For Nevada consumers, there is no shortage of financial institutions to choose from. From national chartered banks with more than 100 branches to small state-chartered banks operating out of a single branch, financial institutions are opening and expanding faster than ever before.
Over Saturation?
But with the proliferation of so many financial institutions, the question remains: is the market over saturated? And if it is, how will some of the smaller or less profitable banks survive in an increasingly competitive marketplace? Will less successful banks be bought out or merge with other banks?
“I don’t feel there is an overabundance of banks,” said Thomas Mangione, interim president of Red Rock Community Bank, a Summerlin-based community bank. “There seems to be a niche for the small banks, and the large banks are doing well based on the continued growth in population, which provides them new retail and commercial customers. So I don’t see an increase in mergers or consolidations. Most large out-of-state banks that want to be in the Southwest and Nevada markets are here, and most small banks’ market share is not attractive to large banks existing in the state already.”
Paul Workman, senior vice president, asset development, at BankWest of Nevada, one of the area’s largest community banks, has a different outlook. “Whether or not these financial institutions succeed has to do with factors beyond just how many of them there are now,” said Workman. “The most successful ones define their market, hire personnel with experience working in that arena, and work to maintain their focus. Note how few of the new banks have sought to take on the large banks in attempting to offer a broad base of products to the entire community. Successful banks carve a niche, whether it be business banking with courier pickup, or a full array of products to a defined geographical area. Either strategy may lead to profitability in a short time with good management, marketing and high-quality customer service.”
John S. Gaynor, vice chairman, president and CEO of Bank of Nevada, believes there are an ample number of banks. His bank, which was chartered in 2000, currently has two branches in Las Vegas, with a third Henderson location set to open in fall 2003. Gaynor estimates that more than 20 new banks, including his own, have been chartered in the last three years in the Las Vegas Valley.
“I personally believe consumers now have a sufficient number of banks to choose from,” he said. “I also believe you might start to see consolidation of some of these banks in order to take advantage of the economics of scale and duplication.”
Technology and Security
In order to stay competitive, banks are finding themselves in the position of having to keep up with the latest consumer-oriented technology, from ATMs to electronic bill-paying. According to Gaynor, smaller banks must strive just as hard to keep up as the national banks.
“Small banks must keep up in order to survive,” he said. “The wealth of this country is presently domiciled in those folks 55 years of age and over who, for the most part, are not as computer literate as their sons and daughters. When they pass their wealth on to the next generation, that group will demand the latest technology, since they were brought up on Nintendo and other computer interactive games.”
As technology evolves, trends are changing too. Gaynor sees Internet banking and bill-paying as future trends. “Debit cards are slowly replacing check writing the way to pay bills,” he said. “Most banks would prefer customers bank online as opposed to in-person. To encourage electronic banking, some banks are charging fees to talk to a live person.”
Kirk Clausen, chairman, president and CEO (Nevada) of Wells Fargo Bank Nevada N.A. believes each financial institution develops its own strategies. His bank, which holds a 25 percent market share in the state, has 42 locations in Northern Nevada, 62 in Southern Nevada and more than 200 ATMs statewide.
“Some financial institutions take an approach where the strategy is to move customers out of high-cost delivery branches and into low-cost ATMs and Internet banking,” said Clausen. “But Wells Fargo is about choices, because it is ultimately the customer’s choice. So you’d better have a convenient branch, an ATM or branch in-store, Internet banking and the best online banking system. At Wells Fargo, we let customers bank when, where and how they want to bank.”
With the focus on new and enhanced technologies, most banks are focused on improved security. Clausen doesn’t see Internet security as any different than fraud at an ATM or across the teller counter, but said Wells Fargo is working hard at knowing its customers and identifying any potential fraud.
“We put a lot of research and development money into encryption systems and passwords to try to defeat the bad guys,” said Clausen. “We have a policy of making sure the customer remains whole, as long as they did nothing to contribute to the loss. Even online, the same guarantees apply.”
At U.S. Bank of Nevada, there is a strong emphasis on technology and security, and staff members are working hard to meet the demands of customers who are increasingly technology literate. “My wife of 30 years has never used an ATM or banked online. She wants to conduct her banking in person. But some customers would rather conduct their business – not just banking – electronically from the comfort of their homes,” said Kenneth G. Ladd, president of U.S. Bank of Nevada. “I think you need a balance of both services.”
Ladd says U.S. Bank employs a variety of security features for its Internet banking customers. For commercial customers, the bank offers a product called Positive Pay, which enables the client to electronically report the amounts and numbers of checks written. When the checks are presented for payment, the bank matches the check with the electronic information to avoid fraud.
Technology can represent a significant investment, especially for smaller banks. First National Bank of Nevada recently spent $3 million to implement a new digital imaging system, according to Phil Lamb, the bank’s managing director. “The new system increased the capacity and efficiency of our proof department,” he said. “For customers, it means they now receive image copies of the front and back of each check along with their monthly statements, and they can access the same images on-line. While this technology was not cheap, we felt it was important to implement it before our competitors did.”
