Banking revolution sparks competition in California
Beverly Hills, Calif. — For block after block on nearly every corner of Wilshire Boulevard in this affluent community, there is a bank office. This is California banking, a la 1960, when every bank wanted a fully staffed, highly visible branch only minutes away from wherever their customers might be.
For a look at banking, 1980 style, travel up the coast to San Francisco. In the Embarcadero Four, a high-rise hotel-office complex, Security Pacific Bank has a ''semi-automated banking facility,'' consisting of three ReadyTeller machines, two or three customer- service representatives, and one officer. There are no tellers.
Ten years from today, California bankers predict, Wilshire Boulevard down in Beverly Hills may no longer look like a bankers' battleground. Instead, as the electronic revolution sweeps across California, there will be less emphasis on building new branches and more on providing services as inexpensively as possible. ''We will find ways to reward the user of the electronic system,'' says Robert Thaler, the executive vice-president of the planning and marketing group for Security Pacific Bank. This is but one change occurring in the banking business in the state of California.
In the process of transition, the banking industry is becoming more fee- or service-oriented. ''Any bank that doesn't let fees absorb its operating costs, will regret it,'' says Sidney Ipaktchian, executive vice-president for Security Pacific Bank in Los Angeles.
Some of the new services many California banks are offering include discount brokerage services, insurance plans, and financial-advisory services. Mr. Ipaktchian says Security Pacific, plans to capitalize on this shift by training its personnel in sales and sales management. ''Once the paperwork is out of the branches,'' he says, ''you need sales people and managers.'' Security Pacific hopes to eventually send 12,000 of its employees through sales courses so they can sell tax shelters, help customers with tax preparation, and give investment advice.
Another major change is competition from out-of-state banks. Citibank has become the first major out-of-state bank to set up its tent in California with the acquisition of San Francisco-based Fidelity Savings & Loan. Already, Citibank has asked state authorities for permission to change two Citibank personal-loan centers to savings offices. Other banks are also eager to get their foot in the door, once interstate banking is permitted. And, of course, the Bank of America has already stretched across state lines with its proposed acquisition of troubled Seafirst Bank in the state of Washington. This acquisition will add fuel to the forces lobbying in Sacramento for permission to set up shop in California.
''When you look at branch banking,'' says Mr. Ipaktchian ''California is leading the pack as the most desired state of the union.'' The reason is simple: There is high employment and solid growth in the state.
The attractiveness of California as a place to do business will increase the competition, says John Harrigan, the chairman of Union Bank, a major commercial bank owned by the Standard Chartered Bank, a British banking organization. Mr. Harrigan says Union Bank expects to notice this competition in its major market, the ''middle market'' of small- to medium-size corporations. ''All the banks are saying they are going after the middle market, and this will continue until it's less attractive.'' Within five years, he predicts, ''it will be obvious who the winners and losers are.''
Mr. Harrigan says he believes these competitive pressures will force a series of mergers as less efficient banks are bought out by more efficient ones. The more efficient banks are likely to be the larger banks. ''It is hard to see the survival of the very small institutions,'' Mr. Harrigan comments.
Bankers also expect pressure on the very large banks in the state - particularly, Bank of America, which tries to provide every type of banking service. ''It will be very difficult to be all things to everyone,'' comments Mr. Ipaktchian. ''We believe the markets will become more segmented.'' By this he means that some banks will specialize in wooing the affluent customer, some will become more efficent business banks, and some will find efficient ways to serve the ordinary customer. In addition, some industry observers are not certain how much money or time the Bank of America will have for California banking now that it is acquiring Seafirst.
Initially, as the state's megabank, Bank of America, presents an image of being imperturable. James B. Wiesler, vice-chairman of the retail-banking division, calmly explains to a visitor that, like other banks, Bank of America's strategy is to segment the markets it serves. On the retail side, he expects 80 percent of the bank's customers will have most of their services - debits and credits - handled by an electronic network. Surplus cash in checking accounts will be swept into money-market-type accounts.
Eventually, Mr. Wiesler envisions the bank handling various types of insurance products, possibly selling them at the branches or through its discount brokerage arm, Charles Schwab & Co. ''Thirty to 40 percent of the cost of insurance is in the delivery,'' he comments, noting that with its huge branch network, the bank may be able to deliver an insurance product cheaper.
This possibility has not eluded other California banks; last week Great Western Financial Corporation, one of the state's largest thrifts, purchased Aristar Inc., a Miami company with 293 nationwide consumer-loan offices and an insurance company.
For the most affluent 1 or 2 percent of the bank's customers, Mr. Wiesler expects the bank to develop ''enhanced services.'' He remains vague as to what these might be, but he says these individuals usually don't mind paying fees for services.
At Security Pacific, the No. 2. bank, for comparison, there is a definite feeling of movement. The bank is opening up ''executive'' banking arms in 40 of its branches, providing executives with easy access to credit and enhanced services. Mr. Thaler says the bank is ''tailoring its services'' a lot more.
Both banks say their aim is to be the ''low-cost producer'' of services. And their methods are the same: They are centralizing paperwork - moving check clearing to massive ''paper factories.'' However, Security Pacific is examining other systems, including the possibility of using automatic tellerlike machines to process loan forms to cut down on paperwork. And, in a state where 9 percent of the population owns a home computer, the bank is looking at ways to make banking at home feasible.