Bank Transfer Day: Trend or Isolated Event?

Disclaimer: What I’m discussing is an economic issue, not a political issue. I only support peaceful protests, not looting, destroying property, or harming others. 

Although the Occupy Wall Street and Bank Transfer Day are not connected, they stem from similar roots: collective action augmented by the social media channels. For many that may haven’t noticed, Bank Transfer Day was this past Saturday, a movement for ordinary people to make a voluntary switch from large commercial banks (i.e. Bank of America) to credit unions. They have over 55,000 “likes” to their Cause Page, and made quite a bit of press, as a result. Occupy Wall Street, another grass roots movement has over 33,000 “likes” for their Occupy Chicago Cause Page alone, and has created a firestorm around the world.

As with everyone, there are some (not all) things I support, especially the ability to peacefully protest. That’s what has made our country great, but it has been quite a while since we have done it on a grand scale. It’s shocking to some, but necessary for many. Although there have been many places where things have gotten out of hand, it’s encouraging to me to see ordinary people calling for a more responsible financial system. They feel their government and politicians aren’t forcing the issue, and taking it upon themselves to protest. It’s important to spark constructive debate on what’s important to main street. Social responsibility is the new competitive advantage for the 21st Century. The organizations that employ it will be rewarded, while the others will be disrupted.

One of the downsides to the Occupy Wall Street movement in my mind, are the lack of significant economic impact in demonstrating. When I think of the impact of the Montgomery bus boycott of 1955, the economic impact of the demonstration is what augmented the effects of the protest. It was well organized and collective, without the need for a “status update” or Tweet.

Bank Transfer Day on the other hand is an attempt to offer an economic impact to a peaceful demonstration. With the economic collapse, the banks that survived became larger, thus a less competitive marketplace. The more competition, the better it is for the consumer.  In many ways, the Bank Transfer Day has had success. Bank Transfer Day was largely a response to Bank of America’s $5 debit card fee and Wells Fargo’s $3 fee. Since the collective action organized by ordinary people, both of those charges were reversed. Additionally, according to the Credit Union National Association, over $4.5 billion was added in deposits because of Bank Transfer Day. Once again, a victory, but is it significant?

Yes and no.

It is significant because billions of dollars have leaked out of the organizations that are not as socially responsible as the others. But in relative terms, it isn’t significant because it’s several orders of magnitude away from being a rounding error for the industry. For anyone who knows anything about banking, deposits are the lifeblood of any bank. Whatever they can do to get your deposits, it enables them to loan is back to you and other consumers at 18% ROA. There are several impediments for a large scale shift from the big banks, but it appears the tides of opportunity are flowing. Companies such as Ally Bank have made marketing campaigns poking fun at the antiquated practices of the big banks.

If Bank Transfer Day wants to be more than just an isolated event, here are my recommendations on taking it to the next level.

A mobile and web software platform needs to be created for all community and local banks to have the same sophistication as the big banks. If you take a look at the most innovative big banks, Chase and Bank of America use their technology as competitive advantages for stealing market share. The ability to scan checks at home, perform online banking, and reduce the need for someone to visit a branch is their points of parity. To develop such as sophisticated platform that runs on all computers and mobile devices, it’s expensive, and much too cumbersome for the average community bank and credit union. But, according to the Independent Community Bankers of America, there are almost 5,000 members and 20,000 locations around the country. Collectively, if they had a white-label SAAS platform, they’d better be able to compete. There are shared vendors, but not nearly with the sophistication or robustness to compete. Additionally, a major competitive advantage could be to streamline the ability to move from one community bank to another, much like the purpose of data portability. If we can make it so you can move effortlessly, it will be better for the industry as a whole. The switching costs from one large commercial bank to another are too high. The difficulty in moving from one bank to another is why there were only $4.5 billion in deposits moved to credit unions, versus in the tens of billions of dollars range.

Become a Hulu for community banks to leverage distribution channels. Another major competitive advantage of big banks are their ATM network. More ATMs in more places. Why do most people stay with one bank their entire lives? Because of the switching costs, and additionally the fact that they can find an ATM nearby where they can get their cash for free.  Think about it. If you have all of your assets at a credit union and you want to go abroad, you’re going to be paying hefty withdrawal fees because your credit union doesn’t extend abroad. If all of these community banks and credit unions globally shared resources and distribution opportunities, they would present a compelling alternative to the big banks. With this compelling purchasing power, they could share in the costs of setting up more ATMs in more locations. All I would need is an iPhone app that alerts me whenever I’m within a mile distance of a global partner. Sounds naive? Well, it’s not any more naive than all of the broadcast channels combining together to form Hulu, to compete against YouTube. If you ask me, I would have guessed that Hulu would have been much more difficult to pull off.

Transparency and Social Responsibility. This goes without saying. If you’re going to take money from the community, you must employ the community, invest in the community, and sustain the community.

All in all, Occupy Wall Street and The Bank Transfer Day were important steps in American history. And whether you disagree with the concepts or implementation, I think we should all respect collective action and peaceful demonstration. The Bank Transfer Day showed that economic impact can take place because of collective action, but we need to be more organized to force organizations to become more socially responsible.

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