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In-store banks represent more than capricious trend
By Kathleen Dayton
Staff Writer
Since launching in the 1980s, in-store banking has given the industry a way to build without the higher cost of stand-alone locations and expand its customer base by exposing its products to more prospects.
“For our company, it’s been a godsend,” said Bill Nelson, vice president of in-store banking for First Federal. “It’s driving the growth of the organization, and we do it for one-quarter the price we’d pay for a traditional location.”
In the tri-county area, First Federal has jumped aboard several Wal-Mart supercenters including Wal-Mart stores in Goose Creek, Summerville, North Charleston, West Ashley and the newest Wal-Mart in Mount Pleasant. The company also is branching into Lowe’s Foods stores in North Carolina.
“We’ve been doing this for 13 years now,” Nelson said. “It costs about $250,000 to open an in-store location versus upward of $2 million to build a traditional location — there’s the value. Most traditionals take seven to 10 years to break even. The other value is that stores are where the people are. There’s 50,000 customers a week that shop inside an average Wal-Mart.”
In-store banks make up only 25% of First Federal’s total branches and they generate 60% of the bank’s new customers. In-store branches produce 60% of First Federal’s new checking accounts, 70% of new credit cards and 30% of new commercial relationships, primarily with small businesses, Nelson said.
By locating in stores, First Federal also is able to offer seven-day banking.
“If you need single bills or coins on Saturday and Sunday, you’re in trouble,” Nelson said. “Virtually every other bank in the market is closed except for us.”
Michael Fouche, owner of English Rose Cleaning Service, said he is a regular customer at First Federal in the Mount Pleasant Wal-Mart. He has five accounts at the Wal-Mart branch, including a money market account and a payroll account.
“I do a lot of shopping at Wal-Mart, and having my bank where I shop is fantastic because it means I don’t have to hit my regular bank before 5,” Fouche said. “Plus, if I need to do any banking on weekends, I’m there quite often. It’s just a combined pleasure.”
Carol Kaplan, spokeswoman for The American Bankers Association, said one advantage for in-store branches is name recognition.
“The more people see your bank and the more familiar it becomes, the more people may be likely to use it,” she said. “It’s also a way of micro-targeting particular customer audiences if you want to get into a particular neighborhood where you know there is a lot of business
potential but no real estate is available.”
Not for every bank
There are other challenges for in-store branches, according to at least one analyst who sees fewer customers requiring personal service at banks.
“So many consumers today do all their banking at a drive-up teller. Nobody walks inside to do anything,” said Britt Beamer, president and CEO of Charleston-based America’s Research Group, a trends analysis and consulting firm. “A few places have made in-store banks work. I’m not saying they can’t be successful, but I don’t see anybody jumping into it.
A few years ago, a lot of people tried it but not many maintained it.”
There is a right and a wrong way to run an in-store bank, said Ray Skinner, managing
director of National Commerce Bank Services, a bank consultant and subsidiary of SunTrust Bank. National Commerce Bank Services, formerly National Commerce Financial Bank and later purchased by SunTrust, was a pioneer among banks that first started the in-store concept more than 20 years ago.
“The first one was in Germantown, Tenn., and it’s still there today. It’s still doing very well. One of the myths about in-store is that they’re short-term, low balance. A lot of banks got into it because everybody else was and used them for check-cashing facilities, not full service,” Skinner said. “When you do that, you last about five years, and the only reason they last that long is that’s typically your initial term with the retailers. A lot of banks have gotten out of it because they didn’t know how to run those locations.”
In-store banks may not grow as many accounts or as large accounts as traditional locations, but their strength is in growing net new households which may have multiple needs such as checking accounts, home equity loans and savings accounts, Skinner said.
“Your household growth for the company is coming from your in-store locations,” Skinner said. “The reason is because you have so many people walking through those stores a week. Anywhere from 12,000 to 60,000 prospects are walking through that store a week, and they’re a captive audience.”
Cost-effective strategy
Jenny Cathrow, vice president of marketing for IBT Enterprises, a bank consulting and building firm based in Norcross, Ga., said in-store banks continue to be a relevant option for financial institutions, especially in uncertain economic times.
“With significantly lower start-up and operational costs as well as faster time to market than a brick-and-mortar, it’s a very cost-effective strategy for entering into a new market or defending an existing one,” Cathrow said.
At the end of 1994, there were 2,505 in-store branches operating in the United States, she said, and that number jumped to about 4,500 in 1998. Today the number is estimated between 7,500 and 12,000. Part of the reason the number is hard to track is that credit unions have also moved to the in-store format, and the in-store strategy can be less permanent if a bank or retailer changes its strategy.
The retailers also see a benefit to having banks in their stores.
Jim Chambers, vice president of real estate for the Mauldin-based BI-LO grocery store chain which have SunTrust banks in its newer Lowcountry stores, said banks and supermarkets get reciprocal marketing benefits with the in-store strategy.
“We get cash or rental payments from the bank, but the long and short of it is, it’s an additional feature that serves BI-LO customers and exposes BI-LO to bank customers,” Chambers said. “It’s an additional differentiation from our competitors.”
Kathleen Dayton is a writer for the Business Journal. Email her at kdayton@scbiznews.com.
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