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Bank of the Year: USAA

It looks a bit like a doorbell that has yet to be installed, or perhaps the most rudimentary remote control you've ever seen.

It's a small, unadorned, blue and white device that features a single button. You can place it in your car, beside the bathroom sink, on top of the microwave, wherever you want. If you press the button once a day, $1 gets transferred from your checking account into savings. Press it a second time, and you transfer an additional $2.

The Saver Button is an experiment by USAA, meant to encourage its customers to set aside a little money each day. The idea is to make savings a habit, like brushing your teeth or washing the dishes. Rather than relying on reason — "Let me explain why saving is good for you" — the button is an attempt to engage the instinctive part of the brain. It's an appeal to the inner toddler in all of us.

"You see a button, you want to push it," Vikram Parekh, a USAA executive who is running the trial, explained.

USAA, the military-focused banking and insurance conglomerate, is testing the Saver Button with hundreds of its customers this fall. The company is tracking where users place the buttons and how often they press them.

If the experiment is deemed a success, USAA might eventually send a Saver Button to everyone who opens a bank account. And if the devices wind up in junk drawers, the failure will happen quickly and without rancor, and the folks who volunteered to test the buttons will have a quirky souvenir to keep.

"Will it work? Will it not work? I don't know," Parekh said.

USAA is fundamentally different from other large banks, and the Saver Button study illustrates two key reasons why.

First, the experiment demonstrates the company's commitment to improving the long-term financial health of its depositors. Banks often pay lip service to this concept, but USAA does far better than most of its competitors in aligning its interests with those of its customers.

Second, the Saver Button experiment is an example of USAA's nimble, failure-is-not-a-dirty-word approach to innovation. The San Antonio-based company has embraced internal processes popularized in Silicon Valley in an effort to keep up with the rapidly evolving expectations of its customers.

USAA stands out in other ways too. The $144 billion-asset company, which serves only current and former members of the military and their families, elicits unusually strong loyalty from its customers (or "members," as it likes to say). Long a pioneer of operating without a large branch network, USAA now stands on the leading edge of the digital banking revolution.

Traditionally, American Banker names a Banker of the Year, an honor that gets bestowed on a single individual. But USAA has a corporate culture that — much like the U.S. military — eschews stars and celebrates teamwork. And it has earned the more fitting distinction as our Bank of the Year for 2016.

Yes, Sir, Lieutenant

USAA was founded in 1922 by a group of 25 Army officers. Automobile sales were soaring, and military men were having trouble insuring their Model Ts and Studebakers since they moved frequently from base to base. The officers gathered at the Gunter Hotel in downtown San Antonio and formed their own insurer, which was originally called the United States Army Automobile Insurance Association.

"Nobody would insure them, and so they got together and insured each other," said Carl Liebert, USAA's chief operating officer.

The company's formal name was eventually shortened to United Services Automobile Association. Over the years USAA grew to be the nation's 22nd-largest financial holding company. Its membership ranks were expanded beyond just officers, to include all current and former members of the military, as well as their spouses and children. Today the company has 11.7 million members.

Despite all the growth, USAA has retained the same basic ownership structure — it remains privately held, which protects against the quarter-to-quarter mindset that often drives decision-making at publicly traded companies. And members continue to share in the profits. Last year USAA insurance policyholders received roughly $1 billion in dividends and other distributions.

USAA got its banking charter in 1983. And even in its early years in banking, it never operated a big branch network. Members often made transactions using the company's toll-free phone number.

A geographically untethered bank for members of the military filled a real niche — service members were still moving frequently in the 1980s, just as they did in the 1920s, so they had little reason to open accounts at locally based institutions. And USAA worked to become indispensable in the lives of its members.

An important part of the formula was, and remains, a demonstrable respect for its members. USAA's advertising carries the tag line "We know what it means to serve." At the company's sprawling headquarters, American flags are everywhere. During a recent visit, preparations were underway for events marking Oct. 13 as the birthday of the U.S. Navy.




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