazotta of Tufts University’s The Fletcher School, cash costs the U.S. about $200 billion annually:

The most important cost of cash to the US government is forgone tax revenue from cash transactions. A conservative estimate yields this value to be $100 billion annually. The government also incurs cash-related expenses from the production and distribution of cash in the United States. In 2012, these costs totaled $1.2 billion.

Cash will still be around for a long time

As I have written before, cash is not likely to fully exit American commerce. As the above-cited Moneywatch piece points out,

About one out of 13 U.S. households are unbanked, which means they have don’t traditional banking accounts, such as checking or savings accounts. Such families tend to be lower-income and rely on cash to make their purchases.

Even consumers with bank accounts rely on cash at certain times. Cash comes in handy for gifts, tipping for great service, and, when needful or simply desirable, not leaving a paper or digital trail.

Ironically enough, the law seems to require banks, the very champions of plastics and digital payments, to accept cash for loan payments. But who knows? That may change. Indeed, the future these days seems to change every hour. It keeps the digital payments business exciting.

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The net effect
of net neutrality

Net neutrality protestPerhaps you heard: A couple of weeks ago the FCC under chairman Ajit Pai voted to repeal the 2015 regulations. 

It all started in 2008, when the people at Comcast noticed a curious thing. File-transfer giant BitTorrent was consuming more and more Internet bandwidth. More, it seemed, than Comcast cared for them to consume.

Comcast’s solution was to “throttle” BitTorrent’s and other large users’ bandwidth. That is to say, they slowed down their Internet speed.

When the practice came to light, the FCC slapped Comcast’s wrists. Or, rather, tried to. The rules were vague then, so Comcast emerged with wrists intact, albeit with a bit of mud on their face.

The BitTorrent case and others like it eventually led, in 2015, to the FCC’s lumping Internet Service Providers (ISPs) in with telecommunications service providers. ISPs could no longer, as NPR put it, “decide which websites load faster or slower, or charge websites or apps to load faster.” 

Except, that wasn’t exactly true. ISPs have been allowed to do exactly that, and that’s not necessarily a bad thing. Moreover, the conversation may be less about ending neutrality and more about revising the rules.

Net neutrality matters for financial institutions

Having worked in the banking industry since age 17, I’m well aware of the burdens that overzealous regulators can impose. With banks in particular, it seems whenever Washington feels a need to regulate, overkill is part of the mandate. So I tend to look favorably upon any suggestion of simplifying or doing away with rules.

But net neutrality has implications for the banking industry. I probably don’t need to point out that digital banking rather relies on a fast Internet. Without net neutrality, banks could end up paying extra to ensure speedy transactions, which doesn’t bode well for institutions not in eager pursuit of increased overhead.

Note that I said banks could end up paying extra. No one is entirely sure just what the repeal portends. As recently as November 22, @Comcast tweeted this promise:

We do not and will not block, throttle, or discriminate against lawful content. We will continue to make sure that our policies are clear and transparent for consumers, and we will not change our commitment to these principles.

That should reassure. Unless, like Ars Nova’s Jon Brodkin, you’re concerned about wording changes in Comcast’s stated positions over time, past abuses, and the fact that …

… Comcast has drawn a distinction between “paid prioritization” and “anti-competitive paid prioritization.” Paid prioritization should not be banned entirely, but “anti-competitive paid prioritization” should be limited, the company has argued.

Those who want to keep the current rules, and those who want to revise them

Besides the lion’s share of consumers, those who argue to keep net neutrality include the likes of Apple, Google, Mozilla, Amazon, Dropbox, Facebook, Microsoft, Netflix, Snap, and Spotify, to name a few. Here’s an excerpt from a statement by the nonprofit organization Mozilla:

Our position is clear: the end of net neutrality would only benefit Internet Service Providers (ISPs). That’s why we’ve led the charge on net neutrality for years to ensure everyone has access to the entire internet.

Apple had this to say in its Reply Comments to the FCC:

The result would be an internet with distorted competition where online providers are driven to reach deals with broadband providers or risk being stuck in the slow lane and losing customers due to lower quality service. Moreover, it could create artificial barriers to entry for new online services, making it harder for tomorrow’s innovations to attract investment and succeed. Worst of all, it could allow a broadband provider, not the consumer, to pick internet winners and losers, based on a broadband provider’s priorities rather than the quality of the service.

