Five years ago, Joe Kiley was selling his home in Southern California when he asked his son to pick up some coffee and pastries as a treat for the movers. When his son returned, Kiley asked how much he owed. The total was about $40, so Kiley opened his wallet and handed over two $20 bills. His son promptly declined the cash.
“I said, ‘Don’t you want to get paid?’” recalled Kiley, who spent 25 years working as a high-level banking executive at more than a half-dozen banks before he was hired in 2012 as president and CEO of Renton-based First Financial Northwest Bank. “My son said, ‘Write a check, take a picture of it, and deposit it in my account.’ At that point, a light went on in my head. I came back to (our bank staff) and said, ‘Can we do this?’ They said, ‘No.’ I said, ‘We’d better, because if we don’t, we are going to miss this generation.’”
Whether it was via the introduction of credit cards in the 1950s; Voice Response Units (VRUs), or telephone banking, in the 1980s; PayPal in the 1990s; or mobile banking apps after the turn of the 21st century, few industries have been impacted by technology’s always-turning odometer quite like the banking industry.
Even Automated Teller Machines (ATMs), those bulky and stalwart sources of 24-hour cash introduced in the late 1960s, are being replaced by ITMs, or Interactive Teller Machines, which look a lot like their predecessor, but allow customers to talk to a bank teller live and in real time.
All these changes have required banking executives to remain attuned to the latest industry trends — which can be as straightforward as the latest innovation, or as nuanced as changing consumer preferences — in order to stay relevant and competitive in a crowded marketplace.
In Washington state and the Puget Sound region, where many banks are approaching their centennial anniversaries in business, it’s not enough to tout industry longevity.
“You’ve got to keep looking ahead, responding to customers, and being aware of your competition,” explained Kiley, whose bank was founded in 1923 as Renton Savings & Loan Association, had one CEO for nearly 55 years, and operated just one location for 92 years. Today, the bank has 11 branches and $1.2 billion in assets. “We celebrate our 100th anniversary in about four and a half years. The goal is to get the first 100 under our belt, then see how we can get the second 100 years under our belt.”
To achieve that goal, Kiley and other leaders of Western Washington banks and credit unions are responding to industry trends in some of the following ways.
SMALLER BANK BRANCHES
Visit Heritage Bank’s newest South Tacoma branch, which opened last summer, and you might think it’s missing a couple things. There are no velvet-roped lines leading you to a row of tellers. You won’t find one of those imposing, reinforced steel doors that lead to a fortified vault because this branch doesn’t have a vault. And even though the branch itself, located on Tacoma Mall Boulevard, replaced two outdated Tacoma branches, it feels much smaller than your traditional bank setting.
All by design, say bank officials, who described this new location as the “branch of the future.”
Instead of a team of tellers stationed behind secure counters, the new branch’s open-floor design features a freestanding desk that can be circled by both teller and customer. A breezeway between the parking lot and the branch’s interior houses an ATM, which is accessible after-hours by swiping a Heritage Bank debit card, making it possible for customers to make withdrawals or deposits without threats or interruptions.
And while the bulk of transactions in the South Tacoma branch is business-related, Heritage Bank created a private, discreet place where business owners can work one-on-one with bank staff.
“Bank branches have gotten smaller,” explained Cindy Huntley, executive vice president and director of retail banking at Heritage Bank. Huntley recalled starting at Heritage Bank, which was established in 1927, in the late 1980s, when the bank was a savings and loan institution that had only five branches and had yet to offer checking accounts. Today, Heritage Bank has 64 branches and $5.3 billion in assets.
Huntley said she would have liked to make the South Tacoma branch even smaller, but, “It depends on the transactions, how many customers you are serving. I couldn’t go much smaller on that one. That branch does, like, $100 million in deposits, so it gets some good traffic.”
How do Heritage Bank and other financial institutions operate branches without vaults?
The answer is the ATM’s distant relative: the cash recycler. Some banks install these terminals to reduce branch sizes and improve operations.
“Each one of our branches has cash recyclers,” said Kiley, CEO of First Financial Northwest Bank. “They are very heavy, very complex machines. They are almost like vaults.”
With cash recyclers, a customer visits a bank branch and a bank employee feeds the cash into the machine. The validity and denomination of each banknote are determined (and individual serial numbers are recorded) before the machine stores the cash. A slip is printed for the customer to review the amount of the deposit. If there’s a discrepancy, the cash recycler can return the bills to the customer, and the process can start over.
Cash recyclers eliminate the need for cash drawers, ensure accuracy, and reduce operating costs, according to First Financial Northwest Bank Chief Deposit Officer Dalen Harrison.
