By Evan SparksBorn in 1946, Vernon Hill grew up in a banking family. He worked for a bank during his high school summers and as a commercial lender during college at the University of Pennsylvania’s Wharton School. And he had a fairly rare insight about the industry.
“The real value of the bank was low-cost core deposits—a lower cost of funds for a longer period of time,” he says. When he was getting his start in banking, he says, “lending… was where value was created. Deposits were important, but lending was more important.” He flipped that insight on its head. Almost any company can make loans, he observes, but only licensed banks can accept insured deposits. “That’s why the legal and economic value of a bank is in gathering deposits from loyal customers.”
And how, in the early 1970s, could a bank most efficiently gather deposits? Here Hill applied lessons learned as a site scout for McDonald’s and as a Burger King franchisee: offer the most convenient hours at the most convenient locations with the friendliest service around.
Hill began planning for a new kind of bank. Commerce Bank, opened shortly before Hill’s 27th birthday in 1973, provided seven-day-per-week service with hours from 7:30 a.m. to 8 p.m. on weekdays so that customers could bank before or after their jobs. As Commerce Bank grew, other uncommon features included the removal of barriers at the teller line, free coin-counting machines, 24/7 live responses on the customer service line, free checking accounts, next-day check clearing and a welcome mat for pets in the branches, which he called stores. The stores all had a similar look and feel designed by Hill’s wife, Shirley.
Hill’s retail-first approach to banking and hoovering up deposits fueled unparalleled growth for Commerce Bank, which expanded by 2007 to 440 locations across the mid-Atlantic with $50 billion in assets. Over 30 years, Commerce Bank stock provided a 23 percent compounded return. More consequentially, Hill’s ideas reinvented the banking industry’s approach to retail branches. New branch designs at banks of all sizes are more likely to feel open and airy, allowing universal bankers to solve customer problems. Customers got used to banking on their own time and terms, an attitude that online and mobile banking helped to cement. Commerce Bank paved the way for anytime banking.
Facing regulatory scrutiny over his handling of certain business deals, the brusque and combative Hill left Commerce Bank shortly before its acquisition by TD Bank (which held on to Hill’s ideas). He moved to London to repeat the Commerce Bank experience with Metro Bank, which similarly shook up an even more staid British banking sector. Hill has recently returned to the Philly area, where he is currently chairman of Republic Bank. More than just making things more convenient for customers, Hill’s aim is to “surprise and delight” every customer, converting them into fans along the way. “People want to get a thrill out of patronizing your business,” he says, “whether it’s a bank, a retail store or a pet insurance company.”