THE FUTURE OF THE BENDIGO COMMUNITY BANK MODEL
A Conversation with Bendigo Bank CEO Mike Hirst
Mike Hirst was introduced to the community bank model in 2001 when he joined Bendigo to design and implement its wealth strategy. At the time there were only about 25 community banks in the network. Hirst recalls sitting in on executive committee meetings when the model was being discussed and scratching his head. The notion that it would make sense for a bank to share its revenues with a local community and for that community to be empowered to spend those monies as it saw fit was an alien concept for a traditional career banker.
But as he began to engage with the leaders of community banks around the country his perspective shifted. “I began to see that this model was driving engagement and advocacy at the local level and that it was growing Bendigo’s business. And I could see that sharing the revenue with the community was the very thing that was driving that engagement.”
Hirst was named CEO of Bendigo and Adelaide Bank in 2009 and is now leading over 300 community branch banks around the country through a reflective period as together they explore ways to leverage the significant power of their intricately networked knowledge base for the greater good of their communities.
Here Hirst offers his perspective on the model—how it works today and how it might serve that larger purpose in the future.
Turning a Banking Asset into a Community Asset
I think the first thing to say is the model is really one of enablement. Every community has this asset called “banking business” they don’t otherwise harness in any way for the benefit of their community.
What this model is saying is if you can get your arms around that asset and make it a vital tool for the local community through the community bank you can turn it into a revenue stream for the direct benefit of the community.
That said, it is a model only as good as the effort that is put in locally. If local leaders and the community get behind it and can understand how it works—and it is hard to understand because it is totally unique—then it is really successful. Where people expect us to do the work for them it doesn’t work anywhere near as well.
Grant Making as Community Investment
So far on the grant-making side the community bank branches have mostly funded clubs and nonprofits but there is nothing to stop them from supporting other entrepreneurial businesses. It is really up to the community how they want to go about doing that. One of the things that community banks are getting much better at is sitting down with the communities every so often and asking community members, what are the things we want to work on? I think as they progress through their thinking they will start getting to more commercial things. For example some of the medical centers that have received grants are commercial operations as well as providing a community service in the town. So it is not a huge step to go from that kind of grant making to more entrepreneurial grant making. I think the opportunity to participate in that will come along and it will be interesting to see how it evolves.
Using Technology to Support the Community Bank
One of the challenges we face is that as more banking is done on mobile platforms what are the implications for the local branch and local engagement around that? Right now when people are doing important and complex transactions like investing or buying a home they want to sit down in front of someone and see the whites of their eyes. That said, who knows with a whole new generation coming through that is very comfortable with technology whether that will always be the case.
So we have had to think about ways to keep that local engagement. So for example when kids move away to go to university they might want to support their local community cause or maybe their dad still lives in their old home community.
One of the things we have done with our online banking is if you open an account we ask you, do you want to be serviced through a call center or do you want to support your local branch?
If you tick the box for a local community your account gets domiciled in that community even though you never opened the account at that physical branch.
A Maturing Model
I came to Bendigo in 2001 in the early days of the model but by the time I became CEO we had more than 200 community banks. Early on we were adding about 5 or 6 branches a year and at the peak of growth it was 20 or 30 a year. Now it is more like 10 or 12 a year, the growth is leveling off. In the early years the major banks were closing branches and there was no banking in some of these communities, so the motivation was just about returning banking services.
Now we often open in communities where the other banks are already there so the motivation has changed from returning banking services to access funding streams for that community. That is a much harder motivation for the community to grasp. That said, once the first grant funds start going back into the community it is an “aha” moment for customers.
When we look at the growth in early years of a branch there is always a quantum leap in business when the bank starts putting money back into the community.
In addition to a requirement of capital raised, we are now raising the bar in terms of the level of business we will require in order to open a bricks and mortar branch. We will often now open an agency in the community, say in a chemist’s shop, and then that is a test to see if people will bring business across. After all the whole benefit for the community is in the grants and that doesn’t happen unless there is a sufficient level of banking business to support it. Some communities are able to go from an agency to a branch in a couple of months, sometimes it takes longer.
Leveraging the Network of Community Banks
We now have 307 community bank branches and have launched Project Horizon, where we are reviewing our progress and looking at what the future might hold.
The challenge is not so much to look at how the model works in individual communities but to look at what the opportunity might be for the network as a whole.
If you think about all the resources behind the community bank models —2000 directors, 1600 staff, 60,000 shareholders, and a couple hundred thousand customers networked through this system of banking—how can we connect them at the human level and the thinking level to see what the potential power is to deliver things back at the local level?
There is lots of learning that can be shared and connections made, for example, to help government deliver needed services, especially as government has centralized its service delivery and that local connection is missing. Many communities today are feeling they are not being heard and don’t have a mechanism to be able to do that in a meaningful way.
Another broader role the network can play would be introducing local communities to people who can help them work on policy initiatives or to universities that can help them think about the future of their economies and how that future might be achieved in a way that works for them.
We are also looking at creating these kind of connections between our borrowers and our communities, we are at the tip of that iceberg at the moment. What could be possible? For example we have a company that banks with us in South Australia that installs renewable energy systems and they are getting strong on battery storage. We connected them with another customer that is a large property developer to see whether or not we can assist the property developer achieve better triple bottom line outcomes through what they can do in renewable energy. We are now examining opportunities in some of the smaller communities where our community branches are located to see if we can assist them to reduce the power cost by introducing solar with battery storage.
In the beginning Bendigo saw the opportunity with the community bank model to be able to have a presence on the local community level in a way that also offered risk mitigation for the bank. After all, having the community have skin in the game and be responsible for operating expenses enabled Bendigo to expand in a way and at a pace it might not otherwise have been able to.
But it was really also about understanding that we could not operate a successful banking business in a community that was not itself viable and sustainable.
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