by Gary H. London
Technology has and is changing banking. This has presented both opportunities and dilemmas for bankers. They have many customers who prefer business as usual. Write a check; hand-balance a checking account; walk into the bank with a deposit.
Over the short term, banks are dealing with a difficult economy. Yet, over the long term they are leading the way in commercial services and urban development patterns.
Along the way it is the banks that are causing a structural change in how services are performed and the type of real estate needed to facilitate that transformation.
During this difficult time when economic activity has slowed, there is a revolution in the banking sector that is going on which dramatically impacts “bricks and mortar” or, in other words, the side of the banking business which is their true “repository”: the buildings they own and lease.
If banking has changed with respect to the kinds of loans they make and the services they offer, those are matched by the changes occurring on their operational side. The banks are the leaders in embracing technology to serve their clients and customers, including:
— Banks have consolidated in size. Minibank branches with smaller footprints are gradually replacing the “big bank” model.
— Banks have morphed into ATMs. Most of our transactions, if we must go somewhere to make them, can take place at an ATM. The obvious operational efficiencies are matched by the minifootprint of the ATM, a far lower cost to the bank.
— Banks have become part of your grocery shopping experience. Whether you walk into Walmart or Ralphs, you are likely to see a major bank.
— Physical banking has become virtual banking: People aren’t visiting banks as often. And it is usually not necessary to do so if you are comfortable with online banking either direct or as facilitated by QuickBooks and other accounting programs.
These changes are all transformative to banking and will have a great impact on our society.
For instance, the main business district of an urban region has always been defined by bank names on the largest or most venerable buildings. That is seldom the case anymore. It is partially symbolic of the loss of the banks as the top regional economic powerhouses that they once were. But it is equally symbolic of the new commercial mix taking place.
I recently attended the fall conference of the Urban Land Institute during which the attendees heard what they have literally heard for the past three years: There is essentially no credit.
At the same time the attendees heard a lot from developers and land use planners about the new urban experience which includes mixed-use projects, vertical development and, in particular, the change of uses within the commercial spaces on the ground.
It is an irony that while many businesses are actually transforming in the same way that the banks have, banks have been reluctant to approve loans for these mixed-use projects.
Most new residential projects will have commercial elements to them. Lenders have historically had a problem with these types of mixed-use projects, partly because they involve various loans that are administered by different banking departments. But the reluctance also stems from the fact that there are often competing visions as to what is a safe project.
My sense is that the lenders will have a less difficult time with mixed-use projects in the coming years because they are now part of those projects.
The pendulum, which swung so far in one direction, is taut now in the other. Eventually it will come to the middle.
Banking activity will pick up armed with new technology. They will use the new tools to maximize client service.