Redesigning the Corner Bank…For Rich and Poor

In January, the Wall Street Journal reported that banks are to closing brick-and-mortar branches “at a record rate,” as new technologies and financial pressures drive them to transition many of their services to digital equivalents or ATMs. But against this broader backdrop of bank closings, the market is both fragmenting and polarizing, as a handful of banks redesign their branches for specific demographic groups.

For the tech-savvy, middle-to-high income millennial who doesn’t carry cash and wants banking to be quick and convenient, Capital One advertises its new network of “360 Cafés” as places where customers can discuss account options with staff while drinking an espresso. Umqua Bank in San Francisco has a concierge at its downtown location, described in the local press as “a cross between an Apple Store, a Starbucks and a W Hotel lobby.” And Wells Fargo is piloting “mini-branches” in up-and-coming urban neighborhoods like DC’s U Street where customers, attended by trouble-shooting tablet-carrying bank employees, use sophisticated versions of self-service machines that dispense cash and take deposits, but also issue debit cards and loan applications.

While banks are greeting their affluent customers with iPads and lattes, low-income customers are much less likely to have a bank branch, or any financial service provider at all, in their neighborhood. Since 2008, 93% of branch closings were in low-income areas. And research from the Fed shows that the presence of an existing bank branch is a strong determinant of whether alternative financial services like check cashing centers and payday lenders will open shop.  In other words, alternative providers follow the banks to catch the customers they won’t serve.

So it seems safe to conclude that bank branch closings disproportionally affect the poor. And technology isn’t necessarily solving the problem in the short term. When banks offer virtual products in place of physical branches, people who don’t use computers or smartphones lose out – typically the elderly and the poor.  Nonetheless I was intrigued by the story of one provider who is thinking about how to improve the “branch experience” for low-income customers. For Tom Nix, the founder of the largest check-cashing chain in Southern California (immortalized by the Beastie Boys in the line “I’m charming and dashing/I’m rental-car bashing/Phony-paper passing/At Nix Check Cashing”), the poor are his best customers, and for him it pays to design branches that attract and better serve his demographic. As described in the great podcast 99% Invisible, Nix saw traditional branches with their wooden desks, carpeting, and hard-to-read pamphlets as intimidating to his working-class customers.  He decided to model his branches off a corner store – with linoleum floors, tellers, and fast-food-style menus clearly explaining all fees.  Similarly, Lisa Servon’s qualitative research on check-cashing outlets emphasizes that fees are transparent and branches are often open 24 hours a day, serving those with irregular work schedules.

But as clear as those fees signs are to read, the numbers on them remain very high.  Do customers really prefer linoleum floors to fair prices?  To what extent do the targeted models described above—for both rich and poor—truly reflect the preferences and needs of their customers? And as banking technologies continue to evolve, what will the physical US bank branch of 2050 look like? If these experimental models are any indication, the US will come to resemble more of the developing world, where what your bank branch looks like, and if you have one at all, may depend on who you are, where you live, and how much money you have.