WELLS FARGO BETS BIG ON MINIBANKS
Its scads of tiny outlets should cut costs--and win customers
Beginning in 1995, Wells Fargo & Co. embarked on an unusual experiment. It closed 22 traditional branches in the Sacramento area while opening dozens of less costly minibanks in such places as supermarkets. The San Francisco-based bank wanted to study whether its customers would migrate to these new outlets or dump Wells Fargo altogether. The result: By March, the bank says, it increased the total number of banking facilities in Sacramento by 33, slashed annual operating costs there by an estimated 20%, and managed to retain and even expand its customer base.
That Wells Fargo is moving away from the industry's expensive traditional branches and focusing on more economical channels, such as in-store or online banking, is nothing new. Lots of companies have launched similar initiatives. What makes Wells Fargo noteworthy is the aggressive--and systematic--approach it is taking to transform its entire retail-banking empire. "I don't know of anybody that has tackled anything on this scale," says Joseph P. Stiglich, executive vice-president for retail banking at Wells, the eighth-largest U.S. bank. Adds Diane L. Merdian, an analyst at Montgomery Securities: "Wells is taking the most aggressive stand in reconfiguring retail distribution."
Indeed, by 1998, Wells figures its massive increase of minibranches will help it more than double retail outlets throughout California, from 526 to more than 1,200. Locations with stand-alone automatic teller machines (ATMs) will also grow from 110 to 275. And Wells isn't just relying on relationships with supermarket chains such as Safeway Inc. for expansion. It has also recently teamed up with Chevron, Wal-Mart, Target Stores, Thrifty Payless, and Walgreen drug stores, ties that should help Wells eventually take its strategy beyond California into its 10 other Western states. The overall outlet growth will occur even though the bank has been shutting or divesting many branches acquired through its merger with First Interstate earlier this year.
At the heart of the bank's game plan is finding ways to spend less to meet consumers' needs without compromising convenience or quality of service. The financial equation is straightforward. Opening a traditional branch can cost more than $1 million, vs. just $250,000 for a full-service supermarket outlet. Pure electronic transactions are significantly less. "Wells thinks if it gets a customer served in the cheapest way that makes them happy, it won't lose the customer," says Merdian, who estimates that Wells could ultimately save $100 million annually if it correctly executes its plan.
SUPER MODEL. The trick is making that customer happy. That's why Wells devised an elaborate patronage model 18 months ago that tracks its customers' banking behavior. Using the Sacramento data, for instance, enabled Wells to determine not only which branches had the most activity but also what types of transactions were being done and how. Individuals who used ATMs for everything but making deposits were contacted to get them more comfortable with depositing by machine. Others who always used tellers were informed about alternatives. "The value of the model is that it tells you ahead of time which customers are at risk [of going to competitors] and what you need to do to reduce and mitigate those risks," explains Stiglich.
Wells, which will take an estimated $130 million in charges just to implement its program throughout California, says the Sacramento experiment demonstrates that the bank is on the right track. A recent survey shows customer satisfaction in the area to be among the highest in the state even after the branch closings. What's more, only 25% of transactions now take place in traditional branches, compared with 60% in 1994. "The limit will be how fast people want to change," says George M. Salem, an analyst with Gerard Klauer Mattison & Co. in New York. For Wells and other banks chasing greater profits, it can't be fast enough.By Linda Himelstein in San FranciscoReturn to top