Community bankers may have to consider the First Chicago method of paying for personal service, says banker Mark Hewitt.

Mr. Hewitt, incoming chairman of the Independent Community Bankers Association of Minnesota, says that as community banks face more competition from nonbank entities with lower-cost delivery systems, banks must find ways to foot the bill for their more personal and community-based service.

That could include charging customers more for service, as First Chicago recently sought to do in a controversial move to impose $3 teller fees on some transactions.

Mr. Hewitt, named banker of the year by Northwestern Financial Review and a frequent speaker on industry issues, is president and chief executive of $39 million-asset Northwoods Bank of Minnesota in Park Rapids. He discussed issues facing community bankers just before the trade group's annual conference this weekend in Duluth, Minn.

Q.: Can community banks effectively compete in the future?

HEWITT: We see so many of our nonbank competitors entering our markets and cherry-picking the better accounts and being able to service those in a very low-cost manner because they don't have bricks and mortar in the community. They don't participate in community support.

We're going to have to be able to get our cost structures down in order to compete with that.

I was in Chicago in May making a presentation, and also on the agenda was a senior vice president of First Chicago talking about teller fees. He explained their whole strategy and ... I think a lot of us started listening and started thinking it may not be that far down the road when we're going to face the same kind of issues.

Customers, even in a small town, are going to have access to all these services people can deliver very cost effectively in niches. Yet we're still expected to provide all the brick-and-mortar aspects of banking, the place where the customer can come in and cash a check.

How are we going to get paid for that? That's a real issue. I don't know a lot of bankers share that view with me yet.

Q.: Can community banks afford the technology necessary to compete?

HEWITT: They're going to have to. They may not individually be able to afford things. That's where I think our association can take a role - looking in the direction of cooperatively doing things and offering things on a multibank basis.

Q.: Some people say banks need to be over $100 million in the future to survive. What's your take?

HEWITT: I think there is a number somewhere ... I'm thinking probably half that. It depends so much on the community and the market. These technologies that can allow us to provide service to our customers may make that number go down rather than go up.

A lot of (people who have moved to Park Rapids) come in and say they hadn't been in their bank in five years. In rural communities, that's a little bit different.

It's just been ingrained in us that our people want this face-to-face contact. They do, but they don't necessarily need that to get cash. You need to reallocate that time to other things. If it goes the other way, it's going to be a pricing issue: Are people willing to pay for personal service?

Q.: Are they?

HEWITT: Yes. I think bankers as a group think our customers are more rate-sensitive and price-sensitive than they really are. I don't think we emphasize the total value of our institutions, our service quality.

Although we need to be competitively priced, that isn't the sole overriding thing that consumers base their decisions on.

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