The latest issue of Business 2.0 has an interview with Dick Kovacevich, CEO of Wells Fargo, about their innovative approach to banking – “Bank different”. Their approach is to emphasize the retail. Branches are called stores and while others are scaling back on brick and mortar, Well Fargo is expanding:
Q: Branches – sorry, stores – are an expensive way to conduct transactions. Why are they still important?
A: Every transaction is an opportunity to engage a customer – both to satisfy a transactional need and also to sell him something. And the transaction actually gives you an understanding of customer needs or another new opportunity. If you come in and cash a check from Fidelity, one of our tellers or someone should ask “Could we introduce you to an investment consultant to see if we can do a better job for you than Fidelity?” and so on. So store traffic is good even though it can be more costly, because transactions give us an opportunity to understand and satisfy a customer’s need, and therefore make new sales.
And I would just ask two rhetorical questions: Who over time have been the better merchandisers, retail stores or banks, in terms of their ability to attract customers and serve them well? Most people would say retailers have been more effective than banks. And I’d ask the second rhetorical question: How many retailers don’t want customers in their stores?
Q: I’ve banked with Wells Fargo for a long time, and I remember when the branches were like mausoleums. Now they’re buzzing. What are all those people doing?
A: Besides what you might call traditional bankers, you’re seeing a mortgage consultant, an insurance agent, and brokers. We’ve also roughly doubled the number of bankers in our stores over the past four or five years.
But that doesn’t mean that they are shying away from the Internet and new technology:
Q: You’ve recently introduced some new Internet-based tools, like a report that categorizes spending whether it’s done through a checking account or credit card and scanners that let small businesses deposit checks electronically. Why don’t we see that kind of innovation in banking more often?
A: You know, I started in business working at General Mills (Research). I don’t think the banking industry is particularly at the leading edge. We probably learn more from other industries than we teach them. That’s why I’m on the Target (Research) board. I think retailers are 20 years ahead of banks in their thinking.
Please don’t tell your readers, but our checking accounts aren’t really much different than Bank of America’s (Research), OK? It’s the way we distribute our products that’s different. We have a lot more in common with other distributors of commodity products than we do with other banks. Most of the products that Target and Wal-Mart (Research) carry are similar, and the way you buy them is similar. Or take Home Depot. The products aren’t what distinguishes Home Depot (Research); it’s the way they put a plumbing store and a paint shop and so on under one roof.
And so we’re doing that with financial services. We’re taking what were commodity products delivered through multiple sales forces and putting them all under one roof so the consumer can come in and choose which products make sense. Before, you had to go to a banker, a broker, or an insurance agent for a CD, a mutual fund, or an annuity, and yet they were all trying to satisfy some sort of a long-term savings need. The risks and rewards are different, and you had to pay three different salespeople to bring those to you, and then you had to decide which one made sense because you figured the salespeople were all biased, right?
Now you can come to a Wells Fargo and we can talk to you about the costs and benefits of a mutual fund vs. a CD vs. an annuity and give you some advice – and we’re agnostic because we’re not just selling CDs. We can say “OK, what’s best for you?” Other businesses have figured out how to do that in retail, and we have now figured out how to do it in banking. Eventually, maybe some of our competitors will too.
As this story illustrates, innovations in how products are delivered are just as important in differentiating a company as innovations in the products themselves. The power of these changes in business models and processes have been demonstrated over and over again as, for example, Southwest Airlines re-wrote the rules for airline routes, Federal Express created a new industry, and e-Bay made the flea-market the center of the Internet revolution.
As we set our national innovation policy, we need to keep in mind these innovations. And look to the laws and regulations that can help or hinder them. Well Fargo’s all-in-one retail activity would not have been allowed under the regulations a few decades ago.
This is not to say that all regulations should be swept aside in the name of innovation. That is a formula for chaos not creative destruction. But innovation policy must look to a broad scope of areas to be successful – not concentrate on science and technology. Only with a broad vision can we see and understand where innovation is truly occurring in this I-Cubed Economy.