Joe Marullo Insurance & Retirement Services
16818 Doverwood Way
Houston, Texas 77058
The old Peter, Paul, and Mary song “Where have all the flowers gone, long time passing” reflects the changing times centered on the Viet Nam war. Times changed, and where did they go? What has happened? I think we are in the middle of another change, a change about how we do business with banks.
I was in my bank yesterday and noticed something that I had observed before, no loan officers, no activity in the business section of the bank. The only human I saw was three friendly people behind the teller stations. There was not a single loan officer on the premises.
I asked “Sandy” why no one was there should I ask about a loan; she answered by directing me to a “bank” website and an 800 number. Apparently, if I had decided to buy a new car and wanted a loan, the process would start online. The loan application process is centralized and runs from the bank's main headquarters. (Actually, it is in a nondescript office building in a business district in the suburbs)
Not having any folks working in that department certainly made the bank cavernous and sort of weird. Sandy did say that a loan officer was on the premise but probably out making sales calls. Really!
Just for fun, I decided to stop at a second bank near my home in rural Western Washington. I hadn’t been in that bank for several years and thought I would do a little research. As I reached to open the bank door, I realized it was locked with a note on the front door. It simply stated that the bank was closed to foot traffic, but the self-serve ATM Super Teller was just around the corner, standing ready to serve my needs. What in the world is going on? Why do we have to speak to a machine?
What has happened? Why wouldn’t the bank want me to come in? Why wouldn’t they meet and greet me, offer me coffee, ask about my banking needs, possibly try to cross-sell me to other bank services?
Simply put, they just don’t care. They don’t care because the way banking is done now is not how it once was. I will let you in on a little secret; your money on deposit at the bank is not really at the bank. Every night at midnight, all funds in the bank are electronically re-deposited with a central bank, a bank of the Federal Reserve. The funds are accounted for, and the originating bank received what it estimates to need for conducting business that day from the Fed.
Banks get their money from the Fed and not from us. The question is then straightforward: Why do they offer savings and interest-bearing accounts? Why do some banks pout advertising on their windows providing a higher than average interest rate for CD’s et?. Simple, banks must create their own reserves, and to do so, they much collect funds from the community they serve. Each bank has a percentage of funds that are near or are non-bearing; these are the funds the bank has to add to the reserves demanded by the Federal Reserve. If the bank needs money for a loan it has made to finance a new car, it simply retrieves funds from the giant pool at the Fed. The Fed charges interest rate is called the “discount” rate, and it is virtually no interest currently (possible ¼ point interest). The bank charges its customers 5% for the car loan and WHAM, gross profit.
Banking has changed, and with it has come to those big huge buildings where no one any longer works. Everything is done via computer and therefore almost no need for an onsite banker. When a bank once needed 4-5 loan officers on-site can now easily be handled by 1 (or less).
Banking isn’t the only business that has tried to go humanless. (I made up that word) Ever try and change your cable service? How about talking to a stock brokerage? How about ordering a replacement part for your washer? We have all created it with technology, and it is the new standard for our life experience.
Fewer humans, more technology, less expense, more profits, and guess what?
It might not be that long before our computer talks directly with the bank computer, and I am no longer needed. Too late, that is already happening.
As a matter of fact, that is happening with our car. If our car’s computer decides we need to change the oil, it sends a message to the local (or closest) BMW dealer and sets its own appointment. The dealer emails me the time and date and verifies with me that it is an approved time to bring in the car.
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