“Overall, the banking industry invests significant amounts of capital in its infrastructure and technology,” said Robert E. Hemsath, president and CEO of Northern Nevada Bank, a community bank founded in 2000 to meet the needs of small businesses and professionals in Northern Nevada. “It is difficult for many industries to keep pace with the rapid advancement of technology, and banking is no exception. The banking industry understands the need for technology, and we continually evaluate and monitor technological advancements and how best to use the new technologies to provide convenience and access to our clients,” said Hemsath.
Hemsath also said Northern Nevada Bank is focused on providing personalized service to its customers, and an important part of providing that service is offering as many ways as possible for people to conduct their banking, including the use of new technology.
“Clearly the cost of providing this service varies, depending on the method chosen by the customer,” said Hemsath. “The least costly way is through the use of electronic mechanisms, which is also the least personal. The most expensive is through direct contact with a banking professional. Depending on the strategy of the bank, there may be fees assessed to recover a portion of the costs (associated with banking with a teller). Our bank has no intention of imposing such a fee.”
In-Store Banking
One continuing trend is the demand for branches beyond the traditional brick-and-mortar, such as branches inside supermarkets and other retail outlets. Hemsath said this trend will continue as long as customers demand the service.
“In-store branches are another way the banking industry is attempting to provide customers various options for conducting their banking,” he said. “Convenience and accessibility for the customer while reducing costs to the bank are the driving forces behind this strategy.”
Ladd said in-store branches are very important to U.S. Bank. “We’ve become a nation of convenience. On a Saturday, if I can go into a store to buy groceries and do my banking, that’s convenient,” he said. “We work diligently to have in-store locations that are completely full-service, the same as any brick-and-mortar branch.”
In the early 1990s, Mangione opened 10 in-store branches for First Interstate Bank of Nevada inside Lucky supermarkets. “It is a low-cost alternative and a key part for some banks in the overall delivery system,” he said. “The focus is on developing as many points of contact as possible, which includes a combination of brick-and-mortar branches, alternative facilities (supermarkets), ATMs, loan production offices and more.”
In-store locations are not new for Nevada State Bank. The bank, which is the oldest state-chartered commercial bank in Nevada, has 62 branch offices, the majority of them in supermarkets. “In-store locations have been around for a number of years,” said William E. Martin, chairman, president and CEO of Nevada State Bank. “Nevada State Bank was the first in Nevada to have them, some 15 years ago. Other locations besides supermarkets have been done as well. They are high-traffic locations with moderate capital costs versus free-standing locations, and that is the main attraction.”
Looking Ahead
With increasingly tech-savvy customers and a strong demand for convenience, what lies ahead for Nevada’s banking industry?
“If bank stock values return, you can expect consolidations in the industry to increase again. There are a number of major banks that still need to expand to other states to secure their ‘national’ franchise. Absent return of those stock values, expect mergers to be infrequent,” said Martin. “Furthermore, the credit unions continue to expand into virtually every facet of banking. Credit unions’ tax-free status is wrong. Congress never intended for there to be two different banking systems – one that pays taxes and one that does not. It is just as wrong as it can be in any free enterprise system – subsidies should not exist in the private sector.”
Hemsath shared some of Martin’s concerns. “Credit unions are increasingly offering banking services, while not having the same tax burden as other businesses in our state,” said Hemsath. “With that problem, plus the increasing competition from non-bank companies, such as insurance companies and retailers, the banking industry must find ways to diversify its services and improve on existing services demanded by the customer. Quality financial institutions provide the necessary capital to support a vibrant and healthy economy that provides opportunities and creates good-paying jobs. The need for them will only increase as the state continues to grow.”
Clausen predicted some consolidation in the future. He suggested that perhaps a bank with a retail niche might join with one that is focused on commercial clients. “Industry-wide, there are deliberate efforts toward one-stop shopping for financial services,” said Clausen. “You must identify what the customers’ needs are – credit, insurance, checking, investments – and figure out ways to make a menu available and easy for customers to access.”
Workman sees a strong future. He said Nevadans are specific about what they want their bank to be, which is good for the industry. “Some of the best banks in the country are here, large and small, as a result of those customers’ demands,” said Workman. “That is unlikely to change. Whether it is the convenience of electronic products or the ability to pick up the phone and talk to ‘your banker,’ it will continue to be available here.”
Gaynor sees a major challenge ahead for banks – the very technology that has become an important facet of their success. “The challenge will be keeping up with technology while maintaining the personal touch that made Nevada’s banks the successful entities they are today,” he said.”
Ladd, who is also chair of the Nevada Development Authority, admits to being bullish on the entire state. He sees a strong future ahead for the banking industry. “I believe our state is uniquely positioned to continue to be successful in economic diversity, economic development and the creation of high-paying jobs,” he said. “I think the Nevada economy will continue to outpace the national average, and therefore the banking industry will continue to prosper.”