But let’s not be naive. Apple, Google, et al have shareholders to please, which means we shouldn’t assume they have only the public’s best interest at heart. Indeed, the issue is not as simple as they make it sound. These companies enjoy serious advantages under current regulations, so it’s no wonder they would want to maintain status quo. A recent post by science writer Brian Dunning points out that

… from an infrastructure perspective, there is no such thing as a “fair” Internet. The biggest content providers—Google, Facebook, Netflix, Akamai, Amazon, and others—are directly connected to Tier 1 networks, the highest-level networks over which data flows worldwide without having to go through anyone else’s routing, negotiation, or settlement. You and I don’t have that …

… Facebook is already enjoying “king of the hill” status as a Tier 1 service. Theirs is an easy position to take from where they sit.

Not surprisingly, ISPs are keenly interested in revising net neutrality rules. And they have their allies in the press. Writing for Forbes, Nelson Granados observes:

… the internet as a neutral platform for content providers and consumers has pretty much remained so during three regulatory regimes: One with no specific rules of anti-discriminatory behavior, one with explicit rules, and 2017 with an FCC that had no intention to enforce the rules. So there’s no major reason to fear a doomsday scenario going forward.

However, he adds, “That doesn’t mean there are no reasons to worry in the longer term.” He goes on to name a few, including “a more competitive environment in industries that could clog the internet pipes, like video streaming services.” Moreover,

… since 2015 ISPs have increased vertical integration into content (e.g., AT&T acquired DirecTV and Time Warner; Verizon acquired Yahoo and launched Go90) and they have natural incentives to favor their own content.

The net has never been neutral

“Unfettered access” may sound pleasing to some, but in fact it’s not possible. One of the problems in conversations about net neutrality is that the subject is too often treated as an all-or-nothing proposition. Workable solutions to managing the Internet are to be found between extremes on more than one continuum.

The Internet is a limited resource for which demand varies throughout the day. Without some form of “traffic shaping,” highest level users would utterly consume capacity, such that there would be no so-called free access at all. To wit, Dunning addresses the ins and outs of Internet traffic, taking into account not just ideological and economic factors but technical ones as well:

Let’s look at the basic example of Internet on a plane. You buy the service, and you find out that streaming video is blocked. No YouTube or Netflix on a plane. Why not? Because you would suck up all the bandwidth, and nobody else on the plane would be able to check their email or work on a Google doc. It’s necessary for the airline provider to impose this restriction to keep the service more useful for more people. It’s an example of an absolutely necessary fundamental violation of net neutrality.

The airline example is a microcosm of every other Internet environment. Your neighborhood broadband provider has to do this too. They generally do slow abusive users, peer-to-peer file sharing networks, denial of service attacks, even streaming video. It’s called traffic shaping. It’s done on a dynamic basis all day long, and it’s the basic principle for maintaining network quality of service. Your home broadband service would be terrible if your provider was not, right now, prioritizing some traffic, and delaying other traffic.

To Dunning’s point, The Palmer Group CEO Shelley Palmer writes in AdAge that what we’ve been calling net neutrality for the past two years hasn’t been all that neutral anyway:

Under net neutrality there were fast lanes and slow lanes, and a loophole called zero-rating which allowed services like T-Mobile’s “Binge On” to exempt certain streaming services from its data counts. There were other loopholes written into the rules where specific clauses included phrases such as, “Subject to reasonable network management,” which basically meant ISPs could throttle traffic if they thought they had to.

What the real debate needs to address

It’s important to avoid treating net neutrality as a choice between two extremes. No one wants absolutely free trade—the need for rules is understood—and no one who is informed on the subject wants absolute net neutrality. The debate should not be whether or not to have rules. It should center around what the rules should be, how far they should go, and who gets to make them.

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In a hollow in the
snowy ground

winter-3017599_1280This time of year it’s traditional, and I am inclined, to offer a holiday thought. I admit to a bit of apprehension. Of late, what one says or fails to say has the potential to offend. I hope the spirit of what I wish to get across transcends.

I live in the Salt Lake Valley, where we have a number of lovely off-leash dog parks. One in particular sits at the feet of the majestic Wasatch Range, part of the Rocky Mountains. It is picturesque and, due to its elevation, colder than the rest of the valley at this time of year.

Which makes what I’m about to share all the more heartbreaking.

Last week when a friend—let’s call him Bob—was there, his dog sniffed out something I wish I could tell you was unusual. Some 20 feet from the main trail, hidden from view in a hollow in the snowy ground, a homeless person lay shivering, not quite conscious, clutching a ragged comforter.

Bob felt helpless. It was afternoon, the warmest part of the day, and only 40 degrees Fahrenheit. The man would most likely freeze to death that night. Yet what to do? The actions taken in the Parable of the Good Samaritan are easier said than done. Perhaps the man was dangerous. Even if he wasn’t, Bob had no pack animal to carry him out, and his care would have been beyond Bob’s and just about anyone else’s means.

Later that night as he pondered, Bob realized that though he wasn’t able to help that individual, he could at least help others like him. With some googling he found a shelter with the buying power to purchase eight times the food he could buy on his own for the same amount. The shelter is now part of his monthly budget.

My wife, three kids, and I—and, yes, our dog—have a nice home. It’s no mansion, but it’s a far cry from a hollow in the ground. We’re never cold. We never go hungry. Right now I am indoors, on a comfortable chair, writing on a Macbook Pro that retails for an amount that a food bank or shelter could turn into about $15,000 worth of goods and services for the homeless.

I only partly earned any of what I have. Sure, I’d like to think I have an iota of talent and once or twice put in some hard work. But it wasn’t my doing that I was born in an economy where I could pick up an education, gain skills, and join a thriving corporation. Neither was it my doing that the right combination of genes, upbringing, mentors, and random opportunities came along at the right times for me to capitalize on them. So there’s no way I can picture a man shivering in a hollow and think, He deserves it. Or, Why doesn’t he just get a job? I don’t know his story. All I know is his circumstance in the here and now.

Looking for a great idea for a resolution?

Where I live, it’s something of a year-end tradition to express gratitude for what we have. But it follows that some have less or even nothing. Maybe we can’t do as the Good Samaritan did—bandage wounds, transport unfortunates on a donkey, and leave them with an innkeeper—but there exist organizations that do essentially that. If you’re looking for a New Year’s Resolution, scaring up a dollar or two for them on a regular basis might be a great one.

Thanks for reading. My family and I hope you had a great Christmas Day and wish you a happy New Year.

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Captain Kirk and the
value of not working in
a (figurative) vacuum

Trek imageWe’ve come a long way since the 23rd century.

Back in those days, Captain Kirk’s “communicator” was nothing but a flip phone. Not only that. He used it to place voice calls, of all things. The ship’s computer answered to “Computer” and spoke in a monotone. Only in one episode did it sport a personality. The work of saboteurs, it was deemed a problem, if you can imagine.

One can only guess what Kirk would have given for a smartphone from three centuries earlier. No flipping the darned thing open, no knob to turn—just call out “Alexa” or “Hey Siri.” He’d have had instant access to humankind’s accumulated knowledge (who needs a ship’s computer?), delivered by a voice with at least something of a personality. He could have used it to shop. 

Best of all, he could have used it to better manage his Federation credits—his money.

That’s the problem with science fiction. The writers of “Star Trek” lived in the 1960s, when QWERTY keyboards accessing house-sized computers were cutting-edge. Magnetic tape had only begun to edge out punch cards. Gene Roddenberry et al had no basis to imagine portable devices, much less portable devices with touchscreens. And even if they had, leaping to voice-activated personal devices (obviating a ship’s computer), social media, and digital banking would have been too much to ask.

Yet the very inability to see into the future helps make today’s technological whirlwind all the more exciting. We cannot foresee what will launch next week, let alone next year, so there’s no anticipating the technologies that they may in turn make possible.

Not that foreseeing what will launch is the same as foreseeing what will catch on. Markets continue to surprise us. For instance, while marketers were sure QR codes would be the rage, consumers greeted them with a collective yawn; meanwhile, consumers are going nuts over fidget spinners, which no one saw coming.

Exciting or not, uncertainly can be expensive—and consequential. Financial institutions decide at their peril which technologies to invest in, which to ignore, and which to file under “keep an eye on this one just in case.” At the same time, bankers must carry on with the business of banking.

But now I must confess to having exaggerated.

It’s not true that “we cannot foresee what will launch next week, let alone next year.” Despite appearances, no technology is born overnight. There’s an inception period, a development period, a beta testing period, backing up and finessing, more beta testing, a market testing period, more backing up and more finessing and more testing, and finally, hopefully, a market release.

So while the outcomes of these processes may take markets unawares, those plugged into the process are never taken by surprise.

That’s one of many reasons it’s a good idea not to work in a vacuum—a figurative one, not Kirk’s vacuum of space—but to rub shoulders with outside fintech companies. Fiserv and others stay immersed in technological advances and keep close tabs on market developments. To do that would be a lot harder, perhaps impossible, if we were also trying to run a bank. Since we’re not, we can offer needful insights, perspectives, and products to those who are. (Full disclosure: I’m Fiserv’s Marketing Strategy & Innovation SVP.)

It goes both ways. We, too, know better than to work in a vacuum. That’s why we regularly partner with banks when we conduct studies. It’s why we share information with publications like The Financial Brand to help keep everyone abreast of what’s happening in this fast-changing world.

It’s a shame Kirk missed all that we’re doing these days. Imagine the innovations he could have brought back from the past to the 23rd century. Trouble is, his first and second trips back in time were, respectively, to the 1960s and the 1980s. If only he’d stuck around for a few decades.

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