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PCBB Banc Investment Daily August 19, 2013
Banc Investment Daily
August 19, 2013

Banking and Innovation

Thomas Edison is one of the best- known inventors of all time. All told, he held 1,093 patents and his contributions to modern-day society include the phonograph, stock ticker, motion picture camera and a long- lasting, practical electric light bulb. Achieving success, however, wasn't always easy. For example, Edison tested thousands of materials to use
for the filament of his light bulb before happening upon the one that would finally prove successful.
When it comes to innovation and industry change, this serves as a critical lesson for community banks. Far too often banks remain tied to plain vanilla ways instead of exploring new ones and proactively embracing them.
Of course, banks have significant regulatory constraints, so opportunity channels are naturally limited, but as with Edison, sometimes you have to keep pushing to make change happen. Even within the regulatory framework, there is still ample room for creativity. The question is, are we using our noggins to harness this creativity, or are we maintaining the status quo simply because it's the most comfortable.
To innovate, it often pays to step outside your comfort level a bit and explore ways to make your bank more profitable and enterprising. Over eons, this is how many great and profitable ideas have ultimately been born.
Looking back, it's hard to believe that some 30Ys ago ATMs were just becoming became part of mainstream banking. Today the global ATM footprint spans nearly 2.4MM machines and yields more than 6B transactions every year.
Further, consider the demise of so=called bankers' hours. What an innovation it was when banks started extending their hours and days to provide customers with greater flexibility. Today it's not uncommon to find banks open past 5pm and on weekends. Indeed, according to an ABA survey, close to 90% of banks have Saturday branch hours now and 7% have Sunday hours. On average, branches are open 45 hours per week according to the study. Of course, even when branches are closed, customers today still have access to an ATM or online.
These days, you often see banks setting up mini-branches in grocery stores. This used to be another novelty, but it proved to be a good contact point for customers and boosted opportunity for bankers. The convenient location and extended hours have made this innovation a big hit with customers. Now one bank (PNC) has taken this even further and started to show up with a "pop-up" branch that can be quickly assembled and disassembled in higher traffic areas. The jury on this one is still out, but it is interesting to be sure.
Finally, no discussion on innovation would be complete without throwing in online and mobile banking into the mix. Today, customers have fewer reasons than ever to visit a branch and banks are persistently reinventing themselves to appeal to customers wherever they may be. This is a fast changing area and a prime example of how banks need to continue to modernize to stay in front of customers.
Overall, one takeaway from Edison all bankers can leverage is to be creative as you remain unafraid to try different things because you never know how they might turn out. Consider Edison's idea of building houses purely of concrete. Despite high hopes, the concept was expensive to implement and never really took off. Yet, some good still came from his efforts, as Edison's cement-making company was picked to build Yankee Stadium in the Bronx, where the New York Yankees played until 2008.
The point is you never know where you're efforts will lead you. Consider that if Edison had given up when platinum and other metal filaments failed him, we might all still be sitting in the dark.