- Mr. McGuire: Ben.
- Ben: Mr. McGuire.
- Mr. McGuire: Come with me for a minute, I want to talk to you. I just want to say one word to you.
- Ben: Just one word?
- Mr. McGuire: Yes sir. Are you listening?
- Ben: Yes I am.
- Mr. McGuire: Plastics.
- Ben: Exactly how do you mean?
- Mr. McGuire: There’s a great future in plastics. Think about it. Will you think about it?
Most readers recognize this classic exchange from the 1967 film The Graduate (click here for that scene). The film presents Ben as a recent college graduate who seemingly has all the necessary tools to become a successful adult—captain of the cross country team, the son of affluent parents, head of the debating club, owner of a new Alfa Romeo, etc. Yet, it’s not where Ben came from that created his personal challenge, but rather where he was headed. He was uncertain about his future. Film critics can debate the meaning of Mr. McGuire’s advice to Ben, but one thing for sure is that McGuire’s guidance was wildly off mark. In other words, there was absolutely no chance that “plastics” was going to be any part of an effective future for Ben.
I was immediately reminded of this scene on Saturday night while watching a segment from a show called 190 North— a weekly entertainment news program on the local Chicago ABC affiliate. You know the type of show. The kind with high school style production and clichéd story lines, but just enough cheese to reel you in on an uneventful Saturday night. The segment focused on a new concept called “business cafes” that were reported to be an “edgy new business trend.” A trend that we must explore, but only after briefly setting the context by summarizing the state of the banking industry.
The big money center banking industry is now in a state of flux. Before 2007, banks enjoyed a decades-long expansion of credit in the U.S. and what was essentially a nearly 30-year-long bull market in fixed income, equities, and real estate. During the prior decades, the financial sector doubled as a percentage of GDP. But now, more than five years after the financial crisis began, revenue from lending, trading and advising corporate clients on mergers is very weak, and low interest rates continue to squeeze profits on loans and other investments. Stock prices are shrinking and the public has lost a great deal of trust in the large banks due to their complicity in the financial crisis and bailout with tax-payer funds.
Sure, seven of the ten biggest U.S. banks did beat analysts’ average earnings expectations in the second quarter. But much of that came from cutting costs and dipping into money previously set aside to offset bad loans, rather than from growth in their main businesses, which is what investors want to see. Banks and their already depressed stocks are searching for sustainable revenue to face an uncertain future.
And that’s where the “business cafe” comes in. The idea was to turn a bank branch into a Starbucks. It’s no surprise that this strategy was hatched just prior to the major banks collapsing (I can just picture the meeting where the advertising agency sells this bag of goods to a few helpless executives who were forced to burn year-end marketing budgets at a time when they had marketing budgets). It is, however, remarkable that the concept still lives. Maybe just one sign of a desperate attempt by the industry to reconnect with a despondent public and, at the same time, create a fresh revenue stream serving up shots of espresso and scones.
An employee at one of these creations brought to you by ING Direct explained the benefits of the café like so, “You come into our café, you have a great associate behind you make you a great latte and maybe teach you a little about savings.” Yikes. Does anyone really want an over caffeinated barista to dole out financial advice? This is wrong on so many levels. You really have to see and hear this to believe it (Click here for the 190 North video).
The truth is that I don’t necessarily agree with former Fed Chairman Paul Volcker when he said that the “ATM was the banking industry’s only true financial innovation over the past 25 years.” Even though concepts like the business café might convince me to think otherwise, I find the industry has contributed many innovations including credit & debit card products, online banking, electronic funds transfers among others. At the same time, we don’t even need financial institutions to pump out product like Apple or Procter & Gamble. Banks should stick to their competencies—those that have led to past financial success—and do them with more efficiency and with better care than the next institution. If there’s anything that this Great Recession has taught consumers, investors and every other form of living creature is that opaque, non-transparent and gimmicky products and services are a thing of the past…just where the “business cafe” belongs.