“In the three-and-a-half years we have used them, we have not recorded one mistake,” said Kiley.
And when cash recyclers replace traditional cash drawers manned by tellers, they curb a bank robber’s temptation because there aren’t large amounts of cash sitting around and easily accessible.
Heritage Bank’s Huntley said cash recyclers have improved efficiency and accuracy and eliminated the need for a lot of vault storage because the machines “really kind of become your mini-vault. They are much safer security-wise for our staff because they don’t have access to it.”
Is Cash Still King?
With consumers increasingly turning to Venmo, debit cards, digital wallets, and other forms of payment, three experienced banking professionals weigh in on the future of cash.
President and CEO, First Financial Northwest Bank
“From my personal experience, (cash) will never go away because there’s always going to be a need for it in certain parts of society. But a lot of transactions are cashless, and it’s just going to be more and more that way. I don’t think it will ever be extinct.”
Executive Vice President Director of Retail Banking, Heritage Bank
“I do think people carry less cash. We don’t see the cash withdrawals like we did 10 years ago. It would be nice (if cash went away), because with the security of cash and the expense of cash, it’s a big thing – it’s a risk – from the bank’s perspective. But I don’t see it going away anytime soon. I think it’s going to take us a while to get there. Many businesses still require cash.”
Vice President, Branch Manager, Columbia Bank
“We still have absolutely seen customers coming on in, cashing paychecks, and taking that cash and turning it around to pay bills or transfer funds between people. It’s still a vital function of our society, for sure.”
Assistant Vice President Marketing & PR Manager, Olympia Federal Savings
“No doubt we see more people using debit and credit cards, digital wallets, and person-to-person payment tools. However, there will always be a need for cash. Just like a ship will always carry a map and compass should its radar go down, there is a time and place when cash is needed in our financial markets.”
FEWER ‘TELLERS,’ MORE ‘BANKERS’
Smaller bank branches and automated operations mean banks are rethinking how their staff interacts with customers. More specifically, traditional bank tellers are transaction-oriented, focused on accepting deposits, dispersing withdrawals, and answering account questions. Bankers, however, can educate customers on options related to investment planning, lines of credit, home loans, and other suites of service.
At Olympia Federal Savings, which was founded in 1906, operates eight branches in Mason and Thurston counties, and has more than $600 million in assets, shifts were made in recent years to hire “universal bankers,” according to Ryan Betz, the bank’s assistant vice president of marketing and public relations.
“Universal bankers provide a comprehensive number of services, from account opening and management, to personal loans, and much more,” Betz said. “Having more staff with versatile skills and abilities makes the operation of our branches more efficient, while also being more effective in meeting our customers’ needs.”
HIGHER CONSUMER EXPECTATIONS
Bankers’ hours. Do you remember that term? Generally, it meant a short workday — say, 10 a.m. to 4 p.m. — that was somewhat derisively attached to the narrow window of time you could do your banking.
Today, ATMs, online banking, and other evolving technology have set new boundaries for bankers’ hours — namely, 24 hours per day, seven days per week. Whether we are depositing checks, withdrawing cash, or transferring funds from one account to another, we expect to be able to bank at 3 a.m. or 3 p.m.
“Customer expectations are higher than they used to be, and a lot of that is driven by the online experience, the mobile experience, we have with Amazon. That’s the (customer) expectation,” said Heritage Bank’s Huntley. “We have to keep innovating and moving while still making really sound banking decisions on our asset growth and our loan growth. That’s a critical piece to us staying really viable and for the future.”
Betz at Olympia Federal Savings agreed. He noted that a financial institution’s ability to be nimble and open-minded to making adjustments and adopting new tools and systems to meet customer and market needs is critical.
“We’ve seen customer expectations and needs grow tremendously as technology and innovation provide greater and more immediate access to information, services, and support,” he explained. “As consumers, we have greater purchasing power in terms of 24/7 access to digital storefronts and banking tools to carry out commerce from anywhere in the world.”
This has resulted in banks and credit unions directing resources to banking innovations that customers expect. According to Betz, in the past several years, Olympia Federal Savings has more investments in technology — from online and mobile banking platforms, to tools and resources like a digital wallet and online account opening — than ever before.
As for the future of banking, Betz envisioned financial institutions will have to keep apace of consumer expectations in order to survive another half-century or more.
“Today, you can order just about anything you want online — in the color, size, style you want — and have it waiting at your door within 24 hours,” he added. “We see banking, just like every other industry, becoming more personalized to meet the individual needs of customers.”