Not-so-small Change

The evolution of banking over the last 20 years

by Jack Tenney, Publisher Business People-Vermont

Well, it's just different, okay?

In the years before Business People-Vermont (formerly Business Digest of Greater Burlington), banks were places to cash in your rolled-up pennies, have savings account interest posted to your passbook, obtain a mortgage, finance your new four-door and maybe start a Christmas Club account. Typically, you had a checking account, and if you were into innovation, you used the drive-in window and had your paycheck deposited directly into your account.

Nowadays, you get your walking-around cash as an add-on to your grocery bill when you use your debit card if you forget to go to the ATM. You pay your bills online, switch your cash around with a mouse click and, in the rare cases where you actually write a check, you "see" it front and back as soon as it clears.

Your home mortgage debt moves more often than you do. It likely started out as a neat four-pager with no whiteouts or erasures, bundled in a ribbon with a hundred other mortgages to be traded like pork bellies (whatever the heck they are) while you just made sure you got your payment to the right place at the right time.

Auto financing is between you and the third dude you see at the car store while you try to convince yourself that you're a shrewd negotiator. If tax deductions are always on your mind was that a Willie Nelson song? you might use your home equity line of credit and take the cash-back offer on the truck. Your car is a truck, isn't it? That's another tax break, isn't it?

Meanwhile the banks have been making their nut with fees rather than interest, not that there's anything wrong with interest. Like there are now more credit cards in existence than air fares to the Big Apple. Well, someone's got to give the merchant an okey-dokey on the charge, give them some cash, gather all the charges by account, bill you and me, add a little interest (or a lot) and collect. Well, the few pennies per transaction pay for more than just the electricity on the mainframe in the back room.

Likewise, payroll taxes and accounting thereof, collecting, forwarding to the feds, et al has been a natural fee generator for banks for a long time. With the passage of the Graham-Leach Act of 1999, banks broadened their briefs to include a host of financial services. Insurance and investment brokerage services are two that stand out. At the same time, of course, traditional brokerage firms began to offer a lot of services: checking accounts, for instance.

The resulting competition, bank-to-bank, bank-to-broker and broker-to-broker, seems to have benefited the bank customer. You can find free checking, checking with interest, both plus investment account with discounted transaction fees. Investment management services, bank-run mutual funds and portfolios are now available at those brick buildings where you used to pick up a roll of dimes for the weekend poker game.

What a country!

Specifically, right here in Vermont, we've experienced a lot of bank mergers, acquisitions and realignments. In the last 20 years, Burlington Savings Bank became Bank of Vermont, which was purchased by Bank of Boston, which sold to KeyBank. Vermont Federal sold to Vermont National, which sold to Chittenden, which spun some of the Vermont National branches to Charter One, which had taken over Marble Bank from Albank. And then the Howard, Franklin-Lamoille, et al sold to a Portland, Maine-based bank that really liked the name of the holding company, BankNorth, so they bought it, too, and changed the name of all their banks. Merchants, other than moving its headquarters out of downtown to South Burlington, has remained a rock in the financial stream. Credit unions have flourished and country banks have steadily progressed to the point that they, too, are putting down granite and brick footprints in Greater Burlington.

Fundamentally, banks and bankers are still doing the things that made them successful 20, 50 and 100 years ago. They attract customers and build relationships. They feature local decision-making while using the tools, including sophisticated technology, to provide secure financial services. While deposits and loans are no longer the sole sources of a bank's financial position, user-fees still depend on users. Therefore, banks continue to strive to be user-friendly even as they get a little prickly when you bring in your pennies.

Originally published in September 2004 Business People-Vermont