The reason for my excitement yesterday about a new retail bank for
Britain is because it’s a new bank, and a bank by Vernon Hill.
Vernon Hill is a bit of a legend, as he’s a guy who built a bank,
Commerce Bank, from nothing into one of the most successful banks in
the USofA. Commerce Bank’s success is based upon their philosophy that
they are retailers and not bankers, and features some unusual ideas,
* Instant creation of ATM cards on the spot at the time of account opening
* Free “Penny Arcade” coin counting machines for both customers and non-customers
* No-Fee Visa Gift Cards for customers
* Lollipops and dog biscuits in the lobby and drive-thru
* Foreign ATM fee reimbursement
* “No Stupid Fees, No Stupid Hours”
Commerce Bank’s business model generated what some call a cult
following, by offering its customers merchandising giveaways such as
coffee mugs, pens and pencils. In 2006 alone, they gave out 28 million
All of this has been attributed to the innovations created by Vernon Hill.
Vernon Hill founded Commerce Bank in 1973 and, by background, he was a
fast-food restaurant franchise owner and graduate of the Wharton School
of the University of Pennsylvania. Bringing his fast food convenience
to banking, Vernon expanded Commerce from one location to over 435 in
thirty-three years and then sold the bank to Toronto Dominion, the
Canadian banking group, for $8.5 billion in October 2007, after having a run-in with the regulatory authorities which resulted in zero grounds for investigation.
That’s why Mr. Hill has now entered mainstream banking again, with the
launch of Metro Bank, which will operate in both the USA and UK. The
more interesting aspects of Vernon’s story are some of his views on
banking, which are definitely non-traditional. Here’s a synopsis of his
perspectives on retailing bank products.
Delivery is our only advantage and yet most of us have this philosophy of getting customers out of the branch.
My focus is the branch.
At Commerce Bank, we had 48,000 customer visits per branch every month
on average. That’s twice the number of customer visits of a McDonalds,
which average 25,000 customer visits per month. I spent $40,000 per
branch putting coin machines in each branch across 400 branches. These
are machines where customers can bring in loose change and get it into
their accounts. Everyone said I was stupid to do that, but that drives
customer visits which drive customer engagement opportunities. That’s
why we did it.
It’s also about the culture of the bank. For example I encourage staff
to look out for anything they think is stupid and name and shame it.
Let’s get rid of any stupid rules that block us from giving customers
We hire our staff on one thing as well. And it’s not their banking
experience. We hire them if they smile through their first interview.
Hire for smiles. You can get anyone to work, but you cannot get them
engaged if they’re not customer friendly in the first place.
Our branch managers are also seen to be business people. Each one of
them is running a business. They are empowered to deliver our brand
promise, therefore they must be able to deliver it.
By way of example, 90% of customer complaints are about $112 in fees on
average, so we waive it. I would rather give the customers $112 as it
means that I keep them, and the average customer is worth about $3,000
a year so to waive the fees is no big issue. And our managers and staff
know this. In fact, I would rather discipline if they did not waive the
fee, rather than reward for arguing with the customer.
Which brings us to rewards and remuneration.
We have no employee bonus plan, and I don’t believe in giving staff benefits for meeting financial goals.
We don’t use financial goals, customer segmentation models and
cross-sell. That’s all bull. We compensate based on their performance
in totality as judged by their peers and colleagues and customers. We
use that feedback to reward, not some stupid goal-setting system.
People find it surprising when I say we have no segmentation model, but
bring it back to retailing or running a burger chain. I have 40 burger
stores and we don’t tell our staff to serve the customer who orders a
Burger with a Coke better than the customer who only buys a Burger. How
stupid is that? And how do you train some 18-year old that you’re
better than someone else and you should treat them differently. That’s
So we don’t segment and treat folks differently. We treat everyone
well, and our staff are rewarded based on the feedback from customers
Having said that, if a competitor closes a branch near one of ours,
then each member of staff in tbat branch gets $5,000 as we believe it’s
down to their service and delivery that they achieved that.
It’s all about delivery but, more than that, it’s all about deposits and account openings.
To illustrate, we opened in New York and everyone thought that was
stupid. How can you take on New York, where people don’t want the sort
of service you’ll offer and they won’t come into branches anyway.
Well we opened one branch in Chinatown, New York, and had over 18,000 new account openings in a month.
We design for account openings and that’s the reason.
We can complete a new account opening in just fifteen minutes. That’s
from walking in, to walking out with a check book and debit or credit
card. And that card is personally embossed because every one of our
branches is equipped with card issuing machines.
These machines cost $10,000 each, but that means customers have the
complete account process done in fifteen minutes. And if they lose a
card, they can get another one from any branch in minutes.
That’s all about customer service.
More than that, it’s because we focus upon the best locations and areas.
Everyone said Commerce would fail in New York, but we succeeded by
going out on a limb and invested in buying the best locations.
We were paying up to $400 per square foot for branch locations, but the
location is key. I would rather pay double the rate to get the right
location than the wrong one. After all, if you open a branch and it
does not get accounts opened, then what’s the point of that branch?
That is why location is key and why we are designed for account
openings and deposits. You cannot get those if you’re in the wrong part
of the main street.
Also, forget all this internet stuff. People don’t open accounts
remotely. The main factor that determines where you open an account is
whether there is branch nearby. That’s still the mentality of the
young, and the general population. I mean we get more visits
from our active online users, and yes we have an internet site, than we
do from our non-online users. That’s because they like the branch
And it’s not just giving away coffee in the branch, free pens, having
money counting machines and the rest. It’s the whole package. The
culture, the remuneration and rewards, the locations, the deposits and
account opening focus and the way we engage with customers.
All of this together makes us unique, which is why no-one can copy the
model. They give away pens, or install money counting machines, but
they cannot copy the whole package.
It will be interesting to see what happens when Mr. Hill launches Metro
Bank in Britain as he’s succeeded in killing the competition in America
four times in the past through his retailing techniques, so I think UK
banks need to watch this space.
Watch this space very carefully.