Academic journal article ABA Banking Journal

Bring on the Issues: With 23 Years of ABA Service under His Belt, Iowa Banker Jeff Plagge Is Ready for One More

Academic journal article ABA Banking Journal

Bring on the Issues: With 23 Years of ABA Service under His Belt, Iowa Banker Jeff Plagge Is Ready for One More

Article excerpt

Jeff Plagge was a diehard BlackBerry guy. He is now among the legions of current or former BlackBerry users who have witnessed the rapid change in fortunes of the company that produces the device.

The incoming ABA chairman, who is president and CEO of Northwest Financial Corp., Arnolds Park, Iowa, says BlackBerry's travails offer a caution for the banking industry.

Banks have long owned the payment system. It's such a core part of the business, says Plagge, that bankers don't tend to focus on it that much other than as a revenue source. Yet more and more nonbank players--Google, Amazon, PayPal, and Square among them--have been moving aggressively and in innovative ways to capture parts of the payments business. In speaking with bankers, Plagge (pronounced with a long "a" and hard "g"--as "PLAY-gy") uses the BlackBerry situation to point out the significance of this trend. "Once a person made the shift to an iPhone," he asks, "were they ever going back to a BlackBerry?"

He warns that the same thing will happen once consumers and businesses get used to using nonbank payments options. "Let's say a customer goes with the Google wallet [a service that permits payments using a mobile device]. What concerns me is that the customer mindset starts shifting to where they think, 'My bank is Google.' All of a sudden, banks are disinter-mediated and become just a silo for FDIC insured money." An even bigger risk, he says, is the potential brand loss if companies like Google or PayPal start offering other financial products, such as mortgages.

To Plagge, this issue is as important as the many challenges coming out of Washington. It will be a key focus of his term as ABA chairman beginning this month. Plagge, 58, has run three different banks over the past 20 years--one of which was Midwest Heritage Bank, a thrift owned by Hy-Vee Corp., the Iowa-based supermarket chain that has long been a payment innovator. His time at Hy-Vee raised Plagge's awareness of how many payment options there now are and how quickly the payments business could leave banks if they don't pay attention to it. "If banks look at payments only as a revenue stream," Plagge points out, "they're missing a big part of the discussion, which is the customer relationship."

Plagge was the driving force behind two recent ABA efforts focused on banks' role in payments. He chaired the association's Payments Task Force in 2010 and was a member of the Emerging Payments Advisory Group that ABA formed last year. The advisory group released the results of a study this summer, which highlighted the fact that consumers are much more vulnerable to fraud when they make payments outside the banking system. In addition, the group found that nonbank players use the "rails" of the existing bank payment system in ways not intended and without responsibility or oversight. This gives them a competitive advantage over banks.

An unusual hobby

Jeff Plagge's keen interest in payments is all the more interesting considering that he began his career as a non-bank agricultural lender. Iowa banker Mick Guttau can take some satisfaction in knowing that he had a hand in steering Jeff Plagge onto the path of private-sector banking.

Plagge worked as a loan officer for the Farm Credit System as his first job out of college. His territory included western Iowa, where Treynor State Bank is based. Guttau, now chairman of the family-owned bank, says he first met Plagge when the young man walked in to see him one afternoon. As Guttau recalls, Plagge said to him, "I've been calling on your clients, and nobody will leave you. I just wanted to meet you."

The two men hit it off and have been friends for three decades. Plagge was impressed that a small state bank could more than hold its own against the government-sponsored enterprise, and subsequently decided to join the private sector as executive vice-president/senior lender for First State Bank in Webster City, Iowa. …

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