As Big Banks Move Away From Safe Deposit Boxes, Opportunity Opens for Community Banks and Credit Unions
The number of safe deposit boxes has been falling steadily for years, and when big banks closed branches during and after COVID, the number fell even further. However, that doesn’t mean that safe deposit boxes are at the end of their lifecycle. In fact, right now, demand outpaces availability, and this creates a powerful opportunity for community banks and credit unions that still offer this service.
To learn more about the shifts in demand through the years, take a look at the history of safe deposit boxes. Then, keep reading to find out how your bank can leverage the changes to get more business.
A world traveler identifies a problem
Just before the beginning of the Civil War, a man named Francis Jenks came up with the idea of safe deposit boxes. This New Yorker was getting ready to take a trip to Europe, and he was troubled about leaving his valuables behind. Like any successful entrepreneur, he realized that other people were likely to have the same problem, and he decided to solve it.
Where could the rich and famous hide their valuables when they headed out of town? Well, to Jenks, an individualized bank vault seemed like the clear answer. In 1861, he opened a brick building with a steel vault in lower Manhattan. Inside the vault, he put 500 safe deposit boxes.
He also created the security protocol that many banks still use today. He made two keys for each box — one for the renter of the box and one for the company that hosts the box. Then, he put armed guards in front of the boxes. He named the company “The Safe Deposit Company of New York.”
The Civil War causes the demand to soar
The Civil War caused demand for safe deposit boxes to soar. Now, people weren’t just worried about their valuables when they were on the other side of the world. Due to civil unrest, they became worried about their valuables all the time.
The country’s richest people became especially concerned, and they flocked to Jenk’s company. The Safe Deposit Company had Vanderbilts, Geggenheims, and Rossevelts as its customers. The concept was so successful that other people began opening similar businesses around the country.
Banks get involved
Over the years, banks began to adopt safe deposit boxes. It made a lot of sense for banks to offer this service, as they were already holding people’s cash and investments. Additionally, as the demand for safe deposit boxes increased, so too did the demand for extra strong vaults.
In fact, there was even a vault made by the Mosler Safe Company that survived the bomb in Hiroshima. Developing this type of protection was not cheap, and unfortunately, safe deposit boxes were a losing endeavor for most businesses. Relatively inexpensive box rent was not enough to cover real estate costs, and by the early 1900s, analysts were reporting losses in this industry.
Banks were often better poised to take on these losses than businesses that just focused on safe deposit boxes. A bank could justify the service as a loss leader. If someone trusts you with their physical valuables, they’re more likely to trust you with their cash. This was not the case for businesses that only offered this service. By extension, safe deposit boxes became fully the domain of banks throughout the early to mid-1900s.
Entrepreneurs try to set up safe deposit box businesses
In the 1970s, there was more demand than availability for safe deposit boxes — This trend is repairing itself right now 50 years later. In big cities, in particular, there was often a waiting list for safe deposit boxes. To meet the demand, entrepreneurs decided to wade into this industry again.
For instance, the US Safety Deposit Co opened in New York City in 1982. It charged 10x the average bank rate for a box, but in exchange, it offered customers 24/7 access to their boxes as well as the chance to use conference rooms and high-tech equipment like fax machines. Although this particular company is no longer in existence, there are a handful of similar companies around the country.
Home safes and digital assets erode demand.
Over the next few years, home safes and then digital assets eroded the demand for safe deposit boxes. Home fires had also been on the decline for the last few decades, and people began to feel safer storing their valuables at home. At the same time, digital assets began to replace physical assets in a lot of cases. This reduced the need for tangible safe deposit boxes.
The reduced demand continued for years, but in the 2010s and early 2020s, rising commercial real estate prices made this service too expensive for most banks to offer. The number of commercial bank branches peaked in 2008. Then, it slowly fell after that point. From 2017 to 2021, the number of commercial bank crunches dropped by 10%.
The pace of reduction increased during the COVID pandemic, but as indicated above, it was part of a downturn that had been happening for several years. As banks lost square footage, they needed to make compromises, and one of the first things to go was safe deposit boxes.
Availability shrinks faster than demand
Banks have stopped offering safe deposit boxes, but their customers haven’t stopped wanting them. This creates a great opportunity for banks that still offer these services, and typically, that tends to be community banks and credit unions. This is especially true in areas where commercial real estate is not that expensive.
Big banks are increasingly moving to digital apps and online services, but smaller banks are poised to meet the needs of customers who still crave face-to-face interactions. Safe deposit boxes are an important part of that. These banks should leverage this offering to attract new clients.
Securing safe deposit boxes
While safe deposit boxes can be a useful way to attract customers to your financial institution, they still come with risks. To protect your bank and your customers from losses, you need the right strategies, and SENTRY: Safe Deposit Box can help.
With this anti-fraud solution, you can capture and store photo IDS so that you can easily and accurately verify the identity of people trying to access their boxes. When someone signs in to access their box, the solution compares their signature to the signature on file. It immediately alerts you if there is an issue. This improves your security and it reduces the risk of error due to manual verification.
This product also helps you manage contracts and payments for your boxes to safeguard their profitability as much as possible. To learn more, contact us at SQN Banking Systems today. We offer a range of anti-fraud tools and solutions to protect our clients and their customers.