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USAA Is a Model for the Post-Branch Future

The other morning I was at the counter of the local UPS store notarizing a document when I was shocked by a comment by a woman standing nearby. This nationwide franchise provides post office boxes, packing, shipping, copying and many other individual and business-related services through 4,700 convenient small corner or mini-mall stores. My head snapped as she told the clerk, "I would like to make a deposit." At first I thought she was making a deposit for a purchase or on a bill or perhaps depositing a package of goods for shipping.

Then, after a pause, she added, " … into my USAA account."

The clerk looked at the check, made some entries on the desktop computer and said, "Checking or savings?" He then scanned the customer's USAA card and the check and the transaction was complete.

My eyes glistened and my attention was fully focused on her transaction. I thought, What is going on? After a moment I asked, "You can really take a deposit for a bank account?"

"Yes," the clerk replied, "but only checks and not cash."

I'd always thought taking deposits was part of the definition of a branch, so I wondered how this was being accomplished. I returned to my office to see if I could define the USAA business model and particularly the use of the UPS store for deposit taking. What an innovative step, I thought.

What the Internet told me was even more fascinating. USAA is a financial service company operating a chartered savings bank. Headquartered in San Antonio, it has grown to nearly $100 billion in size. It operates with about $20 billion in capital and returns about 2.5% on assets each year. In addition to checking and savings account, offered free of charge, customers also get free debit card and ATM use. Deposit and bill payment as well as account access are available from a home computer and remotely from an iPhone, Android or BlackBerry device. USAA also provides auto and home financing with insurance purchase options and market primarily to former or current government and service employees. The company functions somewhat like a mutual form of ownership, as under Texas law the insurance subscribers own the capital of the company and the bank.

It has been clear to me that this business model is where banking is headed, but it seems that USAA may have a jump on the competition. Much of what it does is offered by others, but it has found ways to do it successfully without brick-and-mortar. First it used mail and fax in serving customers, then it advanced to the early computer and now it finds itself able to do nearly everything remotely, and with little real estate or redundancy. It is now up to the others to catch up, which I am sure they can and will over the coming years.

It's hard to believe that remote banking though the handheld phone has somehow advanced faster in Malawi, Tanzania and Nigeria than in the U.S. In many of these African countries fewer than 15% of the adults have bank accounts, while over 60% have a handheld phone capable of collecting and moving money. These steps make branches more redundant and could change the role of banks forever.

These concepts are not, however, foreign to the U.S. It is reported that 32.5 million people used their mobile device to access banking information last year, accounting for 13.9% of the 233 million mobile users — an increase of 21% from 2010.

Another report shows that while 52% of banking credit card customers accessed the bank's website once a month from a personal computer, 26% accessed that information via a mobile device. At the same time only 31% of these customers accessed information by visiting a branch. Twenty years ago all of this information was gathered by a personal visit to a branch or over the phone.

Most banks have an interest in the new way of banking, but many tend to protect the old infrastructure. They hold on to the people and costs rather than advancing into the new millennium of technology and utility. After all, the larger banks have billions of dollars invested in a rapidly declining old model of banking. Clearly USAA realizes what the new model can mean for its business.

The future is evident from this simple change in the way people prefer to do business and is amplified by the trends developing around the world. I am sure the big banks and many community banks are moving in this direction, but their commitment to the old model will be increasingly costly.

The question remains how many and how fast consumers will be converted to making a deposit from their mobile phone on a mountaintop or perhaps at a McDonald's drive-up window that was once a bank branch.

Convenient and free account service is now and always will be more attractive to bank customers than services carrying a monthly charge for the privilege of standing in line at a branch. Most of us haven’t heard much about USAA, but we all prefer convenience and free.

Robert H. Smith, the former chairman and chief executive of Security Pacific Corp., is a founder and director of Commerce National Bank in Newport Beach, Calif.

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