Beating Back the Non-Banks
Pike, Kelly, Independent Banker
While non-bank competition grows, community banks meet the challenge with innovation and quality service
H&R Block wants them. Blue Cross Blue Shield wants a piece of them. Tax-exempt credit unions have been trying to woo them for years. Wal-Mart has spent millions of dollars squirming through every loophole in the book to get every bit of them. Rich or poor, retail or commercial, city or country, community bank customers are the target of non-banks that seem to multiply every year.
Community banks may feel surrounded by niche players nibbling away at their core business, but now is not the time to wave the white flag. Remaining flexible, knowledgeable and innovative are the keys to overcoming the latest onslaught of oversized, sometimes tax-subsidized, behemoths your bank is up against.
"We found we can be successful not just by what we offer but how we offer it," says Rick Bastion, president of $420 million-asset Blackhawk Bank in Beloit, Wis.
Take for instance health savings accounts (HSAs)-tax-advantaged savings plans for people with high deductible health plans. When Blackhawk Bank was researching the field in 2004, the bank found HSAs were dominated by large, more established competitors that "make fees and charges a centerpiece of the way they do business," says Bastion. Research also showed many insurance agents and employers were daunted by the product because they didn't know how to fit HSAs into an overall benefits plan or how to explain them to employees
"We felt everybody else was offering products, but no one was helping people buy it," says Bastion. "There are lots of small to medium-sized businesses, and if we positioned ourselves as a human-resource resource, we'd get more than our share of business."
Blackhawk Bank chose to minimize fees, treating HSAs much like it would a checking account, and maximizing customer handholding by managing the product within the bank's human resources department. Launched in October 2004, today Blackhawk Bank serves employers in 18 states and sends employees all over the Midwest to educate groups about the intricacies of the product.
"It's allowed us to be locally recognized as the expert with agents and employers," says Bastion.
Though Bastion is hesitant to reveal the extent of the bank's HSA accounts for competitive reasons, the number exceeded the new checking accounts opened at the bank during the same period. While they haven't done much to add fee income yet, HSAs have a larger average balance than demand deposit accounts and a limited number of transactions. As the product becomes mainstream, Blackhawk Bank will re-examine its fee policy, but for now it will concentrate on growing balances.
Meanwhile, healthcare giant Blue Cross Blue Shield-which provides healthcare coverage to nearly one-in-three Americans-is planning to open an industrial bank in Utah in July 2006. Blue Healthcare Bank, as the entity will be known, will allow people insured by the company to set up flexible spending accounts and health reimbursement accounts. Those accounts will make it easier for Blue Cross users to pay medical expenses from those accounts through debit cards and checks, the healthcare company said. Of course, the Blue Cross accounts could come with a bunch of fancy bells and whistles and add-ons, from overdraft protection to Internet banking to, possibly, fund investment management.
The impact from Blue Healthcare Bank on other financial institutions should be limited to those involved in HSAs, according to research by Aamer Baig, a partner with DiamondCluster, a global management consulting firm. "From a revenue standpoint, the [Blue Healthcare Bank] play is focused on account management, which is actually not the most lucrative opportunity for banks in the emerging HSA value chain," Baig wrote. "Many banks will be willing to forgo the administrative tasks of recordkeeping, safekeeping of funds and managing the enrollment process